Wealth management for athletes and artists

Two classmates who played baseball together in high school were both drafted and played in the minor leagues. One of them played for a few years, but a serious injury sidelined him for good and he became a retired athlete. The other was eventually called up to the major leagues and became a star player who went on to sign a seven-figure, multi-year contract with a powerhouse team.

Both require careful wealth and finance planning for professional athletes.

The same goes for a respected Broadway actress whose career suddenly came to a halt when the theater district closed due to Covid-19. Since then, she hasn’t found a stable job, but she still has bills to pay and a pension to finance.

It is a widely held misconception that professional athletes and entertainers enjoy access to endless streams of money. Sure, some superstars make their fortunes on nine-figure contracts, but unpredictable careers and lower incomes are common. Especially now, amid pandemic-related delayed seasons and halted productions, earnings and career plans seem unreliable.

How can athletes and entertainers help protect their financial future? We asked the global directors of sports and entertainment at Morgan Stanley for advice. Here are six tips they shared:

A professional athlete can earn at least a six-figure salary, but will likely retire before age 30. The average career ranges from five to seven years.1 This can leave a fairly long retirement to fund, especially compared to the 40 or 50 years a typical professional has to build their nest egg. Along the same lines, Broadway performers can be successful, but long-running shows are rare, and showbiz success can be fleeting. So while a 10-15% annual savings rate might work for a doctor or lawyer, a professional athlete or entertainer should consider saving even more in the long run.

If you’re young or inexperienced with money, you might be tempted to live what some might consider the “celebrity lifestyle”, which can put you at financial risk, especially if your career as a gambler or actor takes a sudden turn. You may need to save up to 50% of your current income to build up a big enough cushion. The higher savings rate will help you save enough money in case of an emergency or work stoppage, while helping to provide you with financial security for a longer retirement.

Family and friends can come to you with their outstretched hands. Whether it’s helping parents buy a new car or covering a friend’s vacation expenses, overspending on loved ones can become financially unsustainable and a hard habit to break. Generosity is a great trait, but be thoughtful and selective about it. This will help you set expectations about your largesse, avoid awkward conversations, and avoid potential financial problems down the road. Also remember that cash is not your only capital. Celebrities often receive free tickets, clothing, and other valuables that can be gifted to others.

Wealth can make you a bigger target for fraudsters, whether it’s sketchy investments and real estate projects or various forms of cybercrime and theft. One way to protect your personal accounts is to create a separate operating account, from which you pay bills and other expenses, without providing direct access to your main account. It can also simplify your accounting.

It is also essential to follow good cybersecurity practices. Taking easy and simple precautions can dramatically reduce your chances of becoming a victim. For example, when traveling for an away game or show abroad, avoid using public Wi-Fi connections, which hackers can access to intercept your digital activity. Instead, rely on a mobile hotspot or virtual private network (VPN) for encrypted internet access. Keep your financial advisor up to date with where and when you’re traveling, so they can keep tabs on any unusual activity on your account and block fraudulent charges.

Not all athletes derive a stable income from their sport. Olympic hopefuls, for example, often work part-time jobs or gather income from prize money, sponsorships and speaking fees to support their athletic careers. In such cases, non-profit sports foundations can be a source of funding. They can meet the money you need for the competition, while preserving your podium earnings for the future.

It can be devastating to end your career due to injury, especially if you’re still young, but it doesn’t necessarily mean the end of your working life.

Many athletes and performers pursue successful second careers, either going into business or going back to school to get a professional degree. Keep an open mind about the possibilities and develop a network so you’re ready to take the next step in your career, should the need arise.

You can have a coach, trainer and agent, but you should also have a financial advisor who can work with you and your loved ones on a wealth plan that suits your needs. In addition to managing your investments, a financial advisor can help you prioritize your day-to-day spending needs and your longer-term investment goals.

While your expertise may be within the confines of competition, the big screen, or the stage, it’s important to avoid feeling invincible when it comes to money. Connect with a Global Sports and Entertainment Director or Morgan Stanley Financial Advisor who can help you develop a sound long-term plan for your wealth. Then you can enjoy your success knowing that you are better prepared for whatever the future throws at you.

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