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How NFL Rookies Can Avoid A Financial Sack

New York Giants player performing a drill at training camp
New York Giants training camp, August 2016. Photo by Tom Hannigan.

The NFL draft, which began yesterday and will continue into the weekend, brings the potential of major life changes for players, especially rookies. But for many of them, the promise of their first payday as a professional athlete can turn into a financial trap.

For sports fans, the news of a professional athlete going broke can often seem baffling. How can athletes who earn millions find themselves in serious financial trouble? Unfortunately, the combination of insufficient financial education, societal pressure to overspend and inexperience will do plenty to undermine many players, and rookies are arguably the most vulnerable to all three.

The lucky ones often escape because they have access to someone who can give them good advice. Consider Eli Apple, who was drafted by the New York Giants in 2016. His mother, Annie Apple, is a writer and producer (and, arguably, “the best sports mom in the game”) who came to national attention when she wrote frankly for Sports Illustrated about her son’s draft experience. Her essay did not shy away from the emotional or financial aspects of the event, nor did she omit some parental advice she offered her son.

As he prepared for the NFL draft last year, Eli was offered high-end watches and diamonds to wear to the event. His mother told him, “Dude, you’re an unemployed college dropout. You will not be on TV with a Rolex.”

It’s simple, straight-to-the-point, financially responsible advice that other parents in the same situation should also give to their sons. In some cases, they probably are. Although talking about her son’s experience at the draft (along with her popular Twitter account) made Annie Apple famous, she boasted a long and successful professional career before that point, which meant that she had the knowledge, as well as the intention, to keep her son financially grounded.

As my colleague Paul Jacobs recently wrote, young professional athletes are not alone in often having little opportunity to learn basic financial concepts. And since many of their parents have not managed such large sums of money either, there is not always an Annie Apple to step in with good advice. Unfortunately, outsize compensation means that mistakes can have much bigger consequences for professional athletes than for young adults working in other fields.

The NFL does try to offer some help through its Rookie Transition Program, which recently replaced its Rookie Symposium. Each team hosts an onboarding session for a few days in late June, covering a variety of topics including financial education. However, by then young players may have already made some key financial mistakes.

Players projected to go high in the first round of the draft may like their prospects, but they won’t know exactly how much they will be paid until a team selects them. While offers of Rolexes and the congratulations of those around them may push prospective draftees toward living large even before the draft, they should never spend money that they haven’t yet earned. They may not be selected until later in the round than they expected, or they may fall into a different round of the draft altogether, which will heavily impact their compensation.

More importantly, the way NFL payment schedules work can result in newly minted millionaires finding themselves in financial trouble before making it through their rookie season. Players do not receive any of their base salary until the first week of the regular season. From then on, they collect their salary weekly over the 17-week season. So players who receive a lump-sum signing bonus must budget that money to avoid going into debt before they start drawing their salaries in September.

The need to budget does not end once players start receiving their weekly salary. In fact, because of the way the NFL compensates players, their financial lives effectively become one big budgeting exercise. Nothing except the signing bonus is guaranteed unless an agent managed to negotiate otherwise, so that bonus will need to last until the player can start earning additional income. And it is very typical for a player’s compensation to vary from year to year, sometimes by large amounts.

Rookie players arrive at the big leagues with pent-up demand to treat themselves and their loved ones. Buying a parent a new house or helping a younger sibling cover college costs is a generous impulse, one that no one would criticize on its face.

However, many rookie players also fail to realize that a multimillion-dollar signing bonus does not represent the number they can expect to appear in their bank account. Taxes and fees due to agents and managers will take a large bite out of that total. Depending on the state and city in which the player will work, taxes alone can represent as much as half their earnings. Agents’ fees typically run around 3 percent, though they can reach as much as 5 percent in some cases; any fees that may be paid to personal and business managers will also reduce the total. This truth comes as a nasty shock to many players, especially if they ran out to spend a large portion of their bonus in advance on houses, cars and gifts for loved ones.

I have written previously about the importance of making a financial plan before spending any of a large lump sum. Given the higher risk of accidental injury for athletes, especially in the NFL, it is even more critical not to rush into spending or choose advisers hastily, even after players have the money in hand.

Lots of “sports moms” (and dads) want the best for their kids, financially as well as in other ways. While they may not have experience dealing with large lump sums or compensation packages like the NFL’s, they can still offer sound financial advice as their sons head into the draft:

Get help from a trustworthy pro. Seek the assistance of a Certified Financial Planner™ before spending your bonus, either before or after it arrives in your bank account. The NFL Players Association Financial Registration Program requires advisers to demonstrate a certain amount of experience. It also conducts background checks on participating advisers for any civil, criminal or regulatory history related to fraud. You are not required to work with the first adviser that your agent recommends to you. In fact, you should ask for more than one recommendation and interview each of those advisers. Select the one that you feel you will be most comfortable working with; even two equally smart and ethical advisers may offer very different styles, and you will want to hire an adviser you fully trust and who puts you at ease. (Disclosure: My colleague Eric Meermann and I are registered financial advisers in this program.)

Invest in your own finances. You should neither expect nor ask your financial adviser to handle all of your financial affairs without your knowledge or input. Make sure that you take the time to review your financial statements regularly and to ask questions about any transactions that seem out of place and about investments that are held in your account. A good adviser will be happy to take the time to answer all of your questions and to explain his or her planning recommendations in a way that is easy to understand, without resorting to technical jargon. However, even the best financial professionals are not mind-readers. While they will try to do everything they can to help you, they can only act on information you provide them. Communication and education are key.

Pay yourself first. Although it may seem like a small amount, make the maximum contribution – $18,000 for 2017 – to the NFL Player Second Career Savings Plan (401(k)), and do so each year that you’re in the league. This will get you into the habit of saving, and after you have two credited seasons under your belt, your team will begin matching your contribution with $2 for every $1 you contribute, capped at $26,000 annually. Never leave free money on the table, and take advantage of the opportunity to invest for long-term, tax-deferred growth.

Always consider your exit. Rookies should, of course, focus on playing football. But it is never too early to create a plan for life after your playing days end. If you enter the draft before earning all of the credits necessary to obtain your college degree, you should plan to go back to school during your offseasons to finish while you’re still playing. For a few weeks each summer, consider getting an internship in the career you plan to pursue off the field. The NFLPA offers assistance with both of these endeavors, so make use of all that the association has to offer. Professional athletes often use the expression “Stay ready, so that you don’t have to get ready” as it pertains to working out during the offseason in order to be prepared for the season ahead. The same applies to preparing for the next stage of life, so that you’re ready to hit the ground running in your next career after you leave the field for good. Not only will preparation ease your transition, but it will help ensure that you maintain financial stability after your football career ends.

Landing a generous NFL contract is something to celebrate, and rookies should enjoy their moment in the spotlight. But once the draft is over, taking the time to apply time-tested financial advice can head off major challenges before they arise in the years ahead.

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