Financial own goals: five mistakes elite sports stars typically make

4th April 2024

At a glance

  • Elite sports stars often earn huge sums that can set them up for life. However, it’s important to make good decisions early on. It’s not uncommon for successful athletes to make mistakes with their money that lead to financial ruin after their playing days are over.
  • Common mistakes such as making poor investment decisions or becoming embroiled in tax-avoidance or tax-limiting schemes can lead to severe financial penalties, not to mention unwanted media attention.
  • Overspending while money is flowing in and failing to plan beyond the end of a career are also common traps. Working with an expert wealth manager can ensure elite athletes make the best decisions for themselves and their families, now and in the future.

There are countless examples of elite sports stars running into money troubles during or after their short careers. But athletes can avoid such ignominy with the help of financial coaching.

When talented men and women approach the pinnacle of their chosen discipline only to tumble in disgrace due to addiction, bankruptcy, tax evasion and so on, it generates global headlines.

Although in the past five years, many sporting bodies have taken action to better educate athletes, partly due to increasing Environmental, Social and Governance (ESG) pressures, there are still common pitfalls that can be sidestepped with the right advice.

Here are the five mistakes elite sports stars typically make with their money, in my experience.

1. Overspending

Sports stars often come from modest backgrounds and are therefore not necessarily accustomed to being in moneyed environments. So when they start earning well – in their early 20s, perhaps – friends and family may ask for financial support.

Then there’s the matter of lifestyle creep. Those starting their short-but-lucrative careers might wish to emulate the lifestyles of older teammates. It’s hard not to be sucked into the flash culture. They want to show off their wealth, but a combination of ignorance and arrogance risks making them targets for bad actors. There is also an element of “easy come, easy go”. If money is simple to earn, runs the skewed logic, then it becomes easier to spend.

In addition, many young athletes can struggle to while away the hours between training and competition. That boredom can tempt them to buy material possessions that make them feel good. It can also lead to them craving the adrenaline buzz of competition and some turn to gambling.

2. Failing to diversify investments

Particularly in team sports, athletes tend to copy others – they dress the same, go to the same restaurants and bars, and even holiday in the same places. There is also usually a herd mentality when it comes to investments. Or rather, there is a worrying absence of informed decision-making.

For instance, if they don’t engage with financial professionals but get caught up in dressing-room chatter and trust their teammates, they might be stung in a property deal that runs sour. Unfortunately, this scenario can happen quite often. Because there are fewer money-laundering checks in the property industry, fraud is more prevalent, and sportspeople, who desire tangible assets, are vulnerable. New cars, which lose value as they’re driven away from the forecourt, are another example of poor investments (unless they really know what they’re doing).

Moreover, because athletes are focused on sport, they often don’t understand – and have little interest in – the financial markets. They have little or no idea about risk and can massively overexpose themselves to high-risk investments. As a result, when things don’t go well, they’re hit badly, partly down to a lack of proper advice and diversification. With only a tiny earning window, every investment often needs to count.

3. Ignoring tax planning

There are many horror stories about sportspeople finding themselves embroiled in tax-avoidance or tax-limiting schemes, such as investing in film partnerships. Once more, it comes back to being vulnerable and not fully understanding risk.

People will prey on the fact that sports stars are quickly propelled into higher-rate tax brackets and encourage an appetite to avoid the additional tax, so they’ll offer schemes to avoid Capital Gains and Income Tax, for example. Often, these schemes haven’t been registered with HMRC and exploit loopholes that have already been closed, which results in sportspeople inadvertently finding themselves on the wrong side of the Revenue. Ensuring you’re not the only ones entering the scheme, that it’s been tested by HMRC and you’re being advised by well-recognised and established tax advisers is key to mitigating the risks.

4. Not planning for the future

It’s not just sports stars; a lot of us fail to plan adequately for our financial future. Many people don’t have a pension in place until they’re well into their career.

To an extent, it’s unnatural for a 20-year-old to think about what they might need to make them financially comfortable in four decades. The problem is that athletes have less of a chance to make up, say, a pension shortfall throughout a career than the rest of us do. This is because their earning potential tends to nosedive in their 30s, whereas most of us hit the peak in our 40s and 50s.

Given that sports stars will want to focus on their limited but high-earning careers, it’s understandable that they may not like to think about what happens next. However, it’s here that athletes can realise the value of a financial expert.

5. Failing to work with financial experts

Ultimately, a financial professional can help sports stars protect and manage their money – during and after their playing career. By working with tax advisers and lawyers on a plan and improving money management, the stars can shine away from competition as well – and not be the subject of unwanted headlines. It’s hard to believe when you think about it. During their career, clubs surround them with doctors, physios, nutritionists and more to protect their physical wellbeing, yet so few are offered the professional support they need to protect their current – let alone future – financial wellbeing.

It’s understandable that the main focus for athletes is their sport, so while they’ve found a way to make money while they’re awake, they need to ensure they’re also doing it while they’re asleep.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependent on individual circumstances.

SJP Approved 05/03/2024