Time and time again we see professional athletes that were once wealthy millionaires filing bankruptcy. There is no single reason that this happens so often, sometimes it is poor investment choices other times it is simply poor life choices such as excessive gambling. this is not always the fault of the athlete. Their job is to play which ever sport it is that they are great at, not to make financial and business decisions with millions of dollars. Generally speaking, athletes go directly into professional leagues before completing any post secondary education. This certainly leaves them ill-equipped to properly manage the millions of dollars they will make over their careers. Although the money being made during the prime of an athlete’s career can seem like a lot, in can certainly be spent if poorly managed. Another issue facing athletes is retirement at a young age. If an athlete is lucky he may play until he is 40 years old but most do not make it that far. This leaves a significant portion of an athlete’s life with a much lower income than they are accustomed to. Today, most athletes will have an entire team managing every aspect of their life. Often what that team is missing is a financial professional that the athlete can trust to have their best interest at heart. Three key financial services that athletes require include tax planning, investment advisory, and retirement planning.
Athletes often have international income which can lead to very complex tax filings. Athletes should ensure that they have a tax professional handling these matters. The number of times athletes have had the IRS or CRA here in Canada come after them is incredible. Some notable examples include boxer Mike Tyson owing over $2 million in back taxes and golfer John Daly owing over $1 million. Situations like this should not occur and can be detrimental to athletes who receive large single pay days like those of golf and boxing. The key to avoiding situations of this nature is for athletes to surround themselves with people they can trust. Agents and managers aren’t always the best people for these situations. It is important for every athlete to have a financial advisor and professional accountant that they trust. Accountants can make sure that tax situations of this nature do not occur and they will also minimize athletes tax liabilities.
It is important for athletes to seek investment advice. Professional athletes earn salaries in the millions of dollars. If this salary is put in the proper investments, it can last a lifetime through passive income. It is extremely important for athletes to seek an investment advisor that is a professional and is someone they can trust. A good investment advisor will help clients develop comprehensive financial plans that are individually tailored. It is a good idea for this plan to set aside a set percentage of income for investment. This will both create a safety net and begin to generate an alternative source of income. It is very important for professional athletes to develop a stream of income that isn’t related to their sport of choice. An Athlete may not always be able to earn an income from sports, so creating alternative sources of income is crucial. This can come from many different sources. Some examples include, stocks, bonds, real estate, and direct business investment. What an investment advisor can provide is direction for which of these investments will best suit the needs of the unique individual. Golfers are a good example of athletes who often create alternative sources of income. Mike Weir, Arnold Palmer, Ian Poulter, and John Daly have all created their own clothing brands which far out earn the money they are making from golf. All the wealthiest golfer’s primary sources of income are not tournament winnings. The key to learn from this is that at least a portion of income should be invested into assets that can provide alternative sources of income. This does not include fancy cars, big houses, and gold chains. Investment advisors can help create at a plan and select strong investment opportunities.
The most important decision an athlete can make is to plan for retirement. Athletes need to understand that they will not always be able to play their given sport. If they realize this, it is often beneficial to their long-term financial success. Hopefully the athlete has taken the previous step of seeking an investment advisor, but if not, now would be the time to get one. Again, an investment advisor will be able to assist the athlete in selecting the right investments for their specific situation. If the athlete had an investment advisor throughout his/her career they should have a good amount of capital saved. The most ideal way to retire is to be able to live off the cashflow of capital. This means that the individual will not have to decrease their net worth on an annual basis and will thus be able to sustain their lifestyle perpetually. Most athletes should have saved enough capital over their careers and will be able to do this if their money is well managed. In conclusion, the most important thing to do for retirement planning is to seek investment advisory.
Canadians Employed in the United States
Canadian players make up approximately 50% of the players in the NHL. The NHL has only 7 Canadian teams and 23 US teams. The major considerations for tax purposes are residency and citizenship. A Canadian citizen that is also deemed a resident of the United States, would likely face a tax liability in both countries. For professional athletes, this can get even more complicated. Players must pay tax based on where they play games, which is both in Canada and the US for all the big 4 sporting leagues. This is then broken down even further to pay tax on the state level based on games played. This is a very long and involved process that is complicated even for tax professionals. Athletes should ensure that they find a qualified professional that has experience with international tax matters to prepare their returns.