The NBA Draft marks a pivotal moment in the lives of numerous talented young basketball players worldwide. However, the financial decisions made during this time can have lasting effects. As experts in working with professional athletes, we understand the importance of developing a well-constructed financial plan that preserves capital and transforms income into sustainable, generational wealth. This article explores the parallels between the wealth journeys of pro athletes and successful entrepreneurs, emphasizing the significance of proper financial advice in capitalizing on their early-career earnings.
Turning Income into Wealth:
Contrary to popular belief, high income does not automatically equate to lasting wealth. It is crucial for young athletes to implement a comprehensive spending, savings, and investment strategy to safeguard their financial futures. Such a plan allows them to determine optimal cash reserves, assess risks aligning with short and long-term goals, and select appropriate investment opportunities.
Pro Athletes vs. CEOs:
The 2022 NBA draft featured first-round rookie contracts ranging from $11.3 million to $50.2 million over four years, with guaranteed money for two years. The disparity in earnings highlights the need for prudent financial management. Although star athletes may earn salaries comparable to CEOs, their earning windows are typically condensed, making it vital to stretch those short-term earnings across a lifetime. While the average NBA career lasts around 4.5 years, starting to earn and save early can leverage the power of compounding returns, potentially leading to generational wealth.
Adopting a CEO Mindset:
We recommend that players think like CEOs, as they are not only “brands” but also CEOs of their own well-capitalized enterprises. Unlike a typical CEO whose earnings increase later in their career, NBA rookies have limited time for adjustment. Assembling a trustworthy advisory team early on becomes paramount. This independent team could include professionals such as agents, lawyers, managers, accountants, and financial advisors, complementing the existing support from family and friends.
Differentiating Needs from Wants:
Athletes should establish realistic financial goals, determine their risk tolerance, and take steps to protect themselves and their families. Building smart spending and savings plans from the outset is crucial. Distinguishing between “needs” and “wants” helps prioritize spending and allocate resources effectively. Long-term considerations encompass income security, taxes, wellness and healthcare, retirement planning, family support, and the creation of a lasting legacy.
Reassessing Financial Priorities:
It is important for players to regularly review their financial priorities, at least annually, and adapt their portfolios to account for changing circumstances. By striking the right balance between needs and wants, athletes can confidently spend on what matters most to them without guilt, knowing that their financial future is secure.
Protecting Against Scams:
Professional athletes often become targets for fraudulent schemes. A study by EY revealed that from 2004 to 2018, athletes reported fraud-related losses amounting to nearly $600 million. Players should be vigilant, ask questions when something seems amiss, and rely on their advisory team to protect their interests.
The NBA Draft represents a momentous occasion for young athletes, and their financial decisions during this time can significantly impact their future. By adopting a CEO mindset, building a reliable advisory team, differentiating between needs and wants, and regularly reassessing financial priorities, pro athletes can navigate the journey to financial success. With proper guidance and a well-structured financial plan, they can transform their high earnings into lasting wealth, ensuring a secure future for themselves and their families while leaving a meaningful legacy.