Wealth Management for Athletes

Today we're covering a very basic level. I feel as if you cannot go to the pros without going through high school and college. So today, again, we're just going to highlight over the basic levels of wealth management for athletes, financial education. And so again, I want to congratulate you from starting here, and now as soon as we finish today, we can move on to the next step. And a little bit about me. I've been a financial advisor for over 15 years. The principles that I'm teaching today I learned in my early 20s as I became a financial advisor, and— or actually a little bit even before. But you're gathering this information, if you're someone that's in their teens, you already have at least a good 6 years ahead of me. I'm also a speaker, an instructor, and a writer for Kiplinger, and I've written for MarketWatch and Forbes. So if you want to get some information about me, you can go to my personal website, which is carlosdiazjr.com, or if you want to go to my business website, it's mvpwealth.com. And of course, I'm going to do my shameless plug here. You can connect with me. I'm on All forms of social media: LinkedIn, Facebook, Twitter. You can follow me and Instagram. And then my company is also on Facebook, Twitter, and Instagram. So let's start off with some some statistics. There's an article that came out in the Wall Street Journal. It's called "The Shrinking Shelf Life of NFL Players." The career Careers of pro football players are decreasing at an unprecedented rate. So it says that the average time in the NFL has dropped quite a bit since 2000. So as you can see here, and it kind of goes along with what the NFLPA came out, says that the average career length is 3.3 years. This kind of reinforces it. As you can see, if you're playing wide receiver You may be even in the league a lot less. The longest one here has been the offensive lineman, 3 years and 8 months, but these are all short of 4 years. And the article said from 2008 to 2014, the average NFL career dropped by about 2.5 years. From '91 until 2008, career lengths were mostly consistent. Another article from the Associated Press: the NFL keeps getting— keeps going younger and cheaper. By the time NFL players reach their 3rd and 4th years in the league, the vast majority are struggling just to hang on because of injuries or younger, faster, and often cheaper rookies out for their jobs. And let me just point this out, that This is just not only a problem in the NFL. In America in general, we have this problem. How many people do you know that had to retire a lot earlier? Maybe you had a grandfather, grandmother, mother, father that had to retire early because their job was taken by someone that was willing to work more and be paid less. So overall, this is happening all over, just not in the NFL. But know that careers are short. Players make money fast and they have to save, or as I say, retain it as much as possible because they're going to need it for the future. And here's a study, and this is an older study because they looked at players from '96 to 2003. And the and the average was six years at that point. So from six, we have three. And looking into the future, what can that look like? It's kind of scary. So where did this all start? Okay, there was a documentary that came out in 2012. It's hard to believe it's been eight years already. It's called Broke. It's an ESPN 30 for 30 film. If you haven't watched it, get it. And what they did was they used an old statistic from Sports Illustrated, which is the article that I have down here. The article is How and Why Athletes Go Broke, and the statistic read, by the time that they have been retired for 2 years, 78% of former NFL players have gone bankrupt or are under financial stress. And then in a newer study, it showed that 15.7% file for bankruptcy within 12 years of leaving the league. And that's in the top right-hand corner. And as you can see, there's a lot of guys here. In fact, it's kind of interesting that I found Warren Sapp and Terrell Owens together because there's some high-profile names that you may have seen. And then also CBS News, 1 in 6 NFL players file for bankruptcy. This is a problem. But let me tell you another thing too. This is just not a professional athlete problem. This is an America problem. There was a study that came out that showed that 41% of all U.S. households where the head of household was either— was in between age 35 and 64, they ran out of money in retirement. And this is just not happening with households. It's happening with retirees that I meet with every day. People that are running out, out of money sooner because one is they're living longer, but they haven't saved enough. So again, this is not an NFL or professional athlete problem. This is an America problem, but we're going to fix that. And I also want to say that when I discuss wealth, I'm not discussing money. I'm discussing mindset, value, What can you bring to the table? You know, there's a lot of companies that have been around for over 100 years, so their founders have been long dead. And then now finally these companies are seeing a lot of success. They had to start somewhere. So if for some reason you can't start it now, start it for your future generations. That's how we're going to make things a lot better for the future generation. And also bring up that I have what they call The three levels of financial failure, and this is just working with professional athletes and NFL players specifically throughout the years. The first level is education. Don't get educated; you don't learn anything. It's first level of failure. But congratulations, you're here today. We're taking care of that. But number two is. Laziness. So you've learned the information today and now you're not applying it. You need to apply this information. You need to seek out more. You need to learn more. The third one though is the deadliest. So you have the education and you aren't lazy and you learn as much as possible. Ignorance. There are a lot of NFL players that I have counseled and that I've worked with that completely want to ignore everything and want to live by their own rules. And what ultimately ends up happening, they end up failing because they didn't take care of things themselves. For instance, I've heard the saying that they just want to focus on their career and have someone else take care of their financial future. So I tell them, I say, well, who's going to take care of your money more, you or someone else? And the answer is no one's going to watch out more for your money than you. So you need to start taking accountability. Here's another article that I was quoted in. The name of the article is called Going for Broke: Many Pro Athletes Still Struggling with Finances. My quote was, they don't know how they're invested. They don't know what they're doing. They don't know if they're being overcharged on fees. They have no clue. They have— they just have somebody that's their guy. Don't have somebody that's their guy. You take accountability. You take control. And one of the quarterbacks that played in the league said, you have $15 million in your bank account, $5 million in debt, and you feel really good. But then all of a sudden it gets cut into $7.5 million, and then you have child support, spousal support, alimony, and now $7.5 just went to zero, and now you still have that $5 million in debt. That's the same thing that happened to a lot of the guys in the previous slide. So let's change that. What we're going to be learning is the rule of 72 and how interest works. We'll discuss budgeting and the 50/30/20 rule, and then we'll just go slightly over taxes. Don't want to bore you guys today. So the rule of 72 says how long it takes for $1 to double to $2. And all you do is you take 72, you divide it by the interest rate, and then it tells you how long it takes to double. So let's just say if you were able to get 3%, it would take 24 years for $1 to go to $2. There's something important here. And by the way, here's the gentleman that, that created that formula. It's Mr. Albert Einstein. There's a reason why I circled 3 interest rates: 3, 7, and 12. And really, I could have circled 6 and 7, or just 6, but 3, 7, and 12. 3, I would say, is a very fair number for something that has absolutely no risk today. 7% has probably been the average if you're investing in the stock market, and then 12% is what you possibly can earn in the stock market if you catch it at the right time, maybe even a little bit more, but overall it's been about the average. The problem that I have with players that ultimately don't get past this first level is that they ultimately end up relying on somebody that will make these decisions for them and they end up losing their money. So there's a guy that's a former athlete and he's going out and he's bragging about how he's earning his players over 20%. And I'm going to tell you, that's not normal. And what my fear is that since a lot of these guys haven't taken the time to really do their own research and listen, that they're ultimately going to end up either losing a majority of their money or maybe even all of their money. And that's where a lot of these scams come from, is because you have people, you have wolves in sheep's clothing that are going to be out looking for you and they're going to be out preying on you. So again, the goal of this is for you to be very vigilant and take action. Now this formula I'm going to tell you is not— is wrong because What I'm doing here is I'm calculating how long it takes for 1.5% to double, and I use 3, but the answer is still the same. So if I divide 72 by 1.5, which is 1.5%, it takes 48 years. So if you look at my chart over here, it took 48 years for $1,000 to double to $2,000. Now what if you can get 3 in the same 48-year period? You'd have $4,000 because your money would have doubled 2 times. What if you can get 6%? Your money would have doubled 4 times. And then finally 12%, if you could have earned 12%, then you'd have a whole lot more. But the key to this is you need time. If you don't have the time, my fear is that a lot of people, what they end up doing is they end up chasing interest rates. And when you end up chasing interest rates, you end up in a lot of failure. And again, this is just not only a professional athlete problem. This is an America problem. I see a lot of times where retirees and even business owners that go off and chase interest rates and they end up losing. Let's talk about the 50/30/20 rule. Now, this was coined by Elizabeth Warren. And it's not a perfect rule, but it's something that you can use as a good guideline. And what it was is 50% is for your needs. So if your rent, mortgage, food, car insurance, all that. 30% is for your wants, buying clothes. And then 20% is for savings. What might happen Because if you live in areas like LA or New York, Miami, Atlanta, you may end up having to shift that 50 into 60 or 70. And what I would tell you to do is you want to shrink down your wants. You want to keep your savings as much as possible because just like with the story with the tortoise and the hare, slow and steady wins the race. When you go too fast, you're bound to have mistakes. And there's a lot going on in this picture here, but let's dissect it. The problem is that we end up spending a lot of money on our wants versus our savings, and then we end up with stuff that isn't worth much money. Or maybe nothing at all. And I'm here to reinforce that because I've seen a lot of professional athletes do this throughout the years. And the problem that we run into is we say, well, you know, I only make $20,000, $40,000, $50,000. If I could just make $100,000 or $250,000, half a million or a million, all my problems would go away. And that's not true because As we make more money, we develop finer tastes. These are the things you want to stay away from: high-end shoes, fancy clothes. Now, not bargain clothes, we're going to get to that in just a second or just a minute. High-end cars, mansions. Homes are really good. It's what they call an asset. It can have some value. Mansions, you can make money as well too. But imagine buying a mansion at the peak, and then all of a sudden the real estate market drops and it's not worth anything. And not to mention all the maintenance that you need to do on it to be able to sell it. Now, what I will say is, in the bottom left-hand corner, you have a picture of Jordan 11s, my personal favorite. Okay. Jordans and a lot of other collectibles, they can definitely have value, and I will vouch for that because there have been times that I've purchased, and especially Jordan shoes, and I've made more than double my money back. But if you wear them, you lose value. So that's what I mean by that. Your collectibles can have value as long as they're properly stored, but if you use them or if you don't maintain them properly, Guess what? They lose value. And then we have the gentleman that's at the bottom, about almost center, Slick Rick. He's a hip-hop pioneer. Listened to him as a child. And he's also brought the trend with chains and fancy charms, and a lot of them. And if you don't know who this gentleman is, You may want to look at the French Montana song No Stylist, and you'll know exactly who he is. But chains, fancy jewelry— and you can see here we have a diamond, diamond Rolex— it's going to lose value, and it's going to lose value fast. Now imagine if you still have to pay on that and it lost all that value. What's going to happen? So let's talk about my $2 business shirt. As you can see, I shop at a couple different places. One of my favorite places is Van Heusen. In fact, as you, as you can see, it's the shirt I'm wearing today. I got this shirt today for $2. How did I do that? Well, I went and shopped in the clearance section. As you can see, it's $12 for a shirt and I had a $10 coupon. So I only had to, I had to pay $2. It's a great deal, right? But you can also find those deals as well too. And you have a lot of secondhand stores or where things are gently used, and you can get a lot of these designer high-end names for a fraction of the cost. But guess what? If you buy it retail, you're gonna pay an arm and a leg. And a lot of the shirts that I get are out of season. If I were to buy them in season, they're easily $40, $50. Pants, $10, $20. Why? Because we use clothes and we're eventually going to— they're going to break. They're just gonna not, not be worth it anymore. But as you can see, I also bought another shirt for $3.06 and then another one for $4.69. So you can do this. You can definitely budget and you can definitely find a lot of these deals. They're out there. It's a lot easier than it used to be. Don't have to clip coupons. You just have to go out and search for the deals. And here's the last thing I want to leave you on setting up a budget. Convenience costs money. If you're using a lot of these places where they'll spare you the time and bring you your meal like Grubhub, guess what? There's a charge for convenience. I stay away from those personally because again, it's going to cost you a lot of money. Check your credit score. Again, this is about being vigilant, being on top of things. You have your 3 reporting agencies. You have Experian, Equifax, and TransUnion. You can get your credit report for free once a year at annualcreditreport.com. If you can stay on top of things, you can see where you can make improvements, where there are some weaknesses. And again, overall, it's always good to know what's going on because if you don't know what's going on, you're always thinking, what if? Let's just do very basic on taxes. We can go a little bit more intensive to this. Let's just go very basic today. So let's just say if you're an NFL player, you live in Florida, you play for the Jacksonville Jaguars, and you go and you play the Falcons and you play the Rams and some other teams. As you can see here, there's something called the jock tax. And what that means is any state that you play in, you pay in. So if I went to— and if I played the Los Angeles Rams, I'd have to pay California 13.3% on top of all the other taxes that I'm paying. So you just need to be very vigilant about your taxes as well too. The other thing I will say is that if you look and if you do some research after today, you'll see that in the US right now we're at historic lows for our tax rates. What does that mean? Well, we're doing all this spending as a country. Eventually someone's going to have to pay for it. So you need to be— what you need to be watching out, you make sure that you know what's going to go on, what's happening now, and what will happen in the future. There's a quote that I like to use, I like to bring up, is called perception versus reality. Some people call it gross versus net. The perception is I make $17.6 million a year. As a starting NFL quarterback. The reality is I only brought home $10.1 million. My gross was $17.6 million. My net is $10.1 million. You have a lot of people out there that are just looking at that top number and they don't look at the final number. Now think about also Compounding it or adding on with a spending problem. That's disaster. Let's look at what a single athlete that earns half a million dollars a year pays in tax. They pay a little bit more than just $149,000 a year. That does not include the jock tax, and that does not include what they call state income tax if they live in a state, let's just say like California. Where they also pay the state tax as well too. What about if they earn $1.3 million? Well, they're going to be paying a whole lot more in tax, paying a little bit more than $450,000 in tax, $452,000 to be exact. And what if they earn $5 million? They're going to pay about $1.8 million or $1.85 million. So if you do the quick math on it, you'll see that your gross or your perception is $5 million, but your net, your reality, is only about $3.2 million. You're probably wondering, well, what about if they're married? So I have those numbers there for you as well too. Let's just say if an athlete was married. Making half a million dollars, they're still going to pay about $120,000 in tax. What if they earn $1.3 million? Pay a little bit— pay just a little bit over $420,000. So they brought in $1.3 million, but they're taking home less than a million. Think about that. And then what about $5 million? Pretty close. So at $5 million, they're paying about $1.8 million just in tax alone. And that's federal tax. Again, it does not include state tax, and this does not even include the jock tax. What I like to tell people is, and especially professional athletes, use my 50% rule. And my 50% rule means, in my mind, I have a $5 million contract, but I know in reality that number is $2.5 million. And if I know that I can work off of $2.5 million, then I can budget a lot better. Because the one thing I didn't say before is that on that 50/30/20 rule, that's after paying taxes. That's not before. So taxes are going to be about 50% once you start adding everything up. And I'm going to tell you, we just really just scratched the surface of this thing because I can get into a lot more detail. But again, we needed to have those basics, those building blocks. There's a lot of other things that we can talk about. We can talk about insurance because a lot of college athletes are going to get into different types of insurance. How does it work? Don't know. What if they die? What if it's like a Kobe Bryant situation or Sean Taylor? It's a perfect example. And then we can get a little bit— we can dive in a whole lot more into tax deductions, but we can't get there unless if we cover our basics. So that's where we're at today. And again, I want to congratulate everyone for attending this call, and I know that you're going to get a lot of information. And I know you're going to take this information and apply it. And I'll leave you with one of my quotes. I'll say, life is like a complex math formula. If you can get help along the way, take it. And what do I, what do I mean by that? You're going to go through a lot in life. Life just never paints a perfect path for you. If you can have someone that can be your mentor, someone that can give you a leg up, or someone that can help you out, take it. Use it to your advantage. Obviously, if you're younger and you're taking this information now, you already have a leg up. You definitely have a leg up than what I had a long time ago. And again, please connect with me on social media, whether it's Facebook, Twitter, or Instagram. My company MVP Wealth is on there, and then I'm also on there. And I'm going to leave you with my phone number. This is actually my personal cell phone and my email. Don't be afraid to reach out. Knowledge takes time, and some things— and things that I may have said today, you'll have to hear it more than once. And I'm that type of— I learn that way. I have to read things. I have to listen to things more than once. They don't sink in. So don't be afraid to reach out. And again, I want to thank everyone for our class today, Wealth Management for Athletes. Thank you.