With the last match point played at the Wimbledon championships in July and the kick-off of the new Premier League season, familiar questions are raised time and again in wealth management circles – how can we preserve wealth for sports stars, given that their specific needs are so different?
Both the David Beckhams of the sports world, with careers marked by fame, global admiration and fortune, and the Nethaneel Mitchell-Blakes, celebrating their first victories on an international stage, will find themselves in need of expert professional advice when it comes to managing their wealth sustainably and over the long term.
Most important, however, is the identification of appropriate wealth management approaches that suit the career stage of each individual athlete. For the household names, strategic investment and philanthropy are among the priorities. Those breaking onto the scene in their respective specialism will be most concerned about nurturing their wealth for the short term, until their careers are more established.
The wealth management ecosystem
Creating a network of advisers who understand your needs and are qualified to provide the right financial direction, is paramount to the successful management of wealth, particularly in a world where luxury assets and extravagance are never far from reach.
It is not uncommon for sports stars to be guided initially by their families and friends, particularly at the outset of their careers. However, as net worth increases, so too does the need for additional financial expertise.
As athletes’ careers grow in stature, the need for a wealth manager able to give not only strategic advice for wealth preservation, but also guidance around alternative revenue sources, increases in tandem.
Consider the winners of this year’s Wimbledon tournament. Roger Federer, the men’s champion, is 18 years into his professional career with 19 grand slam victories to his name, which have contributed to earnings of almost $108 million (£82.8 million).
The women’s champion, by comparison, is the younger and less-established Garbiñe Muguruza, who turned pro in 2012 and has claimed four titles since.
Wealth planning advice for Federer will factor in guidance around how to diversify his investment portfolio, whilst also factoring alternative themes, such as philanthropic causes. The Roger Federer Foundation is a clear example of how he has succinctly diversified his interests into initiatives that, whilst perhaps not generating investment returns, are important for maintaining his personal brand.
For Muguruza and many other fledgling sports stars, the focus will be on the sustainable growth of wealth: investing sensibly in a way that generates growth while preserving capital, engaging with advisers to learn how and where money is invested, and working alongside them to understand their finances from the outset.
Efficient wealth management dictates that sports stars must seek out strategic, independent advice from managers with experience in handling the affairs of those in similar positions. For those with less to manage, the appeal of family support is clear. What is important, however, is to recognise the point at which the guidance required by an individual moves beyond that which family members are able to provide. An impartial, professional service may be required in this case.
Investing for the future
The trappings of wealth, and the seemingly limitless access to a lifestyle of temptation and luxury, have been the downfall of sports stars for decades.
For Mike Tyson, poor financial planning combined with lavish spending on property, jewellery and even a pet tiger, resulted in the boxer - whose earnings reached over £250 million during his career - filing for bankruptcy in 2003.
In many instances, sports stars must be advised of the need to manage the longevity risk they take on during their careers to ensure their money lasts for decades to come.
But it is not just the ultra-wealthy who need to impose limits when it comes to their spending. Wealth managers should also be prepared to advise their younger clients of the importance of restraint, particularly for those earning considerable amounts at a young age, and for whom the temptation to indulge in the trappings of fame is high.
Adopting a prudent wealth management strategy from the outset of an athlete’s career is essential for creating a financial cushion to support them for the more fallow years ahead.
For wealth managers, the priority is to offer guidance on conservative and informed investments.
The fast life may seem more exciting, but sports stars at all stages of their careers would be well placed to consider taking a more conservative, low-risk approach to their lifestyle. Invest strategically in assets that will work for you, preserving ‘rainy day funds’ in the case of market fluctuations.
It sounds obvious, but continuous spending increases the risk of running out of money far more quickly. Confine the risk you take to the occasional over-zealous backhand volley, not your investment strategy.
Sandy Swinton is a managing director at RBC Wealth Management