By Chris Taylor
NEW YORK (Reuters) - You could hardly design a worse scenario for smart money management than being a rookie in the National Football League. Young men in their early 20s, many from low-income backgrounds, are showered suddenly with millions of dollars, alongside teammates with millions of their own.
Meanwhile they are surrounded by people who have been preparing for this potential payday for years - childhood friends, extended family, shady advisers.
It's no wonder, according to Sports Illustrated, that 78 percent of NFL players go bankrupt or experience severe financial stress within two years of retirement. For young players, the football field is one big financial minefield.
Brooks Bollinger remembers it well. The 38-year-old former quarterback was a draft pick of the New York Jets before going on to play for the Minnesota Vikings and the Dallas Cowboys.
“It’s a situation you have never been in before, and that nobody around you has ever been in,” said Bollinger. “Everything moves so fast, and your world changes overnight.”
Bollinger’s job now: Private wealth adviser with NorthRock Partners in Minneapolis, where he helps professional athletes in the NHL, NBA and NFL build financially secure lives beyond football.
Those lessons of how to deal with a windfall are applicable far beyond the football field.
In fact, you may one day deal with such a scenario yourself, whether it is an inheritance, or a lump-sum buyout from your job, or a legal settlement, or a lottery win.
So, as the season kicks off and players begin cashing in these big checks – the top pick in the draft, Baker Mayfield of the Cleveland Browns, recently signed on for four years at $32.68 million – here are a few money tips on dealing with windfalls.
CURB YOUR IMPULSES
If you have spent your whole life on a modest budget, rein in your natural human instinct, which is to spend, spend, spend.
“Athletes think they have to go out and buy a house, and a car, and take on all these other expenses right away. But they don’t have to do any of that,” said Lauryn Williams, a former Olympian who is now a financial planner in Dallas at her firm Worth Winning.
Instead, work on the basics: Get an emergency fund together, because things could go wrong at any moment. Set up your retirement accounts – the NFL, by the way, actually has a pretty good one. And the default place to put your money should not be your cousin’s bar or your friend’s laundromat; it should be a low-fee index fund that tracks the stock market.
Next, learn from the mistakes of others before you. Several NFL greats have sued former financial advisers: Cowboys legend Dez Bryant sued his for fraud, breach of fiduciary duty and gross negligence. Former running back Clinton Portis earned $43 million over nine years, and yet because of financial mismanagement had to file for bankruptcy. Indeed, he told Sports Illustrated in a 2017 interview that he at one point mulled killing his advisers (he changed his mind).
Even Lauryn Williams, a money professional herself, was taken for a ride. She was charged $10,000 a year by a financial adviser to pay her bills, even though these days you can arrange automatic bill payments for free. Another planner put some of her money in Bear Stearns, and then did not alert her when the company lost nearly all of its value during the financial crisis.
The NFL players association, for its part, offers a database of financial advisers who have clean records and have the certified financial planner or certified financial analyst designations, but even that is no guarantee of positive results.
To be certain that your adviser has no potential conflicts, such as getting fat commissions to lure you into certain investments, consider a “fee-only” planner – like those in a database available at NAPFA.org. They get paid to offer advice, but do not get additional fees or an ongoing slice of your portfolio.
Another important tip: Do not think you have to spend like a Kardashian just because more money is coming in. If you were living like a normal person before, live like a normal person now, and just bank the rest.
If possible, do not even touch your principal. That is the money strategy of New England Patriots legend Rob Gronkowski, affectionately known as Gronk. He lives off cash from side deals like endorsements, but has not spent a penny of his actual salary, according to his 2015 memoir, "It's Good to be Gronk." (His last contract? Six years, $54 million.)
But such money smarts are the exception, not the rule. Said Bollinger: "Boy, I wish I knew then what I know now."
(The writer is a Reuters contributor. The opinions expressed are his own.)