W
ith HBO’s new hit series, “Ballers,” giving a glimpse of how rising NFL players often overextend themselves, one may ask how can a player make 16 paychecks, earned over an approximate four month period, stretch out over an entire year?
The answer is by budgeting.
At this time of year, NFL players have already completed OTAs and minicamps and are now in the midst of training camp. The focus right now is to stay healthy and make it onto the roster for week one of the NFL season. However, one very important matter on which some NFL players do not quite focus enough attention, rookie players in particular, is planning out a budget for the upcoming season and beyond.
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Detroit Lions wide receiver Ryan Broyles works with his financial adviser to live within a budget and invest the rest.
Photo by: GETTY IMAGES
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Once the first paycheck comes in, rookies will look to go on a spending spree, which is most understandable. However, this is not a good strategy.
During a recent visit to an NFL club, the team’s director of player engagement, who is also a former player, indicated that when he played, some of the veterans would not even consider socializing with the rookies as they just did not have the financial capacity to “keep up.” Which may lead one to ask, why?
Similar to most other questions in sports, the answer is preparation. Getting paid for the first time is a major event that many rookies are not often prepared to handle. Specifically, preparation and consideration needs to be made on how to “stretch” game-day paychecks over the months when the game checks are not coming in.
Recent news reports brought the topic to the forefront by illustrating the financial frugality of Ryan Broyles of the Detroit Lions, and his ability to set up his financial future. His financial planner advised Broyles to spend as he normally would over a few months period. Once he came up with his budget, he lived within his means and invested everything else. Now Broyles has secured his post-football monetary life.
Let’s look at a similar, hypothetical example:
| 2015 minimum rookie salary |
$435,000 |
| Number of game checks over 166 duty days |
16 |
| Gross Amount per Paycheck |
$27,187.50 |
A $27,187.50 paycheck may sound like a lot of salary to the average person, but gross is not net. Taxes, agent fees, union dues, 401(k), travel, rookie dinners, tax return fees, game-day tickets, workout clothing, massage therapy, gifts to loved ones (and sometimes not loved ones), entourages, two apartments, car payments, clothing and a plethora of other expenses will affect cash flow over the remaining 199 non-duty days.
Therefore, the best time to plan for an efficient budget that maps out all necessities on a monthly basis and sets the game plan is now.
Kevin Peters of Equinox Financial advises more than 300 current and former NFL players and stresses to his clients that they should not even think about buying a house and/or a car until the player has had a chance to set up a proper cash flow budget by which to live.
Let’s return to our example:
| 2015 minimum rookie salary |
$435,000 |
| Federal and state taxes effective rate (45%) |
$195,000 |
| Agent fees |
$13,000 |
| 401(k) 2015 and 2016 |
$36,000 |
| SUBTOTAL |
$191,000 |
| Rookie dinner |
$10,000 |
| Therapies (massage and physical), gym membership, workout clothing |
$5,000 |
| Tax-free gifts – per person |
$14,000 |
| Annual apartment rentals |
$30,000 |
| Miscellaneous travel during offseason |
$5,000 |
| Game-day tickets |
$5,000 |
| NEW SUBTOTAL |
$122,000 |
When all the above expenses are considered, our rookie player is now left with $122,000 for basic living expenses throughout the year, which is around $10,000 per month. The purchase of an expensive car or down payment on a home was not even factored in yet.
So the message here is: It is not what you make, but what you take home.
Understanding monthly cash flow requirements, as Ryan Broyles figured out, is vital to a player’s future. Moreover, if our rookie sets aside savings and contributes to his retirement as part of the budget, and continues to stick to the game plan, he will be poised to not fumble away the opportunity for a successful future.
Once our rookie player learns how to properly budget he can now switch his focus and attention on building and expanding his business and branding opportunities. This can include endorsements, appearance fees, and residuals. It can also lead to establishing foundations and camps to give back to the youth in neighborhoods where the athlete grew up. However, as with any venture, proper game planning and preparation are required for success.
Steven Goldstein (sgoldstein@grassicpas.com), CPA, PFS, is a partner and the sports and entertainment practice leader at Grassi & Co.
