When a new professional athlete gets that first big paycheck, it can be hard to suppress the desire to splurge on a sports car, luxury condo or whatever catches his or her fancy. Friends, family and associates might come looking for a piece, whether it's a loan or an investment.
But those big paydays can come with a darker side — many pro athletes face bankruptcy or financial distress after spending too freely or failing to save and invest enough for retirement.
Geier Financial Group, a Marriottsville-based investment advisory and financial planning firm with about $180 million under management, grew in part by managing the finances of professional baseball players, including Orioles superstar Cal Ripken Jr. and New York Yankees first baseman Mark Teixeira. Now the firm has launched an affiliate called Winpoint Financial targeted solely at current and former professional athletes.
"When you have a young kid and he sees a Mercedes, it's hard for him not to want that car because he wants to fit in," said Joseph Geier, owner and president of Geier Financial. "So our job is to say, 'There's a time and a place where you can afford that car, but it's not right now.'"
It's far more important for the suddenly cash-rich young athlete to consider the future and what it might hold, Geier said.
In a 2009 review of athlete finances, Sports Illustrated magazine estimated that 78 percent of former NFL players have gone bankrupt or are under financial stress because of joblessness, medical problems or divorce within two years of retirement, and that 60 percent of former NBA players are broke within five years of retirement. In 2012, ESPN produced the documentary "Broke" about the financial difficulties pro athletes face.
The financial needs of such athletes are very different from other investors and wealthy people. Baseball players are paid only six months out of the year, for example, and some fail to plan for their finances in the offseason. Athletes also pay state and city income taxes, dubbed the "jock tax," in each jurisdiction where they play. Their careers are short — often shorter than they expect. The National Football League Players Association estimates the average player is only part of the NFL for a little more than three years.
Players also pay about half their incomes in taxes, in contrast to wealthy investors who may pay a far smaller capital gains tax rate. Some athletes also face hefty child support payments or alimony payments after a divorce.
Athletes are often hit up by friends and family who want a loan or an investment in a business venture, said Lidge, adding that he has been burned in a few investments that he regrets not running by Geier.
"When you first get drafted, people come out of the woodwork to get you to invest with them," Lidge said.
Femi Shote, a co-founder of the Sports Financial Advisors Association, cautioned against making generalizations about why so many athletes face financial distress.
"They're young and they got money and they make mistakes just like everyone else," Shote said, "but their mistakes are more profound because it's a bigger number."
The professional leagues and organizations have taken note. The Ravens have a director of player development, former player Harry Swayne, who advises athletes and coordinates a series of "life lesson" seminars, Ravens spokesman Kevin Byrne said. There have been 15 to 20 seminars in recent years, Byrne said.
In 2012, the NBA and its players union agreed to set aside 1 percent of athletes' salaries for their retirement. The NFL Players Association launched a financial education program in 2004, adding a telephone help line with access to certified financial planners.
Athletes can and do use their careers as a bridge to financial success. NBA Hall of Famer Magic Johnson, for example, began investing in movie theaters in the 1990s and has since built Magic Johnson Enterprises into a multimillion-dollar business, with stakes in the Los Angeles Lakers and restaurants such as Burger King and Starbucks.
Walt Williams, a retired NBA player and former University of Maryland star, joined Hunt Valley-based UBS Financial Services in 2010 as a financial adviser and counts a few athletes among his clients. Like many athletes, he said getting his first paycheck upon getting drafted by the Sacramento Kings in 1992 was "overwhelming and intimidating."
"You're thinking, 'No matter what I do, I'll never spend all this money,'" he recalled.
Williams said he is grateful for financial advisers he had in his youth who reminded him to make smart financial decisions for his future. He said he gives similar advice to young athletes now.
"How many zeros you have on your checks will never matter at any point in your career," Williams said he tells athletes. "The only thing that matters is how much you'll have when you retire."
Lidge said athletes are also often hit up by financial advisers who may or may not be trustworthy, with some of them promising unrealistic returns.
"It's hard to know, when you're young, who's blowing smoke and who's giving you reality," Lidge said. "People are wondering how these guys are blowing through their finances — 'They can't control their spending' — but a lot of time, it's because they got really bad advice."
Bill Ripken, the former Orioles infielder, has gotten advice on his finances from Geier since the late 1980s and said he trusts the firm.
Young athletes "think it's going to last forever," Ripken said. "It would be awfully nice if you could find somebody that talks to you about it and makes you feel good about it and helps your understanding, someone who you can truly trust. There are a lot of people out there looking for easy prey, and they want to make money but don't necessarily care about you."
Since it was established in September, about 40 former and current professional athletes have signed on to Winpoint Financial, Geier said.
In addition to offering investment advice and financial planning, Winpoint Financial advisers help players buy houses and cars, and sometimes pay their bills. Geier said they helped advise Teixeira to buy a 4-year-old Range Rover to shuttle his children around in, and helped former MLB outfielder Steve Finley buy a house when he was playing for the San Diego Padres.
Geier hired Nick Durastanti, who is married to Teixeira's sister Elizabeth, as Winpoint's director of business development. Durastanti said he often works through athletes' agents to win them over, and said word of mouth is also key in a business built on trust.
His connection to the Teixeiras has helped him recruit and also understand the unique needs of players, he said.
"The job seems sexy," Durastanti said, "but at the end of the day we just want to make sure the taxes get done properly."