for Athletes

Money Mindset

TM

Table of Contents

Introduction..................................................................................2 Your CPA..........................................................................................3 New Team - New City.................................................................4 Spending Plan..............................................................................5 Disability Insurance...................................................................6 Financial Watchdog...................................................................7 Estate Planning........................................................................8-9 Financial Planning................................................................... 10 Investments................................................................................ 11 Past Experience......................................................................... 12 Case Studies.........................................................................13-14 Conclusion................................................................................... 15

INTRODUCTION
Get your head in the game, is a commonly used phrase in sports. The phrase is referring to mindset. A professional athletes job is to practice, practice, practice, and on game day, perform. How many times have you heard a coach say, practice like you play? In other words, if you expect to be a beast on game day, you better practice that hard all week. Athletes have been developing this type of mindset for as long as they have played their sport. Both mind and body are in sync. You know those players that seem to be at the right place at the right time? It is practice, visualization, and execution..mindset. Off the field requires a different mindset that is often overlooked by many athletes entering professional sports. It is a money mindset. Athletes who achieve the professional level often dont have their money mindset developed. Unfortunately, most high schools and colleges dont offer instruction for personal money management. Thus, college athletes go from making no money to professional paychecks and are like deer in the headlights. It is a life changing event. Many athletes dont understand finances and are afraid to ask for help. The average career for a professional athlete is 8-10 years. For sports like football or boxing, the average is less. Working on your money mindset in the beginning of your career will help your transition after professional sports and put you on a path to long term financial security. This publication has been created for all professional athletes, from rookies to seasoned veterans. A large number of professional athletes, over the last several years, have chosen not to work on their money mindset. The results led to filing for bankruptcy, or just not having enough money for use after their career is over. Too many athletes believe money troubles, or trouble in general, wont happen to them. You have reached a level of athletic success that few achieve. Achievement, if not handled with responsibility and good planning,

becomes burdensome and complicated. Using this guide will not guarantee a comfortable retirement, but it will hopefully start you on your way to developing your own money mindset.

Our mission is to empower athletes with knowledge so that they will be financially secure after their career in professional sports. And to give them guidance that allows them to protect what they earned and worked hard for, so they may protect their families and the legacy they are creating. While doing this, it is important to establish relationships that are built on trust, honesty and integrity.
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YOUR CPA
Your money mindset begins with your CPA (Certified Public Account). After establishing relationships with a number of CPAs, the one statement that is repeated to me time after time is they wished their clients would have come to them sooner rather than later. CPAs can provide you with essential tax planning, which will hopefully help you avoid surprises on April 15th, the tax filing deadline. Every team in each league operates as a separate business. Therefore, how they operate internally will be different from team to team. Your CPA will make sure that adequate tax is withheld from your game checks and bonuses to avoid unexpected surprises. Having a large tax bill in April is something no one enjoys.

Deductible expenses are another important topic to discuss with your CPA. Some deductible expenses include:
Training or gym fees: As a professional athlete, you are allowed to deduct training and gym fees. Training supplements, athletic massages and other special dietary additives may also be deductible. Agent fees: The percentage your agent is paid will depend on the sport, but is generally deductible. Union dues: Amounts paid to your specific union, i.e., NFLPA, MLBPA, NHLPA, NBPA, are  generally deductible. Moving expenses: Whether its your first team or fifth team, when you have to move you will incur significant expenses. Travel: Travel which is specifically related to your career is generally deductible. This includes meetings with agents, scouts, trainers, and anyone directly connected to you sports-wise. Tax return fees: Income tax preparation and consulting fees are generally deductible. The same rules apply for investment advice.

Your CPA will determine what is and what is not deductible. It all depends on a players individual facts and circumstances. When in doubt it is important to keep your receipts. Its not uncommon for a CPAs client to show up to a meeting with a shoe box bull of receipts, although a little organization is greatly appreciated. What about non-wage revenue? This includes revenue you may receive from trading card companies, shoe companies, endorsements, etc. It is important to plan for the taxes that must to be paid on this income as well. Additionally, a prudent CPA can often deduct substantial expenses against this income to limit the amount of taxes paid. If you are planning on getting involved with a charity or donating, your CPA can also guide you through this processas there are tax benefits and implications to giving activities.
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NEW TEAM NEW CITY

You more than likely will play in a city far from where you currently live. Moving to a new city can be a daunting task. It is imperative for you to use your money mindset during this transition. It will be tempting to want to live in a larger space than necessary. A larger space leads to purchasing more things to fill that space. During the season and depending on your sport, you may only be at this residence 4-5 months. When you figure in away games and the amount of time you will be at your practice facility, you wont be spending that much time here. If this is your first professional contract, it is recommended you initially rent a townhome or condo instead of purchasing a home. The idea of purchasing a large home on your first contract sounds exciting, but patience, self control, and a second contract will often open the door to home ownership, without threatening your long term financial security.

There are many benefits to renting a townhome/condo during your rookie year and first contract, which are:
u  A reduced financial commitment compared to owning a home. A twelve month lease is standard during which you pay rent, this may or may not include association dues.

u  The condo or association will take care of landscaping, maintenance and snow removal. u  When the lease is up you can renew or simply move.

A professional athlete becomes popular quickly. By having a smaller living space, you wont feel obligated to host a house full of friends. To cut costs even further, you can share your space with a fellow rookie.

SPENDING PLAN
Many players roll their eyes when they hear the word budget. They say things like, I cant buy this or that, or it feels like I have handcuffs on my money. I would ask you, as you are forming your money mindset, to think of this as a Spending Plan. A good spending plan helps you make decisions about how to spend your money so you can afford the things you need or really want. You can spend your money in any way, just realize, you cannot have everything. Throughout your athletic career, you have probably had a lot of support from family and friends. Preparing for this opportunity has taken up the majority of your time. It is understandable that you may want to reward those who have helped you get to where you are today. Do not hesitate to treat yourself and, if you would like, those around you. However, it is important, to not go crazy when doing this. Depending on your contract, carve out a 5-10% after tax fun money allowance. This will allow you to enjoy what your hard work and talent have produced. Once this allowance is gone, it is important to continue following your spending plan. Creating a spending plan will help you track your expenses and also allow you to save for your future, for life after professional athletics. Whether your contract is your leagues minimum or a larger deal, there is a critical need for a spending plan. Since your professional sports career will be brief compared to other occupations, ignoring your financial situation may quickly lead to financial trouble. A basic plan is created to ensure your monthly living expenses get paid. You can sleep easy knowing the plan includes expenses incurred during the off-season, when you wont be receiving a paycheck. After all, you still have bills to pay when you are not playing.

An emergency fund is also an important part of any spending plan. Preparing for you worst case situation cannot be ignored. This should be funded with at least enough to take care of six months of living expenses, and in some cases twelve months.

DISABILITY INSURANCE
You have worked hard to achieve success, thus you have acquired wealth quickly. Because of your success, it is critical that you address your personal liability and exposure. As a professional athlete, you have a bulls-eye on your back making you a walking target, so having the proper insurance and risk management program in place is vital. The money mindset we are dealing with here involves reducing an athletes risk of losing income. Your money mindset must now focus on planning for a career ending injury that leads to the loss of income. This is difficult to discuss, but if it happens without a plan, it could lead to financial ruin. Fortunately, disability insurance can be part of your spending plan. Disability insurance is an insurance product that compensates a person who, due to accident or illness, is unable to earn all or part of his or her former income. In simple terms, the insurance payments substitute for part or all of the income lost due to an accident, injury, or illness. Disability insurance can provide security against the possible loss of future income, which may occur if the athlete suffers an illness or accidental injury that prevents him or her from pursuing or continuing a professional sports career. Just as a person who owns a home a valuable asset may wish to insure against its loss, an athlete with special skills also a valuable asset may wish to insure against the loss of the asset, namely the ability to earn future income as a professional athlete.

What types of coverage are available?

during the policy term and he or she will not be able to participate ever again (unless the policy specifies a shorter time period) in his or her sport.

 Permanent Total Disability: This coverage pays benefits when an athlete suffers total disability

 Temporary Total Disability: This coverage pays benefits when an athlete suffers total disability during the policy term, and he or she is not able to participate in his or her sport at the time of a designated medical evaluation. Since the benefits are more easily triggered under this type of coverage, it is more expensive to purchase than permanent total disability coverage.

While most major sporting leagues provide some amount of coverage, no league provides career-ending disability coverage that adequately protects an athletes non-guaranteed compensation and future earning potential. A professional athlete has unique needs when it comes to insurance. Working with a knowledgable insurance firm will help you avoid gaps in coverage or paying for too little or too much insurance.
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FINANCIAL WATCHDOG
Our government was set up with three branches so that there would be checks and balances, each branch holding the other accountable. You have hired a CPA and a Financial Advisor. Now hire your financial watchdog-the Auditor. The business of professional sports is a big business. Salaries have rapidly escalated over the past decade. This has led to an increase in professional athletes being defrauded and ripped off. Improper money management or fraud is nearly impossible to combat without a good auditor. 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, and no sport is immune. A survey recently found that 78 NFL players were defrauded of more than $42 million from 1999 to 2002. The victims all had two things in common: 1) they were defrauded by trusted people including agents, financial advisors, teammates, 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 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 its 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, is doing what they should be doing. Most professional athletes have an accountant. That is not enough. Accountants primarily handle your tax returns. Most will not detect improper money management. An athlete must have someone overlooking their money managers shoulders to ensure proper handling of money. An audit costs money, although not having an audit performed could prove much more costly in the long run.

Remember, In God We Trust Everybody Else We Audit.

ESTATE PLANNING
Estate planning for professional athletes is crucial. You MUST have an estate plan if youve accumulated any property or wealth. This is not optional. Those who do not have an estate plan generally do not understand its purpose or value, and place themselves and their families at risk. The purpose of estate planning is to maintain autonomy: to make your own decisions, and avoid others involvement in your personal matters. Done properly, an estate plan can save hundreds of thousands of dollars in taxes and professional fees. When a person becomes disabled or dies without an estate plan, the options are more limited and more expensive and nearly always involve the courts. This requires lawyers, fees, and often extreme delays of months or years as well as making all proceedings open to the public. Is this what you want? Is this what you want for your family? Establishing and maintaining a proper estate plan is about control. It is about you deciding what your financial legacy will be. Lack of an estate plan means lawyers and the court system decide your familys financial future.

A proper estate plan eliminates problems with all of the following:

u  Emergency Decision-Making u  Protection of Assets u  Probate Avoidance u  Estate Tax Reduction u  Transfer of Business Entities u  Money Management u  Disabled Individuals

Emergency Decision-Making A good estate plan provides for emergency decision-making, should you become disabled. For example: an athlete who suffers a concussion might not be able to make his own decisions for a few weeks. Who is allowed to talk to the doctors to give consent to treatment? Who pays the bills? If a disability lasts more than a couple of months, who applies for disability benefits, completes contracts, or sues on the athletes behalf? Powers of attorney and health care directives are simple, effective ways to provide for emergency decisionmaking. They are powerful documents and should never be given to someone who hasnt established a long period of trust with the athlete. Spouses do not have the legal authority to make decisions for each other. Most simply dont understand this. Without estate planning, one spouse cannot make medical or financial decisions for the other, in the event of a disability, injury, or death.
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ESTATE PLANNING - continued

Probate Avoidance Probate is the court-supervised system for transferring assets of a decedent to heirs and devisees. Someone (usually a spouse, child, or parent) generally hires a lawyer to petition the court for appointment as a personal representative. A court hearing is often required, as is formal notice to relatives and creditors. The will, if there is one, becomes a public record. If a person dies without a will, state statutes determine who receives the property. As an example, the average length of a probate in Minnesota is 18 months. The average cost is 3% of the estate (three percent of $1 million is $30,000). Probate is required when a person dies with more than $50,000 in assets that are not held in joint tenancy, who doesnt name a beneficiary, and whose assets are not held in a trust. If a person dies owning property in several states, there will need to be a separate probate in each state. Proper estate plans avoid probate thus saving your money and your familys time. It also keeps you and your family in charge, not the courts. The easiest way to avoid probate is by utilizing revocable trusts. These are more flexible than wills, more easily updated, and can hold property in every state. An estate planning attorney can assist you in setting up revocable trusts.

Disabled Individuals Persons with a disability are at great risk of losing their autonomy and power. If anyone in your close circle has a disability, either a child, sibling or parent, they must be provided for specifically in your estate plan. A child under the age of 18 is under a legal disability (whether otherwise disabled or not). This means they cannot receive a direct inheritance. Naming a minor child as a beneficiary in a will or on a life insurance policy causes expenses and delays that can easily be avoided. The same is true for a disabled parent or sibling. Leaving funds to such individuals could cause them to become disqualified for other programs they might otherwise qualify for. Basic estate planning eliminates all these problems.

FINANCIAL PLANNING
As already discussed, professional athletes have a short window of opportunity to earn significant income. It is imperative that a well thought out plan is created to address your income needs after retirement. Too many athletes miss this step and find themselves running out of money shortly after their sports career is over. After professional sports, what are you going to do next? The end is a great place to start identifying what your goals and dreams are today. Is it your goal to not have a need to work again? Would you like to start and run your own business? Would you like to further your education and start a new career? With a goal in mind, how much will you need to save to make your goal a reality? What financial actions are necessary to achieve this goal? A financial plan provides direction and meaning to your financial decisions. Your individual plan will help you understand how each financial decision will affect other areas of your finances. Your money mindset puts your financial plan into action. Planning is not a one time event, but an evolution. It will change as your life changes. A goal today might not make sense or be a priority a few years from now. An important thing to remember is that hope is not a solid financial plan.

What am I going to do with my money?

d Not have to work

d Start a business d Start a Charity/Foundation d ???????

Hope alone will not achieve any of the above. You must have a plan and you must work the plan.

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INVESTMENTS
When your goals are identified and your financial plan is created, the process of investment selection can begin. There are stocks, bonds, mutual funds, ETFs, CEFs, commodities and many other alternative investments available. The investments that are recommended to you should fall in line with your goals and risk tolerances and the financial plan you created. This area is probably the most misunderstood by not only athletes, but many people. There is risk with every investment, and there is also risk with doing nothing. You have to know where your money is to make sure its doing what you want it to do. Let your advisors be the No Man. If you are approached to invest in the next big idea, say thank-you, my financial team will look this over and get back to you. Ultimately its your money, and you have to be the coach of your financial team. Take the request back to your financial team (CPA, Financial Advisor, Auditor, and Attorney) and tell them to determine if you should follow through. Resist the urge to act alone and possibly risk a bad decision. Do not be a Yes Man. How are you going to organize it all? You should utilize technology to monitor your financial well being. You should be able to track your bank accounts, investment portfolio, and any debt that you may incur. Knowing where your assets are and how they are performing will help you track your progress in attaining your goals, and may help you prevent or detect fraud. You should be able to have access to view all your accounts 24/7, through your computer or smartphone.

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PAST EXPERIENCE
There are many athletes that have come before you. Do not make the same mistakes that too many have made:
u  You cannot spend like the money will never stop. One day, it will. u  Learning to say No is a good thing. Just because you can afford it, does not mean you need to say Yes. u  Signing a power-of-attorney may hinder your ability to control your assets, and could lead to financial ruin. u  Know what you are paying before any service is provided to you. Do not wait until after the fact to find out what you are spending. u  Understand the difference between appreciable assets and depreciable assets. u  If it is too good to be true, it probably is.

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CASE STUDIES
#1
An NFL veteran of 6 years, married with 2 children, owns a home in Florida (FL), New Jersey (NJ) and a co-op in New York City (NYC). The NJ home is a 5-family home rented to 5 different tenants, and the NYC co-op is for personal use. The player was relying on his Agent to obtain insurance coverage, and basically created a lot of issues by not having a Property & Casualty (P&C) professional working with him. There was no strategic planning in establishing their P&C insurance and risk management portfolio thus creating gaps in coverage, overpaying premiums and ultimately carrying too much personal risk. After a thorough review of his current policies, it discovered inadequate levels of coverage and the use of B rated insurance companies. After completing a personal risk fact finder and interviewing the player and his wife, we conducted an in-depth review of all policies addressing the areas of concern. The numbers of insurance companies involved were reduced to 4 allowing us to consolidate the portfolio, improve his coverage, close gaps and reduce his overall premiums by 25%.

#2
NFL Rookie player, single, and renting a 1 bedroom townhome in team city. The player wanted to be hands on with his finances, but didnt know where to begin. A financial bootcamp was created for the player to help him understand the basic concepts of personal money management. It was easier for the player to understand when the time came to talk about financial planning and investments. He was also given his own secure financial website to view all his accounts any time he wants.

#3
NFL Player was a first round draft pick, earning close to $9 million over the first four years of his career. Within two years of the draft, player owned four residences, each with very little equity or with loans exceeding the value of the home. Due to poor credit established in college, and the no money down mentality of the real estate market, the mortgage payments on these properties carried interest rates 1% to 2.5% higher than market average. Additionally, player lived extravagantly expensive watches and clothes, and at one time owning five vehicles, four of which were purchased new, with a combined purchase price exceeding $500,000. A second contract was signed, and player continued his high spending lifestyle. Each year, money would get short during the summer, and the seasons first game check was often not enough to cover outstanding bills. It was not until midway through the season that bills would be caught up, and even then money would run out far too early after the season.
(continued on page 14)

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CASE STUDIES - continued

The player did not have a financial advisor looking out for his best interests. What he had was a broker who would funnel whatever money to him he requested, without educating the player about how to turn his financial situation around. The player is now on his third contract and literally lives paycheck to paycheck. He is fortunate to have had a lengthy career by professional football standards, but the 2012 owners lockout almost forced him into bankruptcy.

#4
An NFL player, third year into his first contract. A close family member was helping the player manage his finances. He insisted that all the players checks were automatically deposited in the bank. The family member would then write checks to cover expenses. The player grew uncomfortable with the arrangement when the family member presented the player with private investment proposals. Two of the proposals were nightclubs and the other a car wash. The player was afraid the family member was getting too comfortable with the checkbook. After a lengthy interview with the player, he insisted on changing banks and wanted sole check writing ability. Using the banks bill pay system, the player was shown how to automatically make payments for his monthly bills. He was also given his own secure financial website to view all his accounts any time he wants.

#5
An NFL Rookie didnt want to be a statistic. He set in place his team of advisors and coaches before he ever received his first NFL check. His player agent is only one piece of this team. Next up was his financial advisor, his CPA and in this case, an individual the player sees as a mentor. All parts of the team know what is going on at all times. The financial advisor helps the player set up direct deposit to his bank directly from the NFL team. Those funds are automatically allocated according to the spending plan. If mad money is necessary for a trip or purchase, it is reviewed by several members of the team beforehand. This player knows that there is only a limited amount of time to save financially for a lifetime of use. This player also has a much less stressful non-football life.

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CONCLUSION
This publication will not make you a better athlete on the field, but hopefully it will help you understand the importance of making smart financial decisions off the field. Money Mindset is not a short term lifestyle, but if learned and adhered to, can provide benefits throughout a lifetime. Remember, you can live like a king for a very short period of time, or live like a pauper for a much longer time.

The following contributors provided their expertise:

John W. Hanselman John Hanselman is the President of NCompass Financial, LLC, a full service Financial Planning and Investment Advisory firm. He is based in Minneapolis, MN and has been in the financial services industry since 1999. He has written several articles relating to finance and fitness. He holds a series 7 and 66 license along with insurance. Mr. Hanselmans dominant focus is on the Professional Athlete and Affluent markets. He can be contacted at 763.208.5866 or by email at jhanselman@ncompassfin.com. The company website is www.ncompassfin.com. Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc. Member FINRA, SIPC and Registered Investment Adviser NCompass Financial, LLC and Woodbury Financial Services are not affiliated entities. Victor D. Barbo, CPA Victor Barbo is a partner in the firm of Sink, Gordon & Associates LLP, a large local accounting firm located in Manhattan, Kansas. With over 24 years of experience, Mr. Barbo is the president and CEO of ProSportsTax, a division of the firm which specializes in the taxation of professional athletes, coaches and trainers. He also is an author and editor for Professional Tax Institutes in conjunction with the University of Illinois, who together provide quality continuing education to CPAs in 28 states. Mr. Barbo is a graduate of the University of Kansas, and is a member of the American Institute of Certified Public Accountants, the Kansas Society of CPAs and the Public Accountants Association of Kansas, of which he is a past president. Victor can be reached at 785.537.0190 or by email at cpa@prosportstax.com Marc Silverman Tired of seeing professional athletes being defrauded out of millions of dollars year in and year out, Marc Silverman founded MH Silverman & Associates LLP. MH Silverman & Associates provides auditing services for professional athletes and entertainers to ensure that their money is being handled appropriately by their trusted advisors. They provide the much needed oversight of an athletes advisors. Marc Silverman is a former audit partner with Ernst & Young LLP. He has over 20 years experience in auditing public companies providing investors and stockholders the assurance that those companies financial statements are accurate. Marc can be reached at 908.794.5881 or by email at silverman@mhsilverman.com. The company website is www.mhsilverman.com. Jeffrey P. Scott Jeffrey P. Scott is an attorney in private practice with over 23 years of experience in the fields of Estate Planning, Trusts and Probate, Disability Planning, and Guardianships and Conservatorships. He is a graduate of William Mitchell College of Law in St. Paul, and clerked for the Judge of the Hennepin County Probate Court during law school. He is a member of the Minnesota State Bar Association, and the Bar Associations of Hennepin and Ramsey Counties. He is a frequent teacher and lecturer on legal topics, and a former instructor at Inver Hills Community College. Jeffery can be reached at 651.647.9533 or by email at jeff@jeffscottandassociates.com Daniel A. Verdun Dan Verdun is an insurance consultant with Frenkel and Company, Jersey City, NJ. Throughout his career in the insurance industry, Mr. Verdun has provided a holistic approach to insurance and risk management planning. He specializes in serving the complex needs of professional athletes, sports agents, entertainers and high net worth individuals and their families. His consultative approach leads to a customized insurance portfolio that reduces risk and minimizes financial exposure. Dan can be reached at 201.486.6970 or by email at dan@danverdun.com

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