Professional athletes spend a fantastic amount of money. Most spend too much, as our breakdown of a $5 million per year contract showed. But life doesn’t have to cost so much. While the pros have expenses that don’t apply to normal citizens—extra game tickets, specialized food requirements, hefty union dues—many of the extraneous costs can be limited or entirely eliminated with a bit of forethought and planning.
We asked two experts to help demonstrate how and where an athlete could save. Christopher Gandy is a professional basketball player-turned-Mass Mutual district sales manager. Daniel Sillman co-founded Compass Management, a full-service business management firm that currently works with 18 pros including DeSean Jackson, Brandon Graham, and Jimmy Smith.
They each noted that information is power. Gandy works with his clients to determine a number they want to reach (just like those ING ads), and he makes sure they keep the figure in mind. He also constantly informs players of their financial situation. “We send them updated information every week in a text message or another form,” he says. “They know exactly how much they have, and they know exactly what they can do.”
While Gandy encourages his clients to put away at least 10% of their income and save 50% of all bonuses, Compass goes further. The company aims to help its athletes put away between $5 million and $10 million, and its advisors base their projections only on money guaranteed in an athlete’s first contract. Since the average length of service in the NFL and NBA is 3.3 years and 4.1 years, respectively, the initial contract frequently provides the only cash a pro will receive. “If you hit your incentives in your first contract or make it to your second contract, then quality of life only increases,” Sillman says. “It’s moving up the ladder one step at a time and being patient.”
He shared a spreadsheet with the breakdown of an unnamed client who makes $5 million per year. The numbers below, which are rounded in a few cases but provide a good guideline, provide a stark contrast to the free-spending athlete profiled last week who chalks up between $2 million and $3 million in expenses. Sillman’s clients only spend around $550,000 a year, while saving more than $2 million every season.
A few figures jump out. First, $550,000, while significantly lower than what a frivolous athlete spends, is still a remarkable amount of money for one year. Subtract the $325,000 fee for agents and managers—a typical athlete spends between $500,000 and $650,000 a year on agent and management fees alone—and the cost-aware pro finds himself spending almost $250,000 year on housing, lifestyle, and other miscellaneous expenses. Even the cheapest athletes spend like members of the 1%.
That said, lifestyle costs are dramatically lower in this case than in last week’s example. Instead of spending $100,000 on jewelry, $200,000 on clothes, and other “needs,” Sillman helps his clients focus on true necessities and live well within their means: a clothing budget of $7,500 a year, $9,000 for gifts, $27,000 to help out family members, and $9,000 for personal items are some of the lines in the budget. It’s hardly a pauper’s lifestyle, but the athletes keep well within, even below, their means. There is also the possibility of scoring swag or free. “We’ll help them wear watches at a press conference, then it’s free. Or promote a Porsche in a radio interview, then it’s free,” Sillman says. “We teach them how to leverage their brands to get everything they want while minimizing their liabilities.”
Housing, rental properties during the season, interior decoration, and cars drop from more than $500,000 to less than a $100,000. There is no need to own a $2,000,000 house and sink hundreds of thousands of dollars into furnishing it, especially in a profession as transient at sports. The $3,000 per month allotted to a rental property will land a nice place anywhere in the country. The pad might not be palatial, but athletes, who are constantly on the road, at the gym, or at practice, do not spend much time at home anyway. The time to live in a comfortable mansion comes when he retires with $6 million in the bank.
Developing a plan for success is one issue. Making it happen is another. “The best strategy is to save money before they ever get their check. Money they don’t see is money they don’t spend,” Gandy says. The athletes need to be mature enough to refrain from frivolous spending, and they have to be willing to say no to the countless people who will ask them for money. It is not an easy task, especially in a professional atmosphere where massive amounts of money are constantly flying around, but the benefit is obvious.
The result: More than $2 million invested per season in safe, reliable funds. Over the course of a three-year contract, an athlete can sock away $6 million or more, which is enough to live comfortably for the rest of their life on the interest alone. He will miss out on some of the more outlandish aspects of being a professional athlete, but the long-term security is worth the short-term pain. Plus, they still lead excellent lives.
“They go to all the team dinners. They go to all the team events. And in no way are any of my clients ostracized for their financial responsibility and accountability,” Sillman says. “In fact, Brandon Graham was invited to the owner of the team’s house because he was impressed with how well set up he was. Wouldn’t you rather go to the billionaire’s house than your teammate’s?”
Source: GQ