As a professional sportsperson you have probably long realised that your financial profile and needs differ considerably from that of people doing ‘normal’ jobs. Therefore it is quite likely that you struggle to find value in ‘general’ financial advice since most of the things that are recommended are simply not applicable to you.
The purpose of this article is to address this problem by offering you a resource that was written
specifically with you, the professional athlete, in mind. We trust that you will find the information
beneficial and that it will be a catalyst to help you make the decisions necessary to secure your long
term financial future. We will begin by discussing some of the typical financial issues faced by athletes. This will be followed by some practical suggestions on how you can make your money work for you, now and
when your playing career is over.

FINANCIAL CHALLENGES FACED BY PROFESSIONAL ATHLETES

It is very hard (and somewhat dangerous) to generalise when it comes to personal finances. We
are, however, quite certain that you will see at least something of your own financial profile in the
following description:

Atypical Earning Curves

Most people will work for 35 – 40 years and will reach their peak earning potential five years before retirement. As a professional athlete you will perhaps also be working for 35 plus years but your peak playing career will almost certainly not last that long! In fact, if you are like the majority of athletes, your playing career will last 7 -12 years. This means that it is very likely that you will have your peak earning years long before you hit forty! This fact will obviously cause your lifetime earnings curve to be weighted very much to the front end. Elite professional athletes will, on average, earn 70 – 90% of their lifetime earnings before they hit 35. Getting your life earnings
‘up front’ in this way can obviously be a very exhilarating experience but is also brings with it the responsibility to ensure that your money does indeed last a lifetime.

Seasonal Earning Patterns

Many sportspeople are only paid while the season is actually running. They are therefore left with relatively high levels of income during part of the year and almost nothing during the off-season. Unfortunately, living expenses do not follow the same seasonal patterns! Therefore, effective budgeting is arguably even more important for athletes than for the general population.

Extreme Mobility

Many athletes change teams, cities and even countries on a regular basis, from Australia to India to Dubai to South Africa and UK. This mobility brings with it some unique financial challenges. These include: coping with different tax regimes, the high cost of ‘setting up home’ in new locations and (on a more intangible level) the
temptation to overspend (e.g. by making use of expensive serviced accommodation) since just about every location feels ‘temporary’.

Uncertain Earning Potential

An athlete’s earning potential is locked up in performing at an elite level for a number of years. This means that a single serious injury can radically reduce that earning potential. Any financial plan for a professional athlete should therefore include well thought out strategies for dealing with contingencies. All of the above should make it clear that, although many sportspeople have access to relatively high amounts of cash, their financial position is certainly not as rock solid as the big pay cheques would suggest. This is further confirmed by the many horror stories that we have all heard of former professional athletes having to work at menial jobs after being unable to translate the high earnings of their playing careers into long term financial health. This is obviously a desperately sad outcome, but also one that can be avoided by obtaining and applying responsible and professional financial advice. The details of how such advice will be applied to individual circumstances will differ from athlete to athlete, but we are convinced that it should include many of the suggestions that are presented below.

CASH FLOW MANAGEMENT

It may seem like a huge clich? but it is still very true that ‘Failing to plan is planning to fail!’ It is
therefore extremely important that you have a strong game plan in place for managing your
earnings. At the heart of this plan should be the realisation that the elevated income levels that you
are (possibly) currently enjoying are not going to last forever. This means that you should treat your
income as a resource for both the present and the future. One key to doing this is to have a strong
cash flow management plan in place.

Some suggestions for inclusion in such a plan include the following:

. Keep your savings separate from your current account – seeing relatively large numbers in a bank account can have a strange psychological impact (i.e. spend, spend, spend) on many people! One way of avoiding this is to keep ‘now’ and ‘later’ funds separate. Arrange for your earnings to be paid into a high yield savings account and then make a monthly transfer for day to day expenses from this account into your current account (see the budgeting section below). This is a great way of ‘putting the brakes’ on your spending habits as you will have a much clearer idea of when you are living beyond your budget (i.e. if your current account runs dry before the month is over).

. Make wise accommodation decisions – accommodation can be one of the biggest drains on the
finances of pro-athletes. This is because many athletes make the decision to buy very large and
expensive properties in the cities where their teams are based. This can be a very risky strategy
since maintaining a large property can be very expensive and it could also be very difficult to sell if
the athlete moves to another city. Another common pitfall is to rent high-end serviced accommodation.
This may be very convenient but the convenience rarely matches the associated costs. Our recommendation (especially early in your career) would be to rent a ‘regular’ house until you are sure where you want to settle down. At that stage you should get the best possible property and investment advice to find something that will best suit your needs and your budget.

. Be on your guard: It is a well known fact that professional sportspeople and entertainers are often
the targets of investment scammers and salesmen of luxury goods who attempt to convince them
that they couldn’t possibly live without the products that they have to sell! The reason why sportspeople are often targeted is because they have access to relatively high levels of disposable income. Another factor is that many professional athletes are simply too busy to spend a significant amount of time weighing financial and purchasing decisions. Protect yourself by being aware of the fact that you will quite likely be targeted by some ‘smooth operators’ at some stage during your career, and resolve not to make rash financial decisions. Remember: “If something sounds too good to be true, it is almost certainly too good to be true!”

BUDGETING

A personal budget is absolutely essential for anyone wanting to secure his/her financial future. It is
even more important in cases where your income greatly exceeds your day-to-day needs as it will
serve as a mechanism to keep you from inadvertently spending funds that should last you a lifetime.
Some basic principles of budgeting include the following:

. Set spending targets and stick to them: This may seem like a complete no-brainer, but
disregarding this rule sits at the heart of most budget related woes. It would perhaps be
possible to live beyond your means for a few months or even years, but this kind of lifestyle
will exact a nasty toll sooner or later – usually in the form of crushing financial difficulties. The
basic function of a budget is to ensure that you do not cross the line into spending money
that you do not have. One way of making your spending targets ‘concrete’ is the technique
mentioned above i.e. ‘paying yourself’ on a monthly basis by transferring funds from your
savings account into your current account.

. Avoid unsecured debt as far as possible: It is totally unrealistic, for most people at least,
to go through life without ever taking on any debt. The important thing to remember is that
not all debts have been created equal. Some kinds of debt (e.g. a mortgage) can have
positive effects on our long term financial health as it helps us to secure capital assets.
There are, however, other kinds of debts (e.g. high interest unsecured loans, credit card debt
and ‘high end’ vehicle finance) that are almost guaranteed to keep your personal budget
from balancing.

. Make the most of what you have: One of the most common financial mistakes that people
who are not in debt make is to simply assume that a lack of debt will automatically translate
into a secure financial future. Nothing can be further from the truth! You will still have to take
care of your money with long term investment goals in mind. Not doing so is akin to simply
leaving your cash in a box under the bed!

. Be prepared for emergencies: Even the best laid plans of mice and men can go awry and
there are usually some financial implications when they do! You should do your best to
protect yourself against unforeseen circumstances by taking out adequate insurance and the
creation of a ‘rainy day fund’.

PREPARING FOR EMERGENCIES

None of us likes to think about the possibility of difficult circumstances coming our way, but doing so
(and doing our best to prepare) is an essential part of financial planning. Doing this is especially
important for professional athletes whose income greatly depends on being in peak physical shape.
This means that a single debilitating injury could wreak havoc on your lifetime earning potential. It is
therefore highly recommended that you take some proactive steps to protect yourself from the
financial fallout of possible injuries.

Insurance is obviously one of the best ways to protect your future financial wellbeing. It is highly recommended that you meet with a financial planner to discuss your individual needs. A financial planner should be able to design an insurance portfolio that takes into account the following areas:

Disability insurance
Having a comprehensive disability policy in place should be nonnegotiable for professional athletes. Make sure that the policy is designed to pay out if you cannot do you current job (i.e. participate in your sport) and that it is firmly linked to your lifetime earning potential. What would happen to you and your family if you became permanently disabled tomorrow? If you could never take part in your existing line of work again due to a disability, would you be able to pay your bills? Would you be able to hire additional help like a private nurse if you needed to

Income protection insurance
Income protection insurance is a policy that will pay out if you are unable to earn an income from your sport for a limited time (i.e. if an injury puts you on the bench for a season). Income protection insurance relieves the financial burden of bills, loan repayments and expenses whilst you are off work and not earning an income.

Personal liability insurance
Personal Liability Insurance will protect you from the impact of lawsuits or compensation claims based on your actions on, and off, the playing field. These days just about anyone can be sued as a result of their actions. As part of your Personal Liability Insurance policy, your Personal Liability should have sufficient cover to help protect you and your family from any unexpected legal cases, with the cover on a worldwide basis, which means you and your family are covered wherever you may travel.

Life insurance
A good life insurance policy will ensure that your loved ones are financially taken care of, even if tragic circumstances mean that you are no longer there to provide for them: your family’s ongoing income needs, mortgage and other outstanding loans that you can pay off, Children’s education costs. Life Insurance is really Income Protection Insurance for the family

Car insurance
It is a well-known fact that professional sportspeople drive better, and more expensive, cars than the rest of us. It is also sadly the case that many high performance vehicles are underinsured. Make sure that this is not the case by having tailored policies in place.

Establish an emergency fund
Although taking out insurance is very important it should certainly not be the sum total of your ‘rainy day preparations’. Increase your preparedness by establishing an emergency fund that can only be accessed under certain predefined circumstances. Make sure that your will is up to date: Most of us think that we are invincible when we are young and at the top of our game. Unfortunately this erroneous perception is reflected in the fact that many people in their twenties and thirties do not have a proper will in place. This is a pitfall that you should do your best to avoid for the sake of your loved ones. The necessity of proper estate planning is even more acute if you have a relatively high net worth since ill-defined or ‘unprotected’ estates can lead to massive tax liabilities and/or to your estate not being distributed in line with your wishes.

SAVINGS AND INVESTMENTS

It is our opinion that the key investment focus of professional athletes should be wealth preservation. In practice this would mean following a fairly conservative strategy geared towards securing a steady income after your playing days are over. Your investment strategy should also ideally deliver lump sum income to deal with major life events like the kids going to university, major relocations and retirement.

Only if you are satisfied that the ‘bases are covered’ by using a more conservative wealth preservation strategy should you even begin to consider more aggressive speculative investments. Far too many professional athletes have burnt their fingers at exactly this point especially since they are often the targets of those promising amazing returns through high risk investments. You can avoid getting burnt yourself by:

. Being highly suspicious of ‘get rich quickly’ schemes. Responsible investment is much more
. of a ‘get rich slowly’ affair.

. Diversifying risk. Putting all your financial eggs in one basket is asking for trouble and should
. therefore be avoided at all costs.

. Always making use of the services of an independent and professional financial advisor before making major investment decisions.

TAX AND ACCOUNTING ISSUES

Professional Athletes are classed as ‘Special Professionals’ by the Australian Taxation Office (ATO)
and will have to pay tax on income derived from their sport as soon as they start to earn more than
$2500 annually.

You will be taxed on your ‘Above Average Professional Income’. ATO defines this in the following way: “Your above-average special professional income is the amount of ‘Taxable Professional Income’ (TPI) you earned during the income year that is more than your average TPI. Your tax payable is the sum of tax on your above-average special professional income and tax on your other income. If there is no above-average special professional income – that is, your TPI is equal to or less than your average TPI – you will pay tax at ordinary rates on your taxable income.” The process of working out your average TPI and calculating deductions is explained in an ATO document entitled ‘Income Averaging for Special Professionals’ which can be downloaded from the ATO website (ato.gov.au).

We recommend that you get a professional tax accountant to help you to wade through the many ATO directives and rulings governing the tax affairs of sportspeople. This will save you a lot of frustration and quite possibly also a lot of money!

CAREER TRANSITION AND RETIREMENT

Unless you practice one of a select few sports (e.g. golf, motor racing) your peak playing years will
be over before you reach forty. This leaves at least another 25 years until you reach ‘official’ retirement age.

Working out a career transition plan should therefore be one of your priorities during your playing career. It is highly advisable that you regularly liaise with a professional career counsellor to explore the different options open to you. A list of career professionals can be found on the website of the Career Development Association of Australia (cdaa.org.au).

Planning for your ‘actual’ retirement should be one of the cornerstones of personal financial management. You should therefore take the time to do a few projections of the likely state of your finances in retirement. If the results of your projections are less than satisfactory you should obviously do your best to improve the position as much as possible before you actually reach retirement age.

The one area that you should pay particular attention to is the state of your superannuation fund(s). Make sure that you regularly bolster your super by making personal contributions. There are two distinct benefits to doing so, not only will have more money when you reach retirement age, you will also have grown your fund in a very ‘tax friendly’ way. As you count down the years to retirement it is very important that you ‘stay on top’ with what is
happening with your super. Here are a few suggestions for doing so:

. Stay up to date: Make sure that you keep all documents relating to superannuation in one place and that you carefully read all correspondence and statements. This will allow you to have a consistently accurate picture of where your fund is heading.
. Locate ‘lost’ super contributions: A surprising number of people have ‘lost touch’ with super contributions that they have made in the past. You can make use of a service like ATO’s SuperSeeker to check whether there is a ‘lost’ super fund somewhere with your name on it.
. Keep your details up to date: The best way to prevent your super from ‘getting lost’ is to make sure that your fund has your latest contact details.
. Make sure that your super fund has your tax file number (TFN): You may be paying more tax on your super than you have to, giving your fund access to your TFN will reduce the likelihood of this happening.
. Consolidate your funds: If you have worked for a few different employers or teams it may be the case that you have small amounts of super in a few different funds. It is worth investigating whether you will not be better off by combining these funds into a single super fund. This will make your funds easier to manage and will also, in most cases, reduce the fees and charges that you are required to pay. The key questions you will need to ask before you consolidate funds is whether you are not perhaps losing valuable insurance cover by doing so or if the funds that you belong to charge such high ‘exit fees’ that moving will not be worth your while.
. Keep a close eye on your fund: It is very important that you carefully read all correspondence from your fund. This will, among other things, help you to understand the investment approach that governs your fund. You should also benchmark the performance of your fund against that of similar funds. If you are unhappy with either the investment approach or performance (or both) it might be a good idea to move to another provider. It is, however, highly recommended that you get professional financial advice before doing so.

CONCLUSION

It is our sincere hope that the information presented above set you thinking about some of the issues that you will have to pay attention to in planning your financial future. It would be impossible, however, to present a complete guide to all your financial planning needs in a document as brief as this. Your financial planner will do the rest.


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