When superstars like Connor McDavid are busy racking up points in the NHL playoffs, they need backup not just on the ice, but from another team — their financial advisors.
McDavid, for example, has three years to go on a reported eight-year, $100 million contract with the Edmonton Oilers. He’s only 26, and his situation is hardly unique. The baseball season is just getting started, and Toronto Blue Jays star Vladimir Guerrero Jr., 24, is working under a US$14.5 million contract this year alone.
Athletes’ wealth management has come a long way since fabled hockey defenceman Tim Horton was spooked about his long-term income after a broken leg and put his funds into co-founding a doughnut chain that made him into a household name.
Other athletes today put their vast fortunes into diversified businesses. Hockey great Wayne Gretzky, for example, with a reported net worth of $250 million, bought into the NHL’s Phoenix Coyotes as well as a winery that bears his name in Niagara-on-the-Lake, Ont. Former Arsenal soccer star Mathieu Flamini parlayed his earnings into co-founding a biotech firm, GF Biochemicals, and took over as its chief executive officer.
Life-changing wealth
“What would you do if someone handed you a cheque when you’re 20 and it has seven zeros at the end? It sounds great, but it’s life-changing wealth and you have to deal with this,” says John Hastings, portfolio manager with RBC Wealth Management in Ottawa.
Hastings, a former member of Canada’s national kayak team, says it can be harder than most people imagine for young athletes to know how to handle getting rich quick.
Long-term planning can be hard for young athletes who are focusing on their next playoff goals or buzzer-beater baskets. But it’s a must, says Stephanie Condra, senior director of sales strategy and programs at BMO Private Wealth.
“Athletes are different than other wealthy people. One of the characteristics of an athlete’s career is that it peaks early and it’s likely to end early, and that peak can be at any time,” Condra says.
How athletes’ wealth management needs are different
According to Mississauga, Ont.-based Sartorial Wealth, a firm that offers financial management services for athletes, a Major League Baseball player’s career averages 5.6 years, and that is nearly twice as long as a National Football League player’s average of 3.5 years.
“Even if you have a long career, in most sports you’ll have reached your peak and be on the way toward retirement by the time average Canadians are buying their first house,” Condra says.
There are several issues that athletes and financial teams need to consider, Condra explains.
“Athletes face two fundamental challenges when it comes to money. One is a knowledge gap. Most people who accumulate money do it over a long time so they learn about managing it, but young athletes didn’t have time,” Condra says.
“This is partly because they’re still young and partly because they often didn’t have part-time jobs where they learned about money. While you and I may have been pouring lattes or tending bars, they were training all the time,” she says.
“Often we have to go back to basics about money with athletes. We explain how credit works, how to budget even when you have a huge amount to budget with, what to do when you get a huge tax bill, for example.”
More from Canadian Family Offices
- When a spouse dies, financial advisors have amazing opportunity to step up
- Mountain climb was catalyst to launch neck and back pain startup
- Family businesses risk future without ESG emphasis: report
- ‘Governance nerd’ took 20 years to reach his ‘aha’ revelation
Understanding how to be patient with a fortune can be a tough lesson, Hastings says. “They often come to me right away and say: ‘I want to buy a fast car.’” He encourages them to think long-term.
It’s important for money managers to convey that there’s a dedicated team to guide their financial decisions, Hastings adds.
Athletes need a financial coach
“Athletes are used to working with a coach, and one of the toughest things for an athlete is to venture into an area without coaching. You want to make sure they get financial coaching, too,” he says.
Both Condra and Hastings say they work closely with athletes’ agents when the money starts rolling in.
“Their goal is to maximize their clients’ wealth and look after their well-being, and our goals are the same,” Hastings says.
Some athletes also set up family offices, and banks and other financial firms work with them, too, he adds.
Many firms specialize in working with sports stars. One company, Cardinal Point, for example, works with many athletes who live in Canada but might play in the United States or internationally.
As Condra points out, “Hockey players are often Canadians who play for U.S. teams, or start their careers by playing in Europe until they make it into the NHL.”
Life after a sports career
Both Condra and Hastings say they encourage their athlete clients to think about life after the cheering stops. “Athletes often get bonuses, for example. We encourage them to put away the bonus for later; if they want to spend money, spend the money they’re earning year-by-year,” Condra says.
“We also work with them on their legacy, their philanthropy. What do they want to be remembered for?” says Hastings.
“We all know what Wayne Gretzky said: ‘Skate to where the puck is going, not where it is now.’ It’s the same for managing athletes and their fortunes – look to where they’re going in their lives,” Condra says.
Please visit here to see information about our standards of journalistic excellence.