In the first edition of the Ask The Expert Series, we were privileged to have Emery B. Sheer, CPA on the "hot seat." Sheer is the Managing Partner of the acclaimed South Florida-based accounting firm, Berenfeld LLP. He oversees both the Business Management & Advisory Group, as well as the firm's Sports & Entertainment Division, Berenfeld Legacy Group.
The Berenfeld Legacy Group is a specialized division of the 200-person CPA firm that handles the financial affairs for sports and film stars. Sheer applies his accounting and financial asset management skills to the portfolios of many high-net-worth athletes and entertainers to assist them in managing, protecting, and increasing their wealth. He assists clients in a wide-range of accounting and advisory services, including: tax and financial planning, outsourced accounting services, business development and strategic planning, contract negotiations, fund-raising, investment and insurance advice, and real estate transactions.
One of Legacy's fundamental missions is to financially coach young athletes to wisely save and invest their newfound wealth.
"More than 70 percent of professional sports figures are broke five years after leaving the game," said Sheer in a recent article with the South Florida Business Journal. "That's after going through millions on houses for parents, and then blowing millions of dollars on bling, cars, partying, restaurants, clubs, friends, and cribs."
The Legacy Group has long-standing relationships with many top sports agents and its major clients include A-list athletes and celebrities. The Legacy Group believes in a strong relationship with their clients and privacy is of utmost importance. They endorse an open door policy and ask clients to keep an open dialogue regarding their economic situation. As members of the International Association of Practicing Accountants and the Public Companies Accounting Oversight Board, Berenfeld Legacy Group is held to high standards regarding client conduct, compensation, and corporate governance.
Trained as a performing artist, Sheer earned a B.S. in Music Education, as well as Graduate Studies in Opera Performance at Boston University. He would later earn an accounting certificate from Florida International University. Sheer is a Certified Public Accountant and a Certified Valuation Analyst. He is registered with the SEC as an Investment Advisor. He is also licensed by the Florida Department of Insurance in the areas of health, life, and variable annuities and a Yellow Book approved auditor for government entities.
In addition to providing counsel to A-list Athletes and Celebrities, Sheer is also the CFO of White Buffalo Entertainment, a film production company that recently won the Tribeca Film Festival for its Sports Documentary "Racing Dreams." He also sits on many prestigious boards including the 2010 South Florida Super Bowl Committee, in charge of hosting the 2010 Pro Bowl and 2010 Super Bowl in Miami, Fl. Berenfeld LLP is an official Tax & Business Advisory firm for the 2010 NFL Pro Bowl and 2010 NFL Super Bowl.
Sheer is currently a board member of various regional and national organizations, including Treasurer of The Adrienne Arsht Center for Performing Arts in Miami Fl., the Baptist Health System Foundation, The Beacon Experience, the Friends of WLRN Radio & Television, and The Rock Foundation.
Questions & Answers
1. I’m going into my senior year in college football. What’s the best way to go about purchasing an insurance policy? I’ve read about guys like Tebow doing this recently and any guidance Mr. Sheer could give me would help out a lot.
An Insurance Policy against disability, injury or sickness can protect the loss of future earnings if a catastrophic event were to occur. Registered financial advisors and licensed insurance agents can help decipher the coverage and corresponding premium payments necessary. In some cases it will be necessary to secure outside financing to pay the costs of acquiring and maintaining an insurance policy. Whether this is worth it or not depends on your projected draft status.
The NCAA offers an insurance program for qualified collegiate athletes in football, men’s and women’s basketball, baseball, and men’s ice hockey. The program has been available for 20 years. One benefit to the program is that the NCAA offers in-house financing.
NCAA Student-Athlete Insurance Programs
2. I recently signed my first pro contract in the NFL. What’s the best way to report my signing bonus without getting clobbered on my taxes?
How and when you take receipt of a signing bonus will affect your tax situation. When negotiating a contract, ask your agent to involve your professional tax advisor to oversee its structure and advise on any strategies that may reduce the tax liability. One strategy is to defer and spread out the signing bonus over the length of the contract to keep you in a lower tax bracket.
The contract must be structured and worded properly. If you have rights to the bonus and just ask the agent or team to hold on to the money to avoid income taxes, the IRS will treat this as “constructive receipt” and you will be liable for the income taxes anyway. Also, by deferring the income, it will allow your tax professional to advise you on your proper and most effective “tax home.” States and cities have different tax rates. This becomes a very important part of the planning process as these taxes can add an additional 15% to your tax bill.
If the contract is designed properly, then you will save taxes and create a savings account for the future. Remember, signing bonuses are treated as W-2 income, that is, income paid to an employee of an organization. W-2 income is subject to local, state, and federal taxes, social security withholdings, and Medicare taxes.
3. As an NFL rookie, what are some good and smart investments I can make?
The first and best investment to make is to invest in yourself first! Create a federally-insured savings account, and before you pay anyone or anything, pay an amount to this account. Do this with every paycheck. Begin the habit of setting money aside in several savings accounts: An off-season Savings account, a retirement account, 401(k), IRA, etc. Seeking out reliable investments, either in the private or public market, takes time and due diligence. When considering publicly traded securities, consider “dollar cost averaging.” That is, investing your investable dollars over a period of time to take advantage of downturns in the market. When considering private equity investing, take time to understand what the investment is. If you can’t understand the investment or the investment structure, DO NOT INVEST. Never rush into a decision due to time pressures. There are many good opportunities waiting for you, but there are even more bad ones. I only trust the U.S. government when I look at guarantees. Everything else is at risk.
Before investing, start with a budget. Your business advisor will help you with this. Budget how much you can safely invest and also budget how the investments should be broken down.
4. With the economy the way it is, does it make sense to contribute to my NFL 401(k) or should I look elsewhere?
Yes, MAX OUT your 401(k). A 401(k) is a deferred income-tax retirement savings plan. The NFL will match your contribution to a limit. It’s like giving yourself a raise in salary. If you are concerned about the markets and prefer not to invest in stocks or mutual funds, instruct your administrator, payroll department or whichever firm is holding your 401(k) account to transfer funds to a money-market account, still under your 401(k) plan. This way, the money will be safe, you save on current income taxes, and you will give yourself a raise (Life is good!).
5. What are the best law schools in the NYC area for JD's interested in a career in sports law?
Law schools are generic in nature and provide a balanced program. There is no substitute for experience working with a seasoned professional. Sports law has become a highly sought area often coupled with entertainment and music, as all deal with intangible property. Look for schools with an emphasis of courses in Intellectual Property (IP) law.
6. Are fines levied against pro players for misconduct and other violations tax deductible?
The IRS has specific guidelines on what is and what is not tax deductible. Consult with your CPA. Many times, professional athletes will miss tax deductions because they are uninformed. Ask Questions!
NFL fines are seen as ordinary expenses. Penalties, both monetary and non-monetary caused by league or team violations are seen as part of the game. These penalties are generally tax deductible.
US TAX CODE: Title 26162:
There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.
On the contrary, Penalties imposed by a court for breaking the law – such as a speeding fine levied because you didn’t want to be late to practice – is not tax deductible.
General Rule: Break the rules, you can deduct it. Break the law, no deduction.
7. What advice would you give to a professional athlete looking to establish his or her own foundation? What potential pitfalls might they encounter and how do they steer clear of them?
Establishing a player-run foundation is popular, but not always wise. Having involvement with a foundation or 501(c)3 can offer the same tax benefits as running one without the time or headache.
The most successful run foundations are those that are built on purpose and experience. We encourage clients to first become involved in existing, established foundations.
Two thirds of athletes that run foundations have poor organization and incorrectly file with the IRS. This includes basketball and football camps. In addition, most place family members in executive positions despite IRS rules. And as such, many athlete foundations are run inefficiently and have excess waste. Foundations should look to donate $.65 of every $1 to charity. Foundations are subject to examination by the Internal Revenue Service. If the Foundation is not properly governed by an Independent Board, has a valid exempt purpose, and supports a cause that in the view of the IRS alleviates the burden of the U.S. government, then the Foundation may lose any exempt status it originally enjoyed.
8. How can top athletes avoid being taken advantage of by their investment advisors? What safeguards can they use to prevent a Carmelo Anthony type-situation from occurring?
Professional athletes, because of their celebrity status and high income potential, are often targets, not just of unscrupulous advisors, but of Federal Tax Hikes and Justice Department enforcement. (i.e. ‘The Michael Jordan Revenge Tax’ also known as ‘The Jock Tax’.)
Yes, professional advisors have a fiduciary responsibility to their client, but that does not mean the client can turn a blind eye. Proceed with caution when signing a ‘Power of Attorney’ form. A ‘Power of Attorney’ is an authorization to act on your behalf in a legal or business matter.
(1) Do your research – Stay Involved in your finances – Ask questions
(2) Separate Responsibilities – Don’t let your agent handle your money.
(3) Know your CPA – Your Certified Public Accountant is the individual who will prepare your taxes each year. He is an excellent resource and can help to develop tax strategies that will minimize your liability.
9. Does it make sense for professional athletes to purchase real estate with the potential of being traded always lurking on the horizon?
In a “normal” real estate market, values increase about 2% per year. Market timing NEVER works. If you are fortunate to stay in one city for 5 years you are more likely to recoup your investment including all the closing costs. The issue always comes up of having to sell the property rather than carry two properties at the same time. Purchasing property is an excellent way to build equity, but there is no need to jump into anything immediately, especially if you are a rookie. A common mistake of many professional athletes is to lock themselves into payments – mortgage payments, car payments, credit line payments, etc. The bills get out of hand very quickly and the debts become a drain on your capital preservation account.
10. What are some of the businesses that your entrepreneurial-minded athlete clients have opened up?
The first business an athlete client opens up is an LLC with the athlete as managing member. There are many tax advantages to opening up your own LLC. One purpose of the LLC is to capture all ancillary, endorsement or outside income. That is, income generated from outside the team or non-W2 income. A professional athlete may deduct the expenses incurred to generate that revenue, offsetting this against that year’s earnings. The IRS has specific guidelines on how to declare expenses depending on the purpose of the expense. Expenses can include food, personal training, travel, etc. I realize the answer to this question was suppose to be music production or restaurants or sport camps, etc., but the best business to open and concentrate on is to work on the core and primary business, Yourself. Leave the other businesses to the professionals in those fields.
11. What types of things should young college athletes who have a chance of making it to the pros start doing to prepare themselves for the financial reality that they will face at the next level? Are there any skills they should start learning now before they are presented with a lucrative contract and endorsements?
A basic business law course is very helpful, as well as a fundamental course in accounting. Most universities will offer these courses for students not majoring in those fields.
Apply for a professional internship. Internships are an opportunity to gain exposure to some of the issues you may face. It’s also an excellent way to network and build relationships.
Lastly, the skills that are so important are financial discipline and patience. Learn how to budget expenses. This is very difficult in college because there usually isn’t much money to budget. It is even more difficult in the Pros because there is too much money to budget. After signing a lucrative contract, be patient and allow yourself time for both you and your family ‘to get used to your new shoes.’
We would like to thank Emery Sheer for participating in the first edition of the Ask The Expert Series. If you have any questions for Emery, you can email him at email@example.com. If you are a sports professional or professional athlete and would like to participate in the Ask The Expert Series, please contact Matthew Allinson at firstname.lastname@example.org for more information.