When the National Basketball Association draft is held Thursday, it will turn several men, some still teens, into millionaires.
When the National Basketball Association draft is held Thursday, it will turn several men, some still teens, into millionaires.
If they are smart, they will seek out financial advisers who will play important roles in making sure these young stars don't commit any unnecessary fouls with their newfound wealth.
The first 26 players taken in last year's NBA draft all earned at least $1 million for their rookie season, with the top five picks securing deals worth more than $4 million, according to mynbadraft.com. They are not used to being wealthy, so to serve their needs, some savvy financial advisers have developed specialized practices to deal with professional athletes.
"In his first three to four years, the hardest thing for a young athlete to do is stay within his budget," said Christopher Franklin, chief executive of Titan Financial Services Inc. of Walford, Md. "It's all about educating the athlete," said Mr. Franklin, who has given financial advice to many NBA and National Football League clients in the 15 years since he started the firm.
He has developed a niche practice whose clients have included many professional basketball players, such as former Orlando Magic guard Dennis Scott; former Sacramento Kings point guard Travis Mays, who is now an assistant coach with the Louisiana State University women's basketball team; and Stanford University's men's basketball coach Johnny Dawkins, who played nine seasons in the NBA.
Mr. Scott, a first-round draft pick out of Atlanta-based Georgia Tech in 1990, found himself in tough financial waters early in his career — an all-too-common situation for many young NBA players, according to Mr. Franklin.
"As a financial adviser, you're battling against the odds," Mr. Franklin said of the challenge in getting young players to keep control of their finances. "[The NBA players] get a lot of money, but they don't have guys willing to stand up and tell them what to do."
"When I got my first check, and it was $260,000, I was like, 'Wow! I just won the lottery,'" said Mr. Scott, who bought four sports utility vehicles, among other miscalculations, early in his career. "I've made mistakes, but I woke up just in time before it was too late."
Mr. Franklin urges his clients to take the following actions: read their contracts closely so they realize how much money is guaranteed, figure out the effects that living expenses and taxes have on their gross income, and consider the potential risk of their investment choices. He recommends investments that target long-term growth to his clients, he said.
NBA clients often want to invest in real estate and night clubs — risky ventures he steers them away from, said Mr. Franklin, whose practice has $100 million in assets under management. "We take them through each investment and let them know what the options are," he said.
Mr. Scott, who earned $30 million during his 10-year NBA career, credits Mr. Franklin with giving him a wake-up call to take care of his money. Mr. Scott urges other players to hire an adviser to help them make the right financial choices. "Chris stayed in my ears and said, 'You know you don't need four cars; you're only one person,'" said Mr. Scott. "You realize it's a marathon, not a sprint."
Both the National Basketball Players Association and National Basketball Retired Players Association of New York offer financial planning programs and have a list of advisers to contact. "We're able to provide some guidance in terms of who to contact," said NBRPA president Len Elmore, a college basketball analyst on ESPN who played 10 years in the American Basketball Association and the NBA. "An organization like ours can be a support group for them."
Tom Ensign is another planner who has dealt with NBA players, including former Miami Heat center Ken Johnson. Mr. Ensign is an advanced financial adviser with Ameriprise Private Wealth Advisors (formerly Provest Management Group), a practice that operates within Ameriprise Financial Inc. of Minneapolis. When dealing with young professional athletes, he, along with other financial planners with whom he works, conducts seminars to educate them about handling finances. Mr. Ensign urges them to create a saving account and put as much money as possible in tax-free accounts.
"We like to really educate our clients through a lot of different outlets," said Mr. Ensign, whose Worthington, Ohio-based practice has $75 million in assets under management. Roughly half of those assets come from professional athletes. "We start preparing them for retirement during their first season because it could end tomorrow."
E-mail Andrew Coen at acoen@investmentnews.com.
