NCompass Financial's Money Mindset For Athletes

7/27/2019 NCompass Financial's Money Mindset For Athletes

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Money Mindsetfor Athletes

tM


2/16

Introduction .................................................................................2

Your CPA .........................................................................................3

New Team - New City ................................................................4

Spending Plan .............................................................................5

Disability Insurance ..................................................................6

Financial Watchdog...................................................................7

Estate Planning .......................................................................8-9

Financial Planning..................................................................10

Investments ...............................................................................11

Past Experience........................................................................12

Case Studies.........................................................................13-14

Conclusion..................................................................................15

tAble of Contents


3/16

Get your head in the game,is a commonly used phrase in sports. The phrase is reerring to mindset.

A proessional athletes job is to practice, practice, practice, and on game day, perorm. How many times have

you heard a coach say, practice like you play?In other words, i you expect to be a beast on game day, you

better practice that hard all week. Athletes have been developing this type o mindset or as long as they have

played their sport. Both mind and body are in sync. You know those players that seem to be at the right place

at the right time? It is practice, visualization, and execution..mindset.

O the eld requires a dierent mindset that is oten overlooked by many athletes entering proessional

sports. It is a money mindset. Athletes who achieve the proessional level oten dont have their money

mindset developed. Unortunately, most high schools and colleges dont oer instruction or personal moneymanagement. Thus, college athletes go rom making no money to proessional paychecks and are like deer

in the headlights. It is a lie changing event. Many athletes dont understand nances and are araid to ask or

help. The average career or a proessional athlete is 8-10 years. For sports like ootball or boxing, the average

is less. Working on your money mindset in the beginning o your career will help your transition ater

proessional sports and put you on a path to long term nancial security.

This publication has been created or all proessional athletes, rom rookies to seasoned veterans. A large

number o proessional athletes, over the last several years, have chosen not to work on their money mindset.

The results led to ling or bankruptcy, or just not having enough money or use ater their career is over.

Too many athletes believe money troubles,or trouble in general, wont happen to them. You have reached a

level o athletic success that ew achieve. Achievement, i not handled with responsibility and good planning,

becomes burdensome and complicated. Using this guide will not guarantee a comortable retirement, but it

will hopeully start you on your way to developing your own money mindset.

our Mission is to eMpower Athletes with knowledge

so thAt they will be finAnCiAlly seCure After their

CAreer in professionAl sports. And to give theM

guidAnCe thAt Allows theM to proteCt whAt they

eArned And worked hArd for, so they MAy proteCt

their fAMilies And the legACy they Are CreAting.

while doing this, it is iMportAnt to estAblish

relAtionships thAt Are built on trust, honesty

And integrity.

{

introduCtion


4/16

Your money mindset begins with your CPA (Certied Public Account). Ater establishing relationships with a

number o CPAs, the one statement that is repeated to me time ater time is they wished their clients would

have come to them sooner rather than later. CPAs can provide you with essential tax planning, which will

hopeully help you avoid surprises on April 15th, the tax ling deadline. Every team in each league operates as

a separate business. Thereore, how they operate internally will be dierent rom team to team. Your CPA will

make sure that adequate tax is withheld rom your game checks and bonuses to avoid unexpected surprises.

Having a large tax bill in April is something no one enjoys.

Your CPA will determine what is and what is not deductible. It all depends on a players individual acts and

circumstances. When in doubt it is important to keep your receipts. Its not uncommon or a CPAs client to

show up to a meeting with a shoe box bull o receipts, although a little organization is greatly appreciated.

What about non-wage revenue? This includes revenue you may receive rom trading card companies, shoe

companies, endorsements, etc. It is important to plan or the taxes that must to be paid on this income as well.

Additionally, a prudent CPA can oten deduct substantial expenses against this income to limit the amount o

taxes paid.

I you are planning on getting involved with a charity or donating, your CPA can also guide you through this

processas there are tax benets and implications to givingactivities.

Deductible expenses are another important topic to discuss with your CPA.Some deductible expenses include:

Training or gym ees: As a proessional athlete, you are allowed to deduct training and gym ees.

Training supplements, athletic massages and other special dietary additives may also be deductible.

Agent ees: The percentage your agent is paid will depend on the sport, but is generally deductible.

Union dues: Amounts paid to your specic union, i.e., NFLPA, MLBPA, NHLPA, NBPA, are

generally deductible.

Moving expenses: Whether its your rst team or th team, when you have to move you will incur

signicant expenses.

Travel: Travel which is specically related to your career is generally deductible. This includes

meetings with agents, scouts, trainers, and anyone directly connected to you sports-wise.

Tax return ees: Income tax preparation and consulting ees are generally deductible. The same

rules apply or investment advice.

your CpA


5/16

You more than likely will play in a city ar rom where you currently live. Moving to a new city can be a

daunting task. It is imperative or you to use your money mindset during this transition. It will be tempting to

want to live in a larger space than necessary. A larger space leads to purchasing more things to ll that space.

During the season and depending on your sport, you may only be at this residence 4-5 months. When you

gure in away games and the amount o time you will be at your practice acility, you wont be spending that

much time here. I this is your rst proessional contract, it is recommended you initially rent a townhome or

condo instead o purchasing a home. The idea o purchasing a large home on your rst contract sounds

exciting, but patience, sel control, and a second contract will oten open the door to home ownership,

without threatening your long term nancial security.

There are many benefts to renting a townhome/condo during your rookie yearand frst contract, which are:

uA reduced nancial commitment compared to owning a home. A twelve month lease is standard

during which you pay rent, this may or may not include association dues.

uThe condo or association will take care o landscaping, maintenance and snow removal.

uWhen the lease is up you can renew or simply move.

A proessional athlete becomes popular quickly. By having a smaller living space, you wont eel obligated to

host a house ull o riends. To cut costs even urther, you can share your space with a ellow rookie.

new teAM new City


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Many players roll their eyes when they hear the word budget. They say things like, I cant buy this or that,or

it eels like I have handcus on my money. I would ask you, as you are orming your money mindset, to think

o this as a Spending Plan.A good spending plan helps you make decisions about how to spend your money

so you can aord the things you need or really want. You can spend your money in any way, just realize,

you cannot have everything.

Throughout your athletic career, you have probably had a lot o support rom amily and riends. Preparing

or this opportunity has taken up the majority o your time. It is understandable that you may want to reward

those who have helped you get to where you are today. Do not hesitate to treat yoursel and, i you would

like, those around you. However, it is important, to not go crazy when doing this. Depending on your contract,carve out a 5-10% ater tax un moneyallowance. This will allow you to enjoy what your hard work and talent

have produced. Once this allowance is gone, it is important to continue ollowing your spending plan.

Creating a spending plan will help you track your expenses and also allow you to save or your uture, or lie

ater proessional athletics. Whether your contract is your leagues minimum or a larger deal, there is a critical

need or a spending plan. Since your proessional sports career will be brie compared to other occupations,

ignoring your nancial situation may quickly lead to nancial trouble. A basic plan is created to ensure your

monthly living expenses get paid. You can sleep easy knowing the plan includes expenses incurred during

the o-season, when you wont be receiving a paycheck. Ater all, you still have bills to pay when you are

not playing.

An eMergenCy fund is Also An iMportAnt pArt

of Any spending plAn. prepAring for you worst

CAse situAtion CAnnot be ignored. this should

be funded with At leAst enough to tAke CAre of

six Months of living expenses, And in soMe CAses

twelve Months.{

spending plAn


7/16

You have worked hard to achieve success, thus you have acquired wealth quickly. Because o your success,

it is critical that you address your personal liability and exposure. As a proessional athlete, you have a

bulls-eye on your back making you a walking target, so having the proper insurance and risk management

program in place is vital. The money mindset we are dealing with here involves reducing an athletes risk o

losing income. Your money mindset must now ocus on planning or a career ending injury that leads to the

loss o income. This is dicult to discuss, but i it happens without a plan, it could lead to nancial ruin.

Fortunately, disability insurance can be part o your spending plan.

Disability insurance is an insurance product that compensates a person who, due to accident or illness,

is unable to earn all or part o his or her ormer income. In simple terms, the insurance payments substituteor part or all o the income lost due to an accident, injury, or illness. Disability insurance can provide security

against the possible loss o uture income, which may occur i the athlete suers an illness or accidental injury

that prevents him or her rom pursuing or continuing a proessional sports career. Just as a person who owns a

home a valuable asset may wish to insure against its loss, an athlete with special skills also a valuable

asset may wish to insure against the loss o the asset, namely the ability to earn uture income as a

proessional athlete.

What types o coverage are available?

Permanent Total Disability: This coverage pays benets when an athlete suers total disability

during the policy term and he or she will not be able to participate ever again (unless the policy

species a shorter time period) in his or her sport.

Temporary Total Disability: This coverage pays benets when an athlete suers total disability

during the policy term, and he or she is not able to participate in his or her sport at the time o a

designated medical evaluation. Since the benets are more easily triggered under this type o

coverage, it is more expensive to purchase than permanent total disability coverage.

While most major sporting leagues provide some amount o coverage, no league provides career-ending

disability coverage that adequately protects an athletes non-guaranteed compensation and uture earning

potential.

A proessional athlete has unique needs when it comes to insurance. Working with a knowledgable insurance

rm will help you avoid gaps in coverage or paying or too little or too much insurance.

disAbility insurAnCe


8/16

Our government was set up with three branches so that there would be checks and balances, each branch

holding the other accountable. You have hired a CPA and a Financial Advisor. Now hire your nancial

watchdog-the Auditor.

The business o proessional sports is a big business. Salaries have rapidly escalated over the past decade.

This has led to an increase in proessional athletes being derauded and ripped o. Improper money

management or raud is nearly impossible to combat without a good auditor. Education is helpul but some

additional assistance is needed. Many athletes have been victims o improper money management. The list o

victims reads like a Hall o Fame roster, and no sport is immune. A survey recently ound that 78 NFL players

were derauded o more than $42 million rom 1999 to 2002. The victims all had two things in common:1) they were derauded by trustedpeople including agents, nancial advisors, teammates, amily and riends;

and 2) they all thought it could not happen to them. There is something very powerul to help protect against

improper money management: An Audit.

What is an Audit?

Many people relate the word audit to a bad thing, such as an IRS audit. While an IRS audit is not a good thing,

especially or the one being audited, it does accomplish what it sets out to do. It catches people who cheat on

their taxes. Audits are designed to catch cheaters.

The true denition o an audit is to ascertain the validity and reliability o inormation.In other words, an audit

makes sure things are proper and accurate its the watchdog. In the case o a proessional athlete, a lot o

trust is placed in the hands o the money manager. An audit provides assurances to an athlete that

whoever is handling their money, is doing what they should be doing.

Most proessional athletes have an accountant. That is not enough. Accountants primarily handle your taxreturns. Most will not detect improper money management. An athlete must have someone overlooking their

money managers shoulders to ensure proper handling o money. An audit costs money, although not having

an audit perormed could prove much more costly in the long run.

Remember, In God We Trust Everybody Else We Audit.

finAnCiAl wAtChdog


9/16

Estate planning or proessional athletes is crucial. You MUST have an estate plan i youve accumulated

any property or wealth. This is not optional.Those who do not have an estate plan generally do not

understand its purpose or value, and place themselves and their amilies at risk.

The purpose o estate planning is to maintain autonomy: to make your own decisions, and avoid

others involvement in your personal matters. Done properly, an estate plan can save hundreds o thousands

o dollars in taxes and proessional ees. When a person becomes disabled or dies without an estate plan, the

options are more limited and more expensive and nearly always involve the courts. This requires lawyers, ees,

and oten extreme delays o months or years as well as making all proceedings open to the public. Is this what

you want? Is this what you want or your amily? Establishing and maintaining a proper estate plan is aboutcontrol. It is about you deciding what your nancial legacy will be. Lack o an estate plan means lawyers and

the court system decide your amilys nancial uture.

A proper estate plan eliminates problems with all o the ollowing:

uEmergency Decision-Making uEstate Tax Reduction

uMoney Management uDisabled Individuals

uProtection o Assets uTranser o Business Entities

uProbate Avoidance

Emergency Decision-Making

A good estate plan provides or emergency decision-making, should you become disabled. For example:

an athlete who suers a concussion might not be able to make his own decisions or a ew weeks. Who is

allowed to talk to the doctors to give consent to treatment? Who pays the bills? I a disability lasts

more than a couple o months, who applies or disability benets, completes contracts, or sues on the

athletes behal?

Powers o attorney and health care directives are simple, eective ways to provide or emergency decision-

making. They are powerul documents and should never be given to someone who hasnt established a long

period o trust with the athlete. Spouses do not have the legal authority to make decisions or each other.

Most simply dont understand this. Without estate planning, one spouse cannot make medical or nancial

decisions or the other, in the event o a disability, injury, or death.

estAte plAnning


10/16

Probate Avoidance

Probate is the court-supervised system or transerring assets o a decedent to heirs and devisees. Someone

(usually a spouse, child, or parent) generally hires a lawyer to petition the court or appointment as a personal

representative. A court hearing is oten required, as is ormal notice to relatives and creditors. The will, i there

is one, becomes a public record. I a person dies without a will, state statutes determine who receives the prop

erty. As an example, the average length o a probate in Minnesota is 18 months. The average cost is 3% o the

estate (three percent o $1 million is $30,000). Probate is required when a person dies with more than $50,000

in assets that are not held in joint tenancy, who doesnt name a beneciary, and whose assets are not held in a

trust. I a person dies owning property in several states, there will need to be a separate probate in each state.

Proper estate plans avoid probate thus saving your money and your amilys time. It also keeps you and your

amily in charge, not the courts. The easiest way to avoid probate is by utilizing revocable trusts. These are

more exible than wills, more easily updated, and can hold property in every state. An estate planning

attorney can assist you in setting up revocable trusts.

Disabled Individuals

Persons with a disability are at great risk o losing their autonomy and power. I anyone in your close circle has

a disability, either a child, sibling or parent, they must be provided or specically in your estate plan. A child

under the age o 18 is under a legal disability (whether otherwise disabled or not). This means they cannot

receive a direct inheritance. Naming a minor child as a beneciary in a will or on a lie insurance policy causes

expenses and delays that can easily be avoided. The same is true or a disabled parent or sibling. Leaving unds

to such individuals could cause them to become disqualied or other programs they might otherwise qualiy

or. Basic estate planning eliminates all these problems.

estAte plAnning - Continued


11/16

As already discussed, proessional athletes have a short window o opportunity to earn signicant income.

It is imperative that a well thought out plan is created to address your income needs ater retirement.

Too many athletes miss this step and nd themselves running out o money shortly ater their sports career

is over.

Ater proessional sports, what are you going to do next? The end is a great place to start identiying what your

goals and dreams are today. Is it your goal to not have a need to work again? Would you like to start and run

your own business? Would you like to urther your education and start a new career? With a goal in mind, how

much will you need to save to make your goal a reality? What nancial actions are necessary to achieve this

goal? A nancial plan provides direction and meaning to your nancial decisions. Your individual plan will helpyou understand how each nancial decision will aect other areas o your nances. Your money mindset puts

your nancial plan into action.

Planning is not a one time event, but an evolution. It will change as your lie changes. A goal today might

not make sense or be a priority a ew years rom now. An important thing to remember is that hopeis not a

solid nancial plan.

What am I going to do with my money?

dNot have to work

dStart a business

dStart a Charity/Foundation

d???????

Hope alone will not achieve any of the above. You must have a plan and you must work the plan.

finAnCiAl plAnning


12/16

When your goals are identied and your nancial plan is created, the process o investment selection can

begin. There are stocks, bonds, mutual unds, ETFs, CEFs, commodities and many other alternative investments

available. The investments that are recommended to you should all in line with your goals and risk tolerances

and the nancial plan you created.

This area is probably the most misunderstood by not only athletes, but many people. There is risk with every

investment, and there is also risk with doing nothing. You have to know where your money is to make sure it s

doing what you want it to do. Let your advisors be the No Man.I you are approached to invest in the next

big idea,say thank-you, my fnancial team will look this over and get back to you. Ultimately its your money,

and you have to be the coach o your nancial team. Take the request back to your nancial team (CPA,Financial Advisor, Auditor, and Attorney) and tell them to determine i you should ollow through. Resist the

urge to act alone and possibly risk a bad decision. Do not be a Yes Man.

How are you going to organize it all? You should utilize technology to monitor your nancial well being.

You should be able to track your bank accounts, investment portolio, and any debt that you may incur.

Knowing where your assets are and how they are perorming will help you track your progress in attaining

your goals, and may help you prevent or detect raud. You should be able to have access to view all your

accounts 24/7, through your computer or smartphone.

investMents


13/16

There are many athletes that have come beore you. Do not make the same mistakesthat too many have made:

uYou cannot spend like the money will never stop. One day, it will.

uLearning to say Nois a good thing. Just because you can aord it, does not mean you need to say Yes.

uSigning a power-o-attorney may hinder your ability to control your assets, and could lead to nancial ruin.

uKnow what you are paying beore any service is provided to you. Do not wait until ater the act to nd out

what you are spending.

uUnderstand the dierence between appreciable assets and depreciable assets.

uI it is too good to be true, it probably is.

pAst experienCe


14/16

#1

An NFL veteran o 6 years, married with 2 children, owns a home in Florida (FL), New Jersey (NJ) and a

co-op in New York City (NYC).The NJ home is a 5-amily home rented to 5 dierent tenants, and the NYC

co-op is or personal use. The player was relying on his Agent to obtain insurance coverage, and basically

created a lot o issues by not having a Property & Casualty (P&C) proessional working with him. There was no

strategic planning in establishing their P&C insurance and risk management portolio thus creating gaps in

coverage, overpaying premiums and ultimately carrying too much personal risk. Ater a thorough review o his

current policies, it discovered inadequate levels o coverage and the use o B rated insurance companies.

Ater completing a personal risk act nder and interviewing the player and his wie, we conducted an

in-depth review o all policies addressing the areas o concern. The numbers o insurance companies involvedwere reduced to 4 allowing us to consolidate the portolio, improve his coverage, close gaps and reduce his

overall premiums by 25%.

#2

NFL Rookie player, single, and renting a 1 bedroom townhome in team city.The player wanted to be

hands on with his nances, but didnt know where to begin. A nancial bootcamp was created or the player

to help him understand the basic concepts o personal money management. It was easier or the player to

understand when the time came to talk about nancial planning and investments. He was also given his own

secure nancial website to view all his accounts any time he wants.

#3

NFL Player was a rst round drat pick, earning close to $9 million over the rst our years o his career.

Within two years o the drat, player owned our residences, each with very little equity or with loans

exceeding the value o the home. Due to poor credit established in college, and the no money down

mentality o the real estate market, the mortgage payments on these properties carried interest rates 1% to

2.5% higher than market average. Additionally, player lived extravagantly expensive watches and clothes,

and at one time owning ve vehicles, our o which were purchased new, with a combined purchase priceexceeding $500,000.

A second contract was signed, and player continued his high spending liestyle. Each year, money would get

short during the summer, and the seasons rst game check was oten not enough to cover outstanding bills.

It was not until midway through the season that bills would be caught up, and even then money would run

out ar too early ater the season.

(continued on page 14)

CAse studies


15/16

The player did not have a nancial advisor looking out or his best interests. What he had was a broker who

would unnel whatever money to him he requested, without educating the player about how to turn his

nancial situation around. The player is now on his third contract and literally lives paycheck to paycheck.

He is ortunate to have had a lengthy career by proessional ootball standards, but the 2012 owners lockout

almost orced him into bankruptcy.

#4

An NFL player, third year into his rst contract. A close amily member was helping the player manage his

nances. He insisted that all the players checks were automatically deposited in the bank. The amily member

would then write checks to cover expenses. The player grew uncomortable with the arrangement when theamily member presented the player with private investment proposals. Two o the proposals were nightclubs

and the other a car wash. The player was araid the amily member was getting too comortablewith the

checkbook. Ater a lengthy interview with the player, he insisted on changing banks and wanted sole check

writing ability. Using the banks bill pay system, the player was shown how to automatically make payments

or his monthly bills. He was also given his own secure nancial website to view all his accounts any time

he wants.

#5

An NFL Rookie didnt want to be a statistic. He set in place his teamo advisors and coaches beore he ever

received his rst NFL check. His player agent is only one piece o this team. Next up was his nancial advisor,

his CPA and in this case, an individual the player sees as a mentor. All parts o the team know what is going on

at all times. The nancial advisor helps the player set up direct deposit to his bank directly rom the NFL team.

Those unds are automatically allocated according to the spending plan. I mad money is necessary or a trip

or purchase, it is reviewed by several members o the teambeorehand. This player knows that there is only

a limited amount o time to save nancially or a lietime o use. This player also has a much less stressul

non-ootball lie.

CAse studies - Continued


16/16

This publication will not make you a better athlete on the eld, but hopeully it will help you understand the

importance o making smart nancial decisions o the eld. Money Mindset is not a short term liestyle, but

i learned and adhered to, can provide benets throughout a lietime. Remember, you can live like a king or a

very short period o time, or live like a pauper or a much longer time.

The ollowing contributors provided their expertise:

John W. Hanselman

John Hanselman is the President o NCompass Financial, LLC, a ull service Financial Planning and Investment Advisory rm. He isbased in Minneapolis, MN and has been in the nancial services industry since 1999. He has written several articles relating to nance

and tness. He holds a series 7 and 66 license along with insurance. Mr. Hanselmans dominant ocus is on the Proessional Athlete

and Afuent markets. He can be contacted at 763.208.5866 or by email [email protected]. The company website

is www.ncompassn.com . Securities and Investment Advisory Services oered through Woodbury Financial Services, Inc. Member

FINRA, SIPC and Registered Investment Adviser NCompass Financial, LLC and Woodbury Financial Services are not aliated entities.

Victor D. Barbo, CPA

Victor Barbo is a partner in the rm o Sink, Gordon & Associates LLP, a large local accounting rm located in Manhattan, Kansas.

With over 24 years o experience, Mr. Barbo is the president and CEO o ProSportsTax, a division o the rm which specializes in the

taxation o proessional athletes, coaches and trainers. He also is an author and editor or Proessional Tax Institutes in conjunction

with the University o I llinois, who together provide quality continuing education to CPAs in 28 states. Mr. Barbo is a graduate o the

University o Kansas, and is a member o the American Institute o Certied Public Accountants, the Kansas Society o CPAs and the

Public Accountants Association o Kansas, o which he is a past president. Victor can be reached at 785.537.0190 or by email at

[email protected]

Marc Silverman

Tired o seeing proessional athletes being derauded out o millions o dollars year in and year out, Marc Silverman ounded MH

Silverman & Associates LLP. MH Silverman & Associates provides auditing services or proessional athletes and entertainers to ensure

that their money is being handled appropriately by their trusted advisors. They provide the much needed oversight o an athletes

advisors. Marc Silverman is a ormer audit partner with Ernst & Young LLP. He has over 20 years experience in auditing public

companies providing investors and stockholders the assurance that those companies nancial statements are accurate. Marc can be

reached at 908.794.5881 or by email at [email protected] . The company website is www.mhsilverman.com.

Jefrey P. Scott

Jerey P. Scott is an attorney in private practice with over 23 years o experience in the elds o Estate Planning, Trusts and Probate,

Disability Planning, and Guardianships and Conservatorships. He is a graduate o William Mitchell College o Law in St. Paul, and clerked

or the Judge o the Hennepin County Probate Court during law school. He is a member o the Minnesota State Bar Association, and

the Bar Associations o Hennepin and Ramsey Counties. He is a requent teacher and lecturer on legal topics, and a ormer instructor atInver Hills Community College. Jeery can be reached at 651.647.9533 or by email [email protected]

Daniel A. Verdun

Dan Verdun is an insurance consultant with Frenkel and Company, Jersey City, NJ. Throughout his career in the insurance industry,

Mr. Verdun has provided a holistic approach to insurance and risk management planning. He specializes in serving the complex needs

o proessional athletes, sports agents, entertainers and high net worth individuals and their amilies. His consultative approach leads

to a customized insurance portolio that reduces risk and minimizes nancial exposure. Dan can be reached at 201.486.6970 or by

email at [email protected]

Copyright 2013 NCompass Financial, LLC

All Rights Reserved

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NCompass Financial's Money Mindset For Athletes