A note to newly minted athletes and artists

I wanted to kick off my Substack with a note for anyone who has suddenly come across a bunch of money. This is common with professional athletes, musicians and Hollywood actions, but it could be you.

Have you ever been fortunate enough to come across a bunch of money suddenly? I was. When I was in my 20’s, I was working as an engineer for a tech startup in Boston when we were acquired by a major tech business only 3 months after I started. I was given equity when I joined that I was able to cash out. It wasn’t retirement money, but it was hundreds of thousands of dollars with very little tax due to capital gains treatment. I was stupid with that money. If you want to know more about what happened, I recommend buying my book as it’s an entertaining story. But my point is, aside from my professional experience with finance, I have plenty of personal experiences where I have had to learn things the hard way.

This note seems fun as it’s targeted to newly minted professional athletes and media stars. But the truth is, many ‘regular’ people also have experienced sudden sums of money. This could happen by winning a lottery, a payout from a lawsuit, perhaps an inheritance or even a lucky investment. Granted, it’s not common but the lessons are as important for someone with unexpected millions as they are for the regular person reading this who has a normal sum of money.

If you do know a young athletic star, please have them read this - it may save them millions of dollars and a world of pain.

We’ve all heard of the stories of sports and movie stars and lottery winners who declare bankruptcy within years of their retirement. Why does this appear to happen so often? According to CNBC, nearly 80% of NFL players go bankrupt or are in financial distress within 2 years of retirement and 60% of NBA players go broke or are bankrupt within 5 years of retirement. This after earning more money in a few years than most people do in a lifetime. Most major sports leagues even offer courses to rookies around financial management and how to be smart with their money. I’m unsure of the content of these courses but let me give my advice because if you follow it, you will definitely avoid some potential pain.

I’m going to start with a couple of quotes from Charles Barkley, who was a former star in the NBA and now a popular basketball pundit on television in the USA.

Let’s start with this one, as it’s quite important and frames the most important advice-

‘When you start giving people money, they never gonna ask for money [just] one time. No matter what you do for them, the first time you tell them no, they hate you..

He then added-

’You don’t have to take care of all your family and friends. I tell these young kids, you wanna do something nice for your mom and dad, you wanna do something nice for your brother or sisters, that’s fine, but they don’t have to be on the payroll. You don’t owe them. That was their job to take care of you.’

It’s great to hear people being generous and helpful, but should they be? In my opinion, absolutely not. They have a financial responsibility for their spouse and kids (if they have either). No one else. The issues arises in that the income profile for a professional athlete (or lottery winner or inheritance) is short and large. If you spend during that period with wild abandon, you won’t be able to maintain that when the income stops. Here’s a simple exercise every person should do when they come across a big pile of money. It’s a simple reality check.

Take the amount of money you just earned, let’s say it’s £5m and you’re 25 years old.

Calculation 1 - divide that number in half for tax. So it’s now £2.5m. This will vary for many reasons, but just start with this for an approximation.

Calculation 2 - count the years from now until 80, in this case it’s 55 years.

Calculation 3 - divide your income (£2.5m) by the number of months you have left to live (55x12, roughly speaking!). So we have £2,500,000/660 = £3787.

£3787 per month. That’s hardly a rock star income!

I do understand that there will be lots of factors in play, such as earning more income and the ability to earn money on those assets, and pensions, but none of these are guaranteed. This is a reality check of how little millions of dollars and pounds actually is.

So Rule 1 is learn to say no and don’t take care of other people’s bills and expenses. Raise your family modestly in a manner that you can maintain long into the future.

Rule 1 is the most important. It is the one most responsible for driving people to bankruptcy. Learn to say no and show no shame in that. Real friends would never expect your money, so if they do, they aren’t a real friend and they aren’t family worth staying close to (even if it’s your mum or dad sadly!).

Let’s go back to Charles Barkley as he’s wise and entertaining and often talks about finances. Charles made a nice quote regarding spending that was told to him by fellow NBA star Julius Dr J Erving-

“The problem is — it’s not the fact that you can’t afford that car — it’s the fact that the $300,000 you spent on that Bentley, if you bought a car for $70,000, $80,000, you would have had $200,000 more in the bank and it would have been growing and growing,’”

“‘And in one year, three years, five years, twenty years, that $200,000 is going to be worth a lot more.’”

Control what you spend. Often spending is done to impress other people. As Charles pointed out, is a $300,000 car really going to make your life that much better or would you rather have $1,000,000 in the bank a decade or two later from shrewd investment? Most people would choose the $80k car and $1,000,000 in the bank over time.

So it’s important to curb your spending and start investing. At first, this may seem boring and not nearly as fun as driving around in a flash new Bentley. But the flash new Bentley gets boring after awhile, and then you need the next new model of car to get that same dopamine rush. Don’t fall into this trap!

How do you know how much to spend and how much to invest and how to invest? Those are excellent questions and my book, 10 things I love about money, gives a concrete plan for how to approach this problem.

The simple advice is as follows - don’t drastically change your quality of life. Don’t feel the need to buy the fancy car and the mansion. Consider upgrading your house if you’re living somewhere safe or inconvenient, but get what you need, not what you can afford today. Then look at putting as much as you can into investments. This is where advice from a competent financial advisor would be beneficial for not just investments but also tax planning. However, be careful, as this will be spoken about in my third rule.

Rule 2 is to not drastically change your quality of life and rather spend smartly, save and invest your money for longer term security and peace of mind.

I mentioned to be careful about advisors. This is in no way a dig on your average financial or tax advisor. There are plenty of competent and trustworthy professionals out there who can provide amazing advice that be ultimately profitable for you as you can save more from their advice than what they cost. That’s key. But there also seems to be a worrying pattern of unscrupulous advisors or agents preying on young athletes and musicians to manage their financial affairs and leaving their clients bankrupt as they go and build a massive financial empire.

My advice here is quite simple but involves a number of steps. First, if you do need advice, try to get a recommendation from someone you respect and trust who understands money. Don’t take a recommendation from a fool who probably got ripped off! But also, don’t get more advice than you need. You don’t need a full time staff to manage your money, or your contract or your investments. If you do, things are likely overly complicated. Seek advice, pay for it, move on. If you can go to an advisor when you need to, pay for their services, then have clear oversight over your expenses. However the truth is, most people will be in a situation that will have been handled thousands of times previously. Don’t reinvent the wheel.

This problem is prevalent - it always involves some smarmy character taking advantage of a young impressionable person facing a situation for the first time who suddenly has lots of money. The Los Angeles Time wrote an article on this topic in April 2024 titled ‘How athletes and entertainers like Shohei Ohtani get financially duped by those they trust’. The article describes how numerous athletes, musicians and movie stars were all scammed by their advisors to the tune of millions of dollars from people they trusted, including one’s mother. Financial journalist Diana B. Henriques sums it up nicely when she says ‘Only those you trust completely can rip you off completely.’ Money and greed makes people do strange things. Never trust anyone completely, even your own mother. Always keep an eye on things, and if you feel bad about not trusting your lovely mother, justify it by understanding someone may attempt to scam her. The names of stars defrauded by their advisors are numerous. Big names such as Kareem Abdul Jabbar, Robert De Niro, Jack Nicholson, Sting, and Ben Stiller have all lost millions of dollars to con artist advisors.

How do you avoid this if these mega stars couldn’t? It’s really quite simple - you have to become educated. You don’t need to be a stock market expert, but you do need to know how much money you have, where it is and what your expenses are. Don’t fall for the siren call of someone who can take away this burden for you. It’s deceptively easy. All the work is up front, and once you have things setup, it can run on auto pilot. So take that time to understand things, set up some investments with reputable organisations and then let them do their thing. And especially don’t get conned by people who will come at you through some type of mutual affinity such as a Christian group or poverty advocate.

Rule 3 is to take charge of your personal finances and understand exactly what is going on. Take a little bit of time to educate yourself and you can start by reading my book, 10 things I love about money, which will give tips and advice to ensure you never go broke!

That’s it. Three rules between you and bankruptcy. Read this, don’t forget and best of luck!