Key takeaways

  • As an athlete or entertainer, you have complex financial needs that require a comprehensive wealth management strategy.

  • Because you may have fewer peak-earning years than most individuals, budgeting and saving are essential to making your assets last.

  • Working with experienced, licensed professionals can help ensure that you receive objective advice that puts your best interests first.

At first glance, professional athletes and entertainers who have found success seem to have the dream financial scenario. Even when you work in a potentially high-paying career, however, reaching your goals off the field or away from the soundstage requires a solid wealth management strategy.

The fact is, your financial picture as an athlete or performer is a lot more complex than those of most professionals. To make your wealth last an entire lifetime, understanding how to budget, invest wisely and prepare for the unexpected are essential. By taking the time to learn basic financial skills — and getting help from experts you can trust — you’ll be able to make your standard of living sustainable.

 

Building wealth that lasts

Proper planning is the foundation for long-term financial success, whatever your profession and however much you make. Too often, however, those in the limelight don’t see the big picture when making money-related decisions.

According to Sports Illustrated, 78% of former NFL players go bankrupt or face financial strain within two years of retirement. And roughly 60% of NBA players are broke within five years of leaving the league.1 Those risks are just as real for those in the entertainment industry, where even the most successful artists can’t always predict what their future income will be.

In some respects, financial planning is even more challenging when you work in performance-based careers, because you have fewer peak-earning years than most professionals. Unforeseen circumstances like an injury can shorten your career even further.

To make your money last, you have to balance your spending today with meeting your needs years down the road.

“The amount of money an athlete or entertainer will make will most likely be front loaded when they are younger, when they are not even thinking about retirement, which is a very long time away,” says Adrienne DiGiorgio, senior wealth planner with U.S. Bank Private Wealth Management.

A financial plan is important for athletes and entertainers due to limited peak earning years, high career-related costs, potentially supporting friends and family, and complex tax requirements.

Managing unique financial planning challenges

While a career in sports or entertainment can be incredibly lucrative for some professionals, it also comes with unique financial pressures. Understanding how to navigate those issues can help ensure you’re on solid ground well into the future.

Creating realistic expectations

Signing a big contract or record deal can be an exhilarating experience. But before getting too swept away by the size of your paycheck, you’ll want to be clear-eyed about how much of it will quickly be swallowed up by a variety of expenses.

“Athletes have to pay trainers, agents, attorneys and accountants. That all eats into what you’re earning,” DiGiorgio says. Musicians face a similar reality, paying out for everything from manager and crew salaries to recording studio fees.

Often, those career-related costs are only the beginning. The more financially successful you are, the more likely you are to have friends and family looking for your support.

April Wade, Private Wealth Advisor with U.S. Bank Private Wealth Management, says she recommends that her clients set up a separate account, essentially creating an allowance for helping loved ones.

“If you’re not consistent, you have no idea how much you’re actually giving,” she says.

Learning how to budget large sums of money

When you get your first big payday, it’s only natural to indulge a bit. But it’s also important to plan ahead and think about how long your earnings may need to last once your career has ended. It could be as long as several decades.

While agents often advise clients on big-ticket purchases like a house or a new car, it’s often day-to-day spending habits that can get athletes into financial trouble, according to Wade. “If you don’t have some guardrails,” she says, “that money can go really fast.”

“If you don’t have some guardrails, the money can go really fast.”

April Wade, Private Wealth Advisor with U.S. Bank Private Wealth Management

A financial professional can help you develop a budget that’s sustainable and can carry you through retirement. DiGiorgio says she models out and compares a diverse range income and savings scenarios to show her clients what their future assets could look like under various conditions.

Often, she says, that information drives home just how important it is to think long-term about your spending. “We can show you ways to be secure in your future, while still having ‘play’ money that you can enjoy today,” she says.

Saving for future needs

Even a top athlete may only play for 10 to 15 seasons. Entertainers typically have longer careers but have earnings that are less consistent.

The upshot: You may need to allocate a larger percentage of your income to retirement savings than most individuals. A financial professional can help you estimate what you’ll need to put away based on your projected retirement date and post-career expenses.

Some athletes have access to league-sponsored retirement accounts that can make it easier to set aside money for the future. However, entertainers usually don’t have those options, which requires them to pay even more attention to their long-term savings.

Because your situation can change significantly over time, consider meeting with your financial advisor regularly to make sure you’re saving adequately.

“You will want to revisit income, spending, retirement contributions and other forms of savings at least annually, to make sure you’re on track to achieve your long-term financial goals,” says DiGiorgio.

Paying the “jock tax”

The jock tax is an income tax that requires entertainers, athletes and other people associated with sports teams (such as trainers, coaches and doctors) to pay tax on money they earn outside their home states. For example, if you’re a resident in California but play a semifinal game in Illinois, Illinois would levy income tax on the money you earned during that game. All but five states levy this tax.

There’s no set jock tax percentage, so the amount you’ll have to pay depends on your base and bonus income, plus other factors such as how many games or performances you had in a particular state or city, and the tax rates in those states and cities.

This means that professional athletes and entertainers may have to file several state income tax returns for a single year.

Other complex tax requirements for athlete wealth management

Tax requirements can be much more complicated for athletes and entertainers than for others. Besides the jock tax, you may encounter tax-related issues including:

  • Choosing where to live. When you receive base pay or a signing bonus, where you set up your main residence can have huge tax consequences. Some athletes and entertainers choose to establish their domicile in a state with no income tax to reduce what they owe.
  • Preparing for estate taxes. You may leave behind millions of dollars in assets to your family. Depending on the value of your estate, there may be federal estate tax due that can be as high as 40% on a portion of your net worth. An estate planning professional can recommend strategies that make it easier for your loved ones to pay the tax, including life insurance trusts, without having to liquidate valuable assets. There are also ways to reduce the size of your estate while living to benefit your family in the future.

Creating a strategy to give back

As a successful athlete or entertainer, you develop a deep connection with your fan base. You may decide that you want to use some of your earnings to give back to the community that has supported you.

There are a lot of ways you can pursue your philanthropic endeavors, whether it’s contributing to a donor-advised fund, creating a charitable trust or establishing a private foundation. It’s important to talk with a professional you trust about the implications of your giving strategy. Your financial advisor can also help you screen charities to make sure your money is going to a reputable, tax-exempt organization.

 

Getting the expert financial planning guidance you need

When you reach a certain level of success, your financial situation can feel overwhelming. Just as a successful company will hire a team of experts to manage their various needs — whether it’s investments, taxes, insurance or banking — you also need professionals who can guide you in these complicated areas.

You may be inclined to fill these financial roles with family members or friends as a way of showing your appreciation for their support. However, delegating that responsibility to people without the appropriate expertise often leads to self-dealing, personal bias in decision-making and improper reporting.

By hiring professionals with proper credentials, you’ll receive impartial financial advice you can trust. It’s worthwhile finding a financial planning team with experience in everything from financial planning and banking to trust services and philanthropy. They can help you put together a plan that encompasses everything from your peak earning years to a fulfilling and comfortable retirement.

“We want you to feel like you have a concierge for the financial side of your life,” says Wade.

Learn about working with a team of wealth specialists at U.S. Bank Wealth Management.

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Disclosures

  1. How (and Why) Athletes Go Broke.” Sports Illustrated, March 23, 2009.

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