Tarell Brown - Details in the contract...

What we learned from Mr. Brown was that by not establishing a clear schedule of expectations we can forego a valuable benefit.  In Mr. Brown's story it was the $2 million escalator in his contract after he chose not to participate in the team's voluntary offseason program.

Mr. Brown fired his agent for this mistake but was it the player's responsibility to know and to ask what requirements are there?  Maybe.  His agent is out of commission for the $2 million which is at most 3% or $60 thousand while Mr. Brown is out the full $2 million.

Additional details about this case can bee gleaned from the ESPN.com article from July 2013 "Tarell Brown loses $2M, fires agent"

In my opinion, it would help if Mr. Brown had his contract reviewed by a third party, such as another attorney or an auditor who would pull off required tasks and deadlines and put them on a schedule for Mr. Brown's personal assistant to track, or into a calendar program on a smart phone with reminders.  That's how I remember what to do and when to do it.

Mike Vick: “I deserve to lose the $130 million…”

What can we learn from Michael Vick:

1)      Your loved ones love you for you not for your money. 

2)      Keep to acceptable hobbies to preserve reputation and financial wellbeing.

3)      Have checks and balances in financial management including background checks for advisors and regular and independent third party reviews of financial performance.

Michael Vick’s quote from his 60 minutes interview in 2009 when he was asked about his feelings regarding running a dog fighting ring.  There is a psychological phenomenon called the impostor syndrome.  It causes many talented and successful people to think that their extraordinary performance is accidental and that they are really a fake.  This fuels irrational behavior such as never washing one’s lucky pair of pants because they are “lucky”.  For others it might be procrastinating until the night before the deadline before beginning the work.

A behavior that might be detrimental to an athlete’s long term lifestyle would be letting their finances be mismanaged.  In Michael Vick’s case it was delegating his financial affairs to unscrupulous or perhaps simply naïve family and friends.  In addition to allowing them access to his assets he also maintained multiple homes for them. 

There is a breakdown of how his money was spent during his stay in prison in ESPN’s Magazine article titled “Mike Vick went bankrupt sitting in prison. How did that happen?” by Rick Reilly.  Some of the items were:

Amount jailed star quarterback Michael Vick spent from July '06 to July '08, according to recent bankruptcy papers: $17.7 million.

Amount he donated to his Mom's church: $327,900.

Amount Vick was sentenced to pay to house and care for the 47 pit bulls: $928,073.

Sticker price of the '07 Infiniti Vick bought for his fiancée to keep in Leavenworth so she has something to drive while visiting him in prison: $65,000.

Amount Charles Reamon, Jr., a friend Vick put in charge of his finances while in prison (8 months), went through: over $3 million (unaccounted for)

Amount New York bankruptcy attorney Peter Ginsberg alleges Vick's business manager Mary Wong "wrongfully removed" from Vick's accounts: $900,000.

Amount mysteriously categorized as "miscellaneous" over two years: $3.5 million.

Amount Vick took as "cash out": $1,112,664 (there were no ATMs in Leavenworth penitentiary).

Vick's ongoing cost to support his fiancée, their two daughters, his brother, his mother, a former girlfriend and his son with her, per month: $20,000.

Unfortunate name of the investment firm Vick sunk $245,000 into: Leake.

Amount Vick still owes banks in Toronto, South Bend, and Charlotte, for loans he took to invest in a car rental franchise, a wine store/restaurant, and other businesses: $6 million.

Total amount listed as "loan payment" over two years: $33,523.

Amount of judgment Vick owed his former agent Andrew Joel: $4.5 million.

Amount Vick still owed the Atlanta Falcons from his signing bonus: $3.75 million.

Amount the NFL attempted to recoup from Vick's bonus money: $16.25 million.

Mike Vick sued his former financial advisor, Mary Wong; he alleged misconduct by her with respect to his bank and retirement accounts.  But acknowledged that he signed a power of attorney (he claimed he was convinced by her to do so).  She was later found guilty and sentenced to pay back $3 million dollars to her clients and to 63 months in prison.  Prosecutors say Wong worked out of her Omaha home and purported to sell investments in luxury properties along with private jets and other investments. Prosecutors say many investments never existed. Instead, they say, Wong used the money to support her other businesses and a lavish lifestyle. 

It is interesting to note that Mr. Vick only had about $2 million with this investment advisor despite his highly lucrative career prior to his arrest.  And no other financial professionals were mentioned in the articles about his financial misadventures.   It would be a sad discovery, if this was Mr. Vick's only savings from the first part of his career.

In 2010 Mr. Vick signed a six year $100 million contract with the Philadelphia Eagles.  He had to repay his obligations, which were tiered to help the player maintain a lifestyle during repayment. This contract was restructured in 2013, where now the maximum Mr. Vick can make is $10 million.  It is critical for him to start planning his long term retirement now.

What can Michael Vick take away from his experiences:

1)      Letting friends manage one's money is not a good idea.  See $3.5 million and another $1+ million withdrawal towards miscellaneous expenses during his stay in prison

2)      Questionable hobbies can end one’s professional career due and damage to their reputation, not to mention increase legal costs.

3)      Mr. Vick does not need to sign a power of attorney, instead an have full control of his money and chose to agree with investment suggestions of financial pros he hires.   It will also help to have a regular independent review by unrelated audit professionals.

Reference:

http://www.cbsnews.com/8301-18560_162-5231257.html?pageNum=2

http://sports.espn.go.com/espnmag/story?id=3726426

http://www.psychologytoday.com/blog/the-scientific-fundamentalist/200907/the-imposter-syndrome

http://sports.espn.go.com/nfl/news/story?id=3862205

What can pro-athletes learn from team owners and coaches?

I came across an article in Forbes by Alex Konrad about technology in sports.  More specifically technology used to track players' performance.  It caught my attention because clearly they are employing one of principles of constant improvement (Six Sigma) by regularly measuring and tracking performance.  Catapult Sports created and now markets world wide their OptimEye, a matchbook size GPS loaded with sensors to track an athletes acceleration, agility, and force.  This device is used to “squeeze” even more performance out of pro athletes.  In one example, the NFL Jacksonville team, the Jaguars had their players answer questions about emotions and sleep habits.  Their responses were referenced against OptimEye data proving the players perform significantly better on more sleep.

 

If a team’s coach could be compared to a money manager with a team being an investment portfolio with different types of investments, we can say OptimEye data is like a portfolio benchmarking tool that helps the coach review actual performance  and compare it to the “expected” of a player.  This is key to any successful and disciplined portfolio management approach.  Where benchmarks are set for each investment sector and the portfolio’s performance is tracked against these benchmarks.  These benchmarks could be an index (like Dow or S&P 500) or prior and projected performance of the investment.

When coaches track performance and a player stops performing up to their initial benchmarks of acceleration, agility, and force there could be immediate change made to training or health regiment of the athlete.  And if the performance continues to deteriorate how long will the athlete last in the pro sports?  How much will their next contract be?  How many teams will want to offer them a contract?

Why not take a similar approach to an investment portfolio management and performance?  Financial instruments are a lot easier to track (the stock market provides a daily update on most investment instruments) than human behavior and causes of changes in an athlete’s performance.

 

Here is what pro athletes can learn from their coaches' use of OptimEye:

1)      Set benchmarks to formalize accountability for their investment advisors and money managers by having a clear investment plan.

2)      Expect regular and clear reports on how their investment performance measures up to the initially set benchmarks.

3)      Make changes if the performance does not measure up.

Learned from Mike Tyson

Lessons from Mike Tyson:

1) Independent review of any new contract you sign.

2) Independent and regular reporting of financial performance.  Strong tax and financial plan to prepare for short and long term.  Plan to maintain a lifestyle long after retirement.

3) Independent annual audit and attention to "red flags".

 

What happened?

Mike Tyson earned about $400 million throughout his career as a pro boxer.  Great job by his managers, promoters, and other professionals that helped him get this amount of work!  However, the pros that helped Mike manage his money were worthless…  Of course it’s easy to say this without knowing all sides of the story.  Mike could have had an excellent plan and great tax preparation team and just did not want to follow their advice.  But this seems an unlikely scenario since he clearly accepted professional help from the folks that helped his career.

He earned money through boxing, endorsements, and cinema.  His long time manager and promoter happened to be abusive and unethical.  News reports indicate that Tyson’s law suite against Don King indicated a number of fraudulent charges that were not reviewed during the athlete’s career but were only reviled after the athlete hit hard times.  Amongst many categories, the fraudulent charges included renovations to the manager’s home billed to the boxer.  Don King’s relatives were put on the boxer’s payroll at inflated salaries. There appeared to be looting of the athlete’s earnings with charges paid to the manager that were disproportionate to the industry standards.

Additional details revealed that Tyson employed two of his friends who had no experience in athlete management or negation.  This cost him not to have any real check and balance system when it came to overseeing his financial situation.

It is interesting to note that the case also had emphasized that the athlete might have been aware of the “skimming” by King but according to the testifying accountant he didn’t mind it given his $20+ million deals.

Another issue with huge earnings was that the athlete spent millions of dollars expecting the earnings to continue.  This is an unfortunate approach because at the end his contracts were not renewed and he reportedly was $12 million short on his IRS obligations.

 Another piece of the story was about the athlete’s demand for financial statements, which turned out to be just numbers typed up on paper, nothing comprehensive or official.

When Tyson contacted an attorney and requested an independent review of his contracts he again found problems.  The attorney informed him that the contracts were grossly unfair but at that point it was too late to go back...

In 2013 Mike Tyson is not engaged professionally and will never have the lifestyle he could have had if he addressed his finances with more care.

What have we learned?

1. Most of us are not lawyers.  If you are worth millions and have the potential to earn more spend the money and get independent reviews of each new contract. Do not have friends working for you.  It is one thing to develop a project together and see it through.  It is another to be the earner and “pull” a bunch of people because you like them.


2. Get and review your current financial records.  Make sure they reflect projected tax obligations and that you are setting money aside for these obligations.  Separate a fraction of your earnings to maintain a lifestyle for your lifetime.


3. Most importantly get a third party for example a CPA firm to perform an annual audit to make certain professionals involved in your career and financial management are correctly representing information to you and are acting in line with your expectations.