March Madness money matters: How young pro athletes handle their newfound wealth

With March Madness in full swing, all eyes are on a number of NBA hopefuls. For many college basketball players, the NBA draft season is a defining moment in their careers. If chosen to play at the next level, these players will experience an increase in cash flow in the form of high salaries and big endorsements. As a financial advisor, I can’t help but wonder how these professional athletes will handle this newfound wealth.

The first year is tough for many professional athletes because of what I call “pent-up demand.” These players have either been student athletes or spent years training hard with limited funds. Therefore once their NBA deal is solidified, they may be tempted to immediately make purchases such as cars and/or homes that they couldn’t afford previously without considering the long term financial implications. Ultimately, it takes some professional athletes a little longer than others to understand personal cash flow and budgeting.

While some professional athletes save their first year’s pay, it is difficult for most to resist spending. But it’s often during the second and third years where the problems begin because unruly spending habits that began in their first year can worsen in the next. Below are a few things young professional athletes should keep in mind as they experience a thriving career with newfound wealth:

• Seek out mentors who are former or current pro-sports athletes that have successfully balanced their careers and personal lives. They often have firsthand knowledge of how to best manage your new lifestyle and newfound wealth. Consider also getting to know the team ownership.  In order to run a successful NBA franchise, team owners need a lot of business acumen. Tap into that knowledge and see how you can apply it to your own growing empire as well.
• It’s hard to walk into the locker room and stand next to a veteran who is wearing the latest designer clothes, driving an expensive car and “living the life.” Stay focused on why you are there and don’t get distracted by the temptation to keep up with your seasoned teammates.
• The average career of a NBA player is a little under 5 years. As a rookie, your main focus is to continuously improve your skills and become a valued player on the team. To avoid distractions, consider consulting a financial advisor who can help layout an investment plan and educate you for life down the road.

Becoming a professional athlete is a blessing that will provide many opportunities professionally; but it can also present a set of challenges such as financial ones. Your team wouldn’t go into a game without a strategy, so don’t tackle your finances without one either – your bank account will thank you later.

Anthony Paul is a Financial Advisor with the Global Wealth Management Division of Morgan Stanley in Denver. The information contained in this interview is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.  Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Morgan Stanley Smith Barney, LLC, member SIPC.