Rising earnings for top sports and lucrative contracts for college players have sparked a new gold rush among wealth management firms.
Juan Soto’s $765 million contract with the New York Mets in Major League Baseball shows the tremendous riches being made by professional sportsmen, as well as the prospects for wealth management organizations that manage their interests.
With collegiate players now earning six and seven figures for their name, image, and likeness, as well as an increase in women’s sports, the number and wealth of professional athletes has made sports a primary driver of wealth management growth.
“The numbers have gone through the roof,” said Molly Cloud, Morgan Stanley’s financial advisor and director of sports and entertainment. “There is a lot of money that wasn’t there 10 years ago. It makes our job more challenging and exciting to be a part of that expansion.”
Wealth managers are expanding their sports and entertainment segments and hiring former athletes to recruit more clients, ranging from longtime leaders in the space such as Morgan Stanley, Bernstein, UBS, and Goldman Sachs to multifamily offices such as Rockefeller Capital Management and private equity firms.
Former hockey player James Beale now serves as the development director for Rockefeller Capital Management’s Rockefeller Global Family Office, where he heads the Sports and Entertainment group. Beale stated that, while athletes are not really different from other high-net-worth clientele, having previous athletic experience is beneficial.
“I’ve seen a lot of friends in [sports] who may not have spent enough time being intentional with their riches. That put them in a difficult situation. So understanding that and attempting to assist folks in avoiding those difficulties earlier in their careers has positioned me well in the entire athlete network,” Beale explained.
According to Beale, athletes, like other high net worth individuals, frequently devote the majority of their time to their business or job, leaving little time for investing.
“They put 99% of their time into taking care of their body, managing their health and training,” Beale pointed out. “It’s extremely comparable to an entrepreneur that dedicates all of their time to their business here. We step in as a trusted partner to assist them with their finances and give them back the time to focus on their trade.”
Other rich athletes’ advisors, however, claim that they face distinct problems. Unlike most wealth creators, who accumulate wealth as they mature, athletes get their greatest rewards at a young age. Handling millions as a 20-something or, increasingly, even a teenager has unique hazards.
Stacie Jacobsen, national director for client engagement and co-lead of Bernstein Private Wealth Management’s sports, media, and entertainment group, stated, “They are earning more at a younger age than they will ever earn in their lifetime.” “Their relationship with money is almost unique to almost anyone else we work with.”
Given their relative youth, knowledge is critical when mentoring professional athletes. According to Jacobsen, athletes are used to projecting confidence, so asking questions about investing can be uncomfortable.
“There’s this sense that, ‘Yeah, I got this,'” she was saying. “Behind the scenes, they don’t. So I have to be open and ask, ‘Do you have any additional questions about these topics?’ or ‘Is it something you want to delve deeper into?'”
Because of their age and preoccupation with their jobs, professional sportsmen are attractive targets for scams, frauds, and poor investments. MLB phenom Shohei Ohtani learned that $16 million had gone from his account. His interpreter eventually admitted to skimming from Ohtani’s accounts to pay gambling losses.
According to an EY research published in 2021, professional athletes lost over $600 million due to fraud between 2004 and 2019.
Taxes pose another significant problem for professional sportsmen. The so-called jock tax, in which athletes frequently owe taxes to the states where they play or earn revenue, can be difficult and time-consuming to compute. Wealth advisors claim they work with athletes to keep meticulous records and determine the appropriate tax domicile.
Advisors claim their most important duty when working with professional athletes is to help them say “no.” Young athletes are vulnerable to pricey mistakes, whether it’s friends or relatives pitching them investments or making an impulse buy of a $400,000 Lamborghini or $800,000 Richard Mille watch.
“If one of my clients comes to me and says, ‘I want to buy this car’ and it wasn’t in our original financial plan, I will say, ‘Not yet,'” Jacobsen told me. “Or I will say, ‘OK but here is the impact of that purchase on your financial plan and it may take longer to achieve the priorities you originally set out.'”
When clients come to her with investments advised by friends or family, Jacobsen assists them in gathering further information about the firm and conducting adequate due diligence. The same applies to real estate.
“If a client says, ‘I want to buy this house I just saw,’ I ask, ‘Why?'” Is it a good value? Who will use it? “What’s the long-term investment strategy?” she said.
Pro athletes used to work with restaurants, auto dealerships, and other consumer-facing businesses that profited from their image, but today’s young players demand equity holdings in fast-growing digital startups and board seats. Crypto and artificial intelligence are also popular, according to advisers.
Finally, being a wealth counselor to professional athletes involves preparing them for life after the game. Many careers are brief and unpredictable, particularly in the NFL. Advisors believe they have to be the biggest cheerleaders for their clients while they are playing, but they must also prepare for the unavoidable.
That encompasses everything from developing an investing strategy to establishing a second job to negotiating long-term trademark agreements and income-generating assets.
“They realize this is likely their best shot at creating significant wealth,” according to Jacobsen. “They’re taking it seriously, developing a professional team and starting to get involved and ask the right questions.