The Financial Challenges of Professional Athletes and How to Navigate Them

Professional athletes face unique financial challenges that require careful planning and management. From earned income volatility to short careers, these issues can lead to financial instability if not properly addressed.

Understanding the specific financial issues professional athletes encounter is important to help provide actionable advice for managing their finances effectively.

Quick facts

• Professional athletes often face income volatility, earning significant sums during their careers but experiencing sharp declines in income post-retirement. This makes long-term financial planning essential to avoid financial instability.

• Some athletes may not have been exposed to financial education and are prone to mismanagement of wealth, leading to issues such as overspending, risky investments or insufficient savings for retirement.

• The combination of high expenses, complex tax obligations and short career spans creates a unique set of financial challenges that require careful planning and expert guidance.

• Injuries, career-ending events and personal life changes like divorce can have significant financial consequences, underscoring the importance of insurance, asset protection and comprehensive estate planning.

Earned income volatility and financial instability

Professional athletes often experience significant fluctuations in income. Many earn substantial amounts during their playing careers but may face a sharp drop in income once they retire.

In some cases, retirement may be forced due to serious injuries causing a steep and unexpected drop in income. This volatility makes it difficult to create a stable long-term financial plan, leaving athletes vulnerable to unexpected expenses and financial mismanagement.

To navigate this challenge, athletes should prioritize building a comprehensive budget that accounts for their high-earning years and their future beyond the league. Athletes should also create a larger emergency fund than those in other lines of work to account for the unexpected such as lapses in contracts or injuries. Working with financial advisors who specialize in managing irregular income can help create investment strategies that smooth out income over time.

Lack of financial education and mismanagement

Unfortunately, many athletes are critically underexposed to the financial education needed to manage their wealth effectively. As a result, common mistakes like overspending, risky investments or failing to save adequately for retirement can jeopardize their financial security.¹

Professional athletes should seek out financial education resources early in their careers. Workshops, online courses and advisors specializing in athlete finance can provide critical knowledge. Reputable financial advisors with experience in the sports industry can also help athletes avoid common pitfalls and build a secure financial future.

Short careers and retirement planning

The average career length in professional sports is remarkably short, often spanning just a few years. This limited earning window requires athletes to maximize their income during their playing years while planning for decades of post-retirement life.²

To prepare for retirement, athletes should prioritize saving and investing early. Retirement accounts, such as IRAs or 401(k)s, provide tax advantages and help grow wealth over time. Diversifying income sources – such as through business ventures, endorsements or investments – can provide additional financial security beyond athletic earnings.

High expenses and lifestyle management

Professional athletes often face high living expenses, ranging from luxury homes and vehicles, to maintaining an image in the public eye.³  While these expenses may feel justified during peak earning years, they can quickly become unsustainable.

Maintaining a reasonable lifestyle is key to long-term financial stability. Athletes should create a spending plan that distinguishes between essential expenses and discretionary spending. By adopting modest spending habits and avoiding unnecessary extravagance, athletes can stretch their wealth over a lifetime.

Endorsements, sponsorships and potential pitfalls

Endorsements and sponsorships often supplement athletes’ income, but these deals come with their own set of risks. Poorly negotiated contracts or misunderstanding contract terms can lead to financial losses, legal disputes or reputational harm.⁴ One of the largest components of an athlete’s earnings potential is their name, image and likeness. Protecting that persona and reputation is critical.

Athletes should work closely with legal and financial professionals to review contracts before signing. Ensuring clarity on payment terms, performance clauses and potential liabilities can prevent future issues. Additionally, athletes should consider diversifying endorsement opportunities to minimize dependence on any single deal.

Estate planning and protecting assets

With substantial wealth often comes complex estate planning needs. Athletes may own multiple residences, investments and other assets that require careful management. Without proper estate planning, these assets could face significant tax burdens or disputes among heirs or loved ones.

Creating a comprehensive estate plan ensures that an athlete’s wealth is distributed according to their wishes while minimizing taxes and protecting family.⁵ Working with an estate planning attorney familiar with high-net-worth clients is crucial for addressing these complexities. Regularly updating the plan to reflect changes in life circumstances, such as marriage, divorce or the birth of children, is equally important.

Tax issues and compliance

Athletes often face complicated tax situations due to the nature of their income and the locations where they play or reside. Income earned across multiple states or countries can lead to overlapping tax obligations and higher scrutiny from tax authorities.⁶

To navigate these challenges, athletes should work with tax professionals who specialize in sports finance. Filing accurate tax returns, understanding local tax laws and keeping detailed records of earnings and deductions can help avoid audits and penalties. Proactively addressing tax issues ensures compliance and reduces financial stress.

Divorce and alimony

Divorce can have significant financial implications for professional athletes, particularly when large alimony payments are required. Without proper planning, a divorce settlement can erode an athlete’s wealth and disrupt long-term financial plans.

Athletes should consider prenuptial or postnuptial agreements to protect their assets. During divorce proceedings, working with attorneys experienced in high-net-worth cases can help negotiate fair settlements. Building a budget that accounts for potential alimony payments ensures financial stability after a divorce.⁷

Injuries and career changes

Injuries are a constant risk in professional sports, and career-ending injuries can have devastating financial consequences.⁸ Without proper planning, an abrupt end to an athletic career can leave athletes unprepared for life outside of sports.

Disability insurance is a critical tool for protecting against lost income due to injury.⁹ Additionally, athletes should explore career transition programs and educational opportunities that prepare them for post-sports careers. Diversifying investments and income streams can also provide financial stability in the event of an unforeseen career change.

Managing NIL deals for student athletes

The legalization of Name, Image and Likeness (NIL) deals allow college athletes to earn money through endorsements, sponsorships and other ventures. While this is a significant opportunity, it brings financial complexities that require attention.¹⁰

NIL income is taxable and may involve filing in multiple states, depending on the nature of the deals. Athletes must also understand contract terms, such as payment structures and obligations, to avoid future disputes. Seeking advice from legal and financial professionals can help athletes negotiate fair deals and manage their income effectively.

For many, handling NIL earnings is a stepping stone to managing finances as professional athletes. Building budgeting skills, saving for taxes and investing wisely can set student athletes on a strong financial path. Professional guidance is key to navigating this new landscape and ensuring long-term success.

Bottom line

By understanding these financial challenges and taking proactive steps to address them, professional athletes can achieve long-term financial stability and security. Building a comprehensive financial plan, seeking education and working with reputable advisors are key to navigating the unique financial landscape of professional sports.

Conway Wealth has been successfully guiding professional athletes through their financial journeys for over 30 years. If you’d like to learn more about our philosophy or services, we encourage you to send us a message today, email info@conwaywealthgroup.com or call 973.285.3640.

Investment advisory and financial planning services offered through Summit Financial, LLC, an SEC Registered Investment Adviser, doing business as Conway Wealth Group (4 Campus Drive, Parsippany NJ 07054. Tel. 973-285-3600). 7409201.1

1. Forbes. “8 Ways Pro Athletes Can Ensure Financial Stability After Their Careers.”
2. Vermillion Financial Advisors. “The challenges professional athletes face with money.”
3. Forbes. “8 Ways Pro Athletes Can Ensure Financial Stability After Their Careers.”
4. Association of Corporate Counsel. “Top Ten Issues and Pitfalls with Athlete Endorsement Deals in the United States.”
5. Merrill Lynch. “Easy, and essential, estate planning fundamentals.”
6. Merrill Lynch. “Seven tax planning tips for professional athletes and entertainers.”
7. Justia. “Divorce and Family Law Issues for Professional Athletes.”
8. LinkedIn. “5 Common Reasons Athletes Experience Financial Challenges.”
9. Investopedia. “What Is Disability Insurance? Definition and How It Protects You.”
10. NCSA. “Name, Image, Likeness.”

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