In theory, working with professional athletes sounds like a wealth manager’s dream come true. The players are famous, have a lot of money and usually need a lot of help. But be careful what you wish for, say veteran observers: working with professional athletes can also be a nightmare.
The latest firm to take the leap and target the potentially lucrative, but also perilous, pro athlete market is Constellation Wealth Advisors, the fast-rising New York and Silicon Valley-based wealth manager that has racked up approximately $4.5 billion in assets under management in just four years.
Constellation’s new “Sports Wealth Advisors” division, launched last month, is a “natural addition” to the entrepreneurially-oriented firm, said co-founder and chief executive Paul Tramontano. “There’s not a lot of difference between working with professional athletes and entrepreneurs who make a lot of money at a young age,” Tramontano said.
Heading Constellation’s sports wealth advisory board is Seth Abraham, a television executive best known for masterminding HBO’s boxing business from 1978 to 2000. Abraham will be joined by former National Football League quarterback Steve Bono and PGA tour golfer Joe Ogilvie, both Constellation principles.
While Constellation hopes to gain clients at all stages of their careers, Abraham believes the firm has a particularly good opportunity to target athletes nearing the end of their careers or recently retired. “It’s an under-served niche,” he explained. “Most athletes don’t think that the flow of money will ever end. But when they know their playing days are coming to an end, they are more likely to think about the management of their money.”
That strategy, however, assumes that there will be money left to manage in the first place. Unfortunately, the sports world is littered with examples of athletes who have gone broke, ranging from former heavyweight boxing champion Mike Tyson, who is estimated to have lost a staggering $400 million dollars to Hall of Fame quarterback Johnny Unitas and basketball star Derrick Coleman, who both have filed for bankruptcy.
And while exact figures are hard to come by, Sports Illustrated magazine has estimated that nearly 80 per cent of former NFL players are under financial stress within two years of retirement, while 60 percent of former professional basketball players are bankrupt only five years after retiring.
Abraham, who heads Starship SA, a sports marketing firm, has been involved with professional sports for over 40 years and has no illusions about what he’s getting into. “Many athletes think their athletic skills are a license to print money and they have no conception that it’s going to end,” he observed. “They’re spending money on houses, private planes, friends and family. They think there is always going to be another pay day.”
The hermetic world of professional sports is a tough business to break into, Abraham acknowledged. It’s critical to “work through agents,” he said, on whom athletes rely on to an extraordinary degree. And, not surprisingly, professional athletes tend to talk – and pass along recommendations - to their peers. “It’s a word of mouth business,” said Abraham, who was also president of Cablevision Systems’ Madison Square Garden/Radio City Entertainment division.
Abraham’s contacts and reputation will at least give Constellation’s new venture a leg up, said legendary sports agent David Falk, who has represented Michael Jordan and other high profile athletes. “Seth provides them with access, and that’s clearly what it’s all about,” Falk said. “He’s liked and well-respected and people will return his calls.”
But make no mistake, competition to be the financial advisor to highly-paid athletes in a glamorous, highly-visible multi-billion dollar industry is fierce and cut-throat. Those vying for a piece of the action include agencies, wirehouses, big banks like Atlanta-based SunTrust Banks, hundreds of independent firms (nearly 500 are registered with the National Football League Players Association) and the countless relatives and friends trying to persuade the athletes to let them take care of their money.
One of the most aggressive firms in the market has been SunTrust’s Sports and Entertainment Specialty Group, which has over 35 client-facing professionals, $2.3 billion in assets under management, and not been shy about leveraging its commercial lending capabilities to woo wealthy sports stars and entertainers, according to Thomas Carroll, managing director and head of the group.
Earlier this year, SunTrust bought San Francisco-based CSI Capital Management, which specializes in working with athletes and has approximately $1.5 million in assets, for an undisclosed sum. Other acquisitions are also being considered, and the sports and entertainment group plans to add more advisors and is eyeing opening new offices in Washington, D.C. and the metropolitan New York area, Carroll said.
The division is “one of the fastest growing segments” within SunTrust’s private wealth management group, according to Carroll. Professional athletes are particularly attractive clients, he noted. “Their earning potential is enormous,” Carroll said, “and beyond the core cash flow from their careers, their name and recognition make them potential brands after their playing days are done.”
High Maintenance Clients
But pampered athletes used to getting their way can also be high overhead and high maintenance wealth management clients, warned observers.
“Working with athletes can be very time-consuming and challenging for financial advisors,” said Susan Bradley, founder of Palm Beach Gardens, Fla.-based Sudden Money Institute, a firm that works with clients undergoing financial transitions (such as signing a pro sports contract) for a fee but does not provide financial planning or investment advice. “It’s a tough market. The key to working with athletes is building relationships and that takes a lot of time.”
Wealth managers may also be surprised by the high level of service athletes demand, said Falk.
“Athletes can expect things to be done for them that the rest of us take for granted, like buying a house, buying a plane ticket or arranging a pre-nuptial agreement,” he explained. “Athletes can be very, very high maintenance. I don’t think wealth managers understand that working with professional athletes is not the same as managing money for a normal wealthy person.”
Athletes are also prone to invest in tangible, illiquid vehicles like restaurants, real estate or commercial enterprises like bowling alleys or car washes, say those who work closely with them. As a result, wealth managers need to be prepared to bring in expert, third-party advice to asses these new ventures, if they can’t discourage their clients from making the investments all together – and risk alienating them.
Besides the taking care of details like insurance, and helping a client with a limited career time span to preserve capital and find replacement income, wealth managers also be prepared to deal with the special psychological needs of professional athletes, Bradley said.
“Wealth managers need to help athletes adjust psychologically as well as financially,” according to Bradley, who is on the advisory board of the NFL Players Association “Athletes have been pampered while they’ve been playing, and everything was taken care of for them. When they retire, all of a sudden they’re on their own and it’s like falling off a cliff.
“I always want to know why an advisor wants to get into this business,” she continued. “It’s not enough to be a fan, and in fact that can be detrimental, because then you get sucked into the emotional side. And if it’s just about managing money well, than to me you’re completely unprepared for this market. You need a real passion for these people and their special needs. And you need practice management and a process that can engage with the human side of the equation.”
| Paul Tramontano |