by Scott Pape - March 31st 2007
The pay and adulation are great but sports stars only have a brief playing career and must learn to make their money last with sound investments.
Q: How can you pick a West Coast Eagles player?
A: He’s the one bending down to sniff the boundary line.
So goes one of the many jokes doing the rounds after the Eagles’ latest woes surfaced.
It’s hardly surprising that the behaviour of sporting stars is big news these days.
With increased scrutiny of players and greater media interest in their activities, on and off the field, sporting stars have taken their place alongside actors, models and rock musicians as the pre-eminent celebrities of our times.
Players have to learn not just how to run fast, jump high, or to shoot, bat or throw straight, they have to live up to the increasingly high standards by which they are judged.
Learning to be a good role model can be a lot tougher than honing their athleticism – and that’s just part of the story.
Educating players to be good citizens protects them from the sort of lapses that we’ve seen in Perth recently.
Eye on the (future) prize
Yet there’s another aspect of their lives that warrants the same kind of support – managing their finances.
Like it or not, most sporting stars are out of the game by the time they hit 30 or soon afterwards.
When they are thrust into the sporting spotlight as teenagers they can quickly be earning the kind of cash that most of us only dream of.
So when I was offered an opportunity to deliver a financial literacy presentation to the Melbourne Storm last week, I accepted without hesitation.
Talk about a tough crowd.
The players were required to attend, and many no doubt had preconceived notions that they’d be subjected to a snooze-inducing session on a subject they had little interest in.
The body language on many of the players did little to appease my apprehension. Most had folded arms and were speaking among themselves.
Well, until the speech kicked off anyhow. To grab their attention I designed a presentation that acted out attending my 10-year high school reunion complete with video clips from an over-the-top camp classmate (Phil, who now refers to himself as Philippe), and girls who never showed much interest in me at the time, but now wanted my advice because of the debt they’d racked up since graduation.
Score one for planning ahead
The piece de resistance, apart from having two Melbourne Storm boys dressed as Farnesy and Barnesy and miming songs, was when I showed them the power of compound interest with what appeared to be $1 million in cash.
The basic theme of my presentation to the players is the same for all of us – no one cares more about your money than you. Using an analogy that the players could relate to, I suggested that you could have the best coach in the world, but unless you understand and apply the fundamentals (of finance or football) you’ll never become a champion.
Luckily, learning these rules and putting them into action is relatively simple.
In effect these young players have received a well-deserved windfall, with most earning six figures a year – and some earn mega-money.
I’ve come into contact with a few professional sports people and I’ve noticed a common investment choice with players is property and pubs.
While sportsmen owning hotels is a tradition that goes back a long way, and many have made good money from these ventures, it’s a big jump from liking a drink to owning and operating a licensed venue.
For most of these players the money they earn in their all-too-short playing career should be viewed as a nest egg to fund their future, rather than using it to punt on a pub.
The real stats
Statistics tell us that most small businesses go broke within five years.
Nevertheless, investing a large amount of their player payments in property is a wealth strategy that can be quite lucrative over the long term.
The rationale behind this is for players to go into heaps of debt to finance a property portfolio that is subsidised by their high incomes and the tax benefits associated with negative gearing.
Although building long-term assets is the aim of the game for any wealth accumulation plan, I counselled the players to spend some time looking at the worst-case scenario. What happens to their debt-servicing ability if they incur a major injury and can no longer play, or their form drops and they are pushed into retirement?
This applies equally to high-income professional athletes as it does with high-income professionals.
Another strategy would be to borrow to invest (negative gear) into the share market, which could also include an investment in listed property trusts (the skyscrapers that dot the city skyline).
Should the worst-case scenario suddenly become reality, shares can be sold and margin loans repaid within four days, rather than the three or four months it can take to sell a property.
Hit the ground running
AS I finished my presentation and headed out to the player car park, I noticed that, at first glance at least, these guys appeared to be on the right track – there wasn’t a BMW to be seen.
Perhaps they had taken a look at their AFL brothers, in particular West Coast’s $800,000-a-year fallen star Ben Cousins, and understood that landing a huge contract is not always synonymous with having a successful life.
Regardless, these young guys have achieved something arguably as valuable as last year’s premiership – the ability to spend every waking hour devoted to their labour of love, while getting well compensated for doing so.
With a little bit of financial training, I’m confident they will continue kicking goals long after the final siren sounds.
Tread your own path!
Photo: www.flickr.com/photos/gmacorig/197398590/
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