Professional athletes today make an abundant amount of money and: 1) require lots of attention where their business matters are concerned and 2) have a wealth of opportunities available to them to plan for their future. Years ago, agents primarily offered contract negotiation services to professional athletes. Now, with pro athletes making so much money, their needs and lifestyles have changed and, thus, need more services.
What kind of services?
Most professional athletes, whether superstar status or average player, should be able to get some sort of endorsement, appearance, autograph session, etc. As an agent, your job is to market your client as best as possible so that your client can gain the maximum exposure and financial gain, if your client so desires. Generally, agent commission fees for marketing opportunities are between 20%-30% of the total revenue generated by the client per deal. If you cannot secure a marketing deal for your client, contact a sports marketing company. They are experts in this field, but you will most likely have to share your commission fee with the marketing company.
In addition to marketing services, professional athletes may need financial services. Since pro athletes make a lot of money in a short timeframe, it is very important that they invest their money wisely, whether it’s stocks, real estate, etc. If you, as an agent, do not offer financial services, contact a certified financial planner or investment management firm and discuss with your client what he/she wants to do.
You get the picture now? Basically, as an agent, you have to be creative and imaginative. There are many ways you can assist your client(s) in securing services. You can offer banking, mortgage, insurance, bill-paying, accounting/tax, and many other services to your client(s) through outside firms. You can work hand-in-hand with the firm to oversee everything. Ultimately, your client(s) will have the final say!
The Sports Agent as Business Manager: The Agent’s Role in Securing an Athlete’s Finances Beyond the Player Contract
Today’s athlete needs representation in more areas than just negotiation of playing contracts and endorsement agreements. An increasing number of athletes now also look to their agents for legal services such as tax and estate planning, business counseling, and real estate representation. Just as any successful team needs players who are versatile in many areas of the game, an athlete needs an agent who can handle the various issues that confront him/her on a daily basis.
However, today we must also have a great concern about the financial advice athletes receive. Young, highly-compensated, and sometimes star-struck professional athletes are particularly susceptible to becoming victims of unscrupulous or unqualified brokers or investment advisors. While any investor can become an unwitting target for fraud, we have found, in particular, athletes share common tendencies that place them at special risk.
(1) Professional athletes typically have high incomes and substantial assets at a relatively young age, and they frequently lack sophistication with regard to finances and investing. Many athletes mistakenly believe they lack the ability to make sound investment decisions and thus defer entirely to investment advisors whose recommendations they do not question.
(2) Many athletes feel they are “too busy” to be personally involved in researching investment decisions and monitoring the performance of their investments. Indeed, many do not even review their monthly account statements, or only review the total balances in the account, rather than the specific transactions that occurred during that month. While the athlete typically wants his agent to “show him the money,” it is amazing how many do not require their financial advisors to show them the money.
(3) Many young athletes tend to be far too trusting of those who appear to have financial expertise. These individuals often are brought into an athlete’s inner circle early on in the player’s career, and sometimes receive an unwarranted level of trust that is difficult to displace.
To the unscrupulous, all of these factors present opportunities for abuse.
Financial Watchdogs Needed. In general, a system of checks and balances must be put in place concerning a player’s investments early on in the relationship between an agent and an athlete client. As agent to an athlete, you should be sure a responsible individual is monitoring your client’s financial affairs.
Discuss potential investments with the player before they are made and make sure they fit the client’s investment profile. Review the performance of the investments down the road and routinely check the amount and nature of expenditures from the client’s account. Keep a particular eye out for acts such as “churning,” which can unnecessarily drive up a stockbroker’s commissions.
Finally, encourage your client to take an active role in this important process.
We all have heard the tragic stories of players who have lost everything, or who have had to prolong their careers just to earn extra money, due to bad investments or even outright theft. In many of these cases, a simple system of checks and balances might have protected the client from such losses. When losses do occur, the athlete’s agent should be prepared to take appropriate action to try to recover them.
Let us offer an example of what can happen if no such checks and balances are put in place by explaining the situation of one of our current clients.
In 1988, when the player landed a modest National Football League playing contract, he recognized his career could be cut short at any time by injury. Therefore, he wanted to invest his money safely to provide a “nest egg” for his retirement from football. On a recommendation from his agent, the player-who had no experience with investing-sought advice from someone at a major brokerage firm.
Initially, the player was quite satisfied with the broker’s investment advice. However, the broker subsequently-after moving to another major brokerage firm-pushed the player to invest in four highly risky start-up ventures. Unknown to the player was the fact these so-called business opportunities either were nonexistent or primarily owned by the broker’s friends. At one point, the player was tricked into writing tens of thousands of dollars in checks payable directly to the broker, a practice strictly prohibited in the brokerage industry.
None of the investment decisions were discussed with the player’s agent, and no one monitored the player’s account statements, which showed a substantial diminution in the value of his investment account. Since no one was checking the player’s statements, the broker’s wrongful conduct continued unfettered, and roughly half of the player’s money went unaccounted for.
When the player finally discovered the problem, he attempted to contact the broker. Months of telephone calls went unreturned, which finally led the player to contact the broker’s supervisor. After being confronted by his supervisor, the broker disappeared and has not been seen since.
A subsequent arbitration proceeding against the brokerage house, conducted by a law firm, resulted in an award to the player of more than $300,000, compensating him for the money “stolen” by the former financial advisor.
While the firm was successful in pursuing that claim, it is important to note most brokerage firms vigorously defend the arbitration claims. Accordingly, it is better to avoid problems in the first place rather than to seek to recover damages through proceedings after the fact.
Some Suggestions. As their counselors, we should encourage our athlete clients to seek appropriate legal and financial advice before they enter into any kind of business transaction. The following are a few important points to remember:
(1) Communication is the key. Impress upon your client the importance of discussing with you any investment before it is made.
(2) Make sure someone monitors the performance of any financial advisor or, for that matter, any individual-who provides professional services for your client. Insist on having the financial investor/advisor forward copies of your client’s monthly statements directly to you for review.
(3) Review the financial statements and discuss any account activity with your client. Make sure your client understands, is aware of, and has agreed to the activity.
(4) Counsel clients to create a sufficient core of monies to provide long-term security, prior to investing in more speculative ventures. Remind your client that high yield also may mean high risks and major losses.
As we all know, the career of a professional athlete may last only a few years. As a result, it is vital to protect the money the athlete earns during that period of time, particularly since many athletes do not have other financial or business opportunities to fall back on once their careers are over. It is critical to ensure that whatever money the client earns are protected from unscrupulous individuals and bad business deals. While there is no uniform way to protect every athlete, it is incumbent upon the agent to determine what protections work best for each client.