Trust But Verify: Oversight of a Pro Athlete's Finances is Essential

This article by BrightLights Founder, David Byrne, was featured in The March Madness Special Edition of REBOUND Magazine, the official publication of the National Basketball Retired Players Association.

Imagine you’re a former college athlete drafted to play for a pro sports team. Think of all of the professionals that will be involved in monitoring your physical health. You’ll have athletic trainers, doctors, nutritionists, chefs, teammates, coaches, and more. All of these professionals act as checks and balances to maintain your physical health so you will be productive for your team and earn yourself another contract.

 

But what about your financial health? What professionals are involved to help you and your family find the right financial advisor and then monitor the advisor to ensure that you are financially healthy? Until now, nobody.

 

Ernst & Young recently released a report titled Athletes Targeted by Fraud which stated pro athletes lost $334 million to fraud from 2014 - 2017 and another $160 million in fraud-related losses the prior eleven years. Missing amongst these astonishing figures are the countless frauds against athletes that have not been identified or publicly reported, making the true cost of fraud hard to fathom, particularly when you consider the four major sports (NFL, NBA, NHL, and MLB) pay out approximately $13 billion in salaries per year.

 

Ernst & Young also detailed some of the most common types of fraud against athletes:

  • The athletes’ advisors used their access to make unauthorized and overly risky investments on the athletes’ behalf, while also enriching themselves.
  • The athletes’ advisors or family members used their access to the athletes’ bank accounts or power of attorney to make unauthorized withdrawals.
  • Misappropriated earnings. Designees did not properly distribute the athletes’ earnings, and instead kept and used them for themselves.
  • Advisors misled athletes with false or misleading financial information, such as inaccurate historical investment returns and fake statements.
  • Trusted advisors make recommendations to athletes based on an undisclosed conflict of interest, such as ventures in which the advisor has an investment or receives a kickback for investment.

The majority of professional athletes put 100% blind faith in their financial advisors and business managers with no oversight despite the fact that 89% of fraudsters are first-time offenders and 97% attempt to cover up the fraud.

 

This blind faith is not the fault of a young athlete focused on his craft or his/her family who don’t have a background or understanding of finance. It is the product of putting millions of dollars into a young person’s hands without a professional in place with no conflicting incentives to solely protect the athlete’s financial interests (and no, your agent is not this person, your agent typically has no involvement in the management of your money). It is ludicrous to expect a 21-year-old rookie to ensure that the 12 bank accounts his financial advisor opened for him (yes, I have seen this happen) are not being used as a scheme to perpetrate fraud.

 

Imagine you’re an NBA player making $20 million a year (currently, 46 NBA players). Let’s cut 50% to account for taxes, agent fees, business manager fees, and we won’t include the escrow withholding. NBA players typically get paid throughout the whole year, so he’s making $384,615 in after-tax money every two weeks.

 

Now imagine how easy it would be for a fraudster to steal from this NBA player who does not look at his accounts. You may notice if you have $40 in your wallet and someone steals $20, but when your wallet has millions of dollars, how much needs to be stolen for you to notice?

 

Blind trust works for some because there are good financial advisors and business managers working in the best interests of their clients. But that’s a coin flip not a solution.

 

The solution to this epidemic against professional athletes comes down to two options: Pro athletes and their families must have the knowledge and understanding to pick the right financial team from the start and then constantly monitor the activity in their bank and investment accounts to deter and identify wrongdoing. Or athletes must hire a professional like BrightLights to first help them pick the right financial advisor and then continuously monitor the advisor’s activity. If the advisor does anything suspect, which isn’t likely given the deterrent that monitoring will provide, the athlete moves his money elsewhere. Oversight and enforcement are the only ways the plague of fraud will be cured.

 

The incidence of fraud in sports is trending in the wrong direction as the number and value of known cases have steadily increased nearly every year for the past decade. Despite the clear resources athletes provide to society, we in turn have failed to equip these young adults with a financial understanding of the risks and controls needed to thrive before, during, and after life as a professional athlete. But we can fix this. Let’s get to work.

 

 

ABOUT FOUNDER OF BRIGHTLIGHTS, DAVID BYRNE

David Byrne is a Certified Fraud Examiner and Certified Anti-Money Laundering Specialist. Byrne previously worked as a financial regulator at FINRA for seven years where his investigations involving money laundering, fraud, and other securities violations resulting in $35,072,500 in fines, eight individuals suspended or barred, and three problematic firms gone from the industry. Prior to FINRA, David was licensed as a financial advisor at Merrill Lynch in Washington, D.C., on a team of six that managed $600 million.

 

Byrne founded BrightLights in 2017 and is based in San Francisco, California.