Business

Former basketball player turned advisor gives money advice to college athletes

University of Arizona Wildcats defenseman Joe McLean plays defense against UCLA defenseman Kevin Dempsey during a Pacific-10 Conference game on January 7, 1993.

Ken Levine | Getty Images Sports | Getty Images

Like many former NCAA college basketball players, Joe McLean dreamed of playing in the NBA.

The 6-foot-6 forward played four years under famed trainer Luth Olsen at the University of Arizona Wildcats. He made it to the Final Four in 1994 and averaged almost 10 points per game in his final season. McLean played professional basketball three times in Europe. years, followed by training camp with the Sacramento Kings before giving up on his NBA dream.

“I was good, but the others were really good,” he said.

More from Life Changes:

Here’s a look at other stories that offer a financial perspective on important life milestones.

McLean eventually found his calling as a financial coach and advisor to professional athletes who are notoriously difficult to manage their wealth. According to an oft-cited 2009 study by Sports Illustrated, 60% of NBA players at the time went bankrupt within five years of leaving the game.

McLean, who is currently the managing partner of San Ramon, California-based Intersect Capital, ranked 94th.th on CNBC’s 100 Best Financial Advisors list of 2021 — thinks those numbers are exaggerated.

But he also believes the poll results have brought much-needed attention to the very real problems that professional athletes face when trying to cope with sudden wealth.

CNBC spoke to McLean about these many issues.

CNBC: Why do so many professional athletes who make so much money get into financial trouble?

Joe McLean: Anyone who suddenly acquires wealth is at risk of breaking and burning out. Age plays a role. The younger you are, the more likely you are to be a jerk. We’re working with young people who don’t usually look beyond next Friday, and we’re talking about 20 years of making money that, if planned properly, will last for generations.

The biggest problem is that the traits that make someone a great athlete or a successful entrepreneur are not the traits that make a successful investor. The desire to win and the willingness to take risks and bet on yourself do not tolerate money management well.

CNBC: What are the key challenges young athletes face?

DM: Most people live, spend and save the rest of their income. With athletes, you need more careful financial planning because you are working with a 5-10 year income stream that should probably last a lifetime. I advise clients to compete on the court, not in the locker room.

There is a dynamic of overspending. At an early age, lifestyle can start making decisions for you. A $50,000 watch today could be worth half a million dollars in a couple of decades.

CNBC: What’s the most important piece of advice you can give to young professional athlete clients?

DM: I tell them to be patient with the money that comes in. My clients must save a minimum of 40% of every dollar they make on their first contract; 60% of their second contract; and 80% of their third. If someone doesn’t buy into the idea, then the relationship probably won’t work.

I’m not here to tell people what to do, but to enable them to achieve positive results. The sooner they adopt an organized savings process, the better for them.

CNBC: How much advice do you give clients about spending?

DM: For most of our athlete clients, we are their personal CFO. We help pay bills and make major purchases such as a new home and cars, as well as setting up their first LLC or S Corp. We all need to learn how to manage the house for the first time. Understanding the cost of things like utilities, property maintenance, and taxes will help a client achieve financial success. Someday they will pass on the knowledge to the next generation.

CNBC: What is your approach to investing all your accumulated savings?

DM: We start every conversation about investing with three segments: the safety and security segment; growth bucket; and a bucket of dreams/entrepreneurship.

First, we recommend putting in enough money to cover at least a year of all fixed and variable costs, including life insurance costs, wills and trusts, and possibly their first home. Then we start filling the growth basket.

Early in a client’s career, we invest in low-cost, taxable stocks and fixed income assets. We are also starting to invest up to 15% of the portfolio in income properties, but until the client has some investment experience, we keep them very liquid.

When these two buckets are full, we leave 5% to 10% of the money for the dream/entrepreneurship bucket. It can be invested in private equity, venture capital and small businesses. This may also include buying the second car or home they want. Most people want to fill the dream bucket first, but this approach allows clients to risk more in that third bucket over time, knowing they filled the other two first.

Don’t spend money before you earn it. Honor your mother with a financial plan for the future, not just a new home.

Joe McLean

Managing Partner at Intersect Capital

CNBC: What would you say to one of the 60 athletes who will be selected by an NBA team next month?

DM: These players are making their dreams come true in the NCAA Tournament and some will have the opportunity to play outside of college. If you watch the draft, you will see a lot of people celebrating with the athletes. Many of them care about your best interests, but many of them also expect you to help them financially.

I write a social media letter before every draft with ideas for athletes to think about as they enter the draft. They include things like don’t spend money until you earn it. Honor your mother with a financial plan, not just a new home. Give your friends and family the opportunity to get a job, don’t give them one. Seek advice from experts and people who have been there.

They need to be patient with money.

CNBC: How do you convince young people to be disciplined in a situation like this?

DM: I think it’s more useful to talk about the reasons why professional athletes stay rich, rather than horror stories about why they went broke. There are so many ways to lose money and there is no judgment. We all do stupid things. That’s why it’s so important to have a process to get you on the right track early on.

CNBC: Any other tips for young athletes looking to make big money?

DM: Learn to play golf. This allows you to spend two to four hours with people to learn about and from them. Golf is a humble sport and modesty is the new mind.

In the minor leagues of baseball and hockey, they put you on buses, and the buses humiliate you. I think there is a connection between bus travel and success when you sign a big professional contract. The slower money comes to someone, the longer it will last. Be patient.


Source link

Leave a Reply

Your email address will not be published.

Back to top button