Sports business is big business. Owners are prospering and athletes’ salaries are at an all-time high. With such escalation in salaries over the past five years, effective money management for professional athletes is even more crucial. In order to prosper long after the cheering ends, an athlete must avoid both poor and improper money management. There is a very large difference between the two. Due to their differences, there are diverse ways to combat them.
Poor money management was the focus of the Sports Illustrated article “How (and Why) Athletes Go Broke.” Poor money management can primarily be addressed through various levels of education including seminars and counseling and the assistance of certified financial advisors. Athletes need to continue to make better money decisions. The money they make in a relative short period of time needs to last a lifetime.
On the other hand, improper money management is much harder to combat. Education is helpful but some additional assistance is needed. Many athletes have been victims of improper money management. The list of victims reads like a Hall of Fame roster. No sport is immune. The victims all had two things in common: 1) they were defrauded by “trusted” people including family and friends; and 2) they all thought it could not happen to them.
There is something very powerful to help protect against improper money management: An Audit.
What is an Audit?
Many people relate the word audit to a bad thing such as an IRS audit. While an IRS audit is not a good thing especially for the one being audited, it does accomplish what it sets out to do. It makes sure it catches people who cheat on their taxes. Audits are designed to catch cheaters.
The true definition of an audit is to ascertain the validity and reliability of information. In other words, an audit makes sure things are proper and accurate. It’s the watchdog. In the case of a professional athlete, a lot of trust is placed in the hands of the money manager. An audit provides assurances to an athlete that whoever is handling their money for them is doing what they should be doing and not doing things that they should not be.
Most professional athletes have an accountant. Isn’t that enough? It truly depends on what your accountant is doing and what his/her expertise is. If your accountant performs audit procedures on your investments and cash flows, it should be adequate. However, if your accountant primarily handles your tax returns, this is not enough to detect improper money management. An athlete really needs to have someone looking over their money manager’s shoulder to ensure proper handling of money. An audit does cost money, although not having an audit performed could prove much more costly in the long run.
Making good money decisions and watching over your money manager's shoulder are two keys to prospering long after the cheering ends.
Marc Silverman, Founder and Partner of MH Silverman & Associates LLP
