NFL Finance 102

Protecting the vulnerable from financial predators is our North Star.

In spite of their physical strength, NFL athletes aren’t immune to this financial virus.  Our favorite NFL punter, Jeff Locke, has returned to give his unique take on the subject.

Jeff watched Josh Brown’s video with David Byrne of Bright Lights. David is a former FINRA examiner who created a business protecting professional athletes from disingenuous financial advisors.

Josh’s interview provided a perfect backdrop for this guest post. David is doing great work protecting athletes from the shadiest of advisors; and Jeff has done his best to provide much-needed financial education to his fellow NFL players. 

Jeff wholeheartedly agrees with Josh on this point: “Yes, Josh, the kickers and punters are the ones with the time to study up on finance and inform their teammates!”

Josh pointed out every NFL team needs a Carl Nassib, referring to his famous Hard Knocks tirade concerning compound interest.

Here is Jeff’s take:

The big stories in athletes’ finance this year have been the Tim Duncan/Kevin Garnett advisor lawsuit and the Kendricks insider trading case.  I may address both soon, but let’s circle back and talk about Carl Nassib and his Hard Knocks financial education session. He received a lot of publicity for it – both good and bad – but the investing community was pretty harsh on him.

Carl admits to having a somewhat limited background in investing, but still gives it a shot:

Carl’s compounding math was pretty solid. 42 years of compounding actually makes some sense due to the fact that the average career for an NFL player lasts only a bit over three years. Many players will be around 25 years old when they’re done playing. He likely used this number to make the math simple with a roughly $64 million compounded return on a $1 million initial investment (if compounded monthly).

I don’t agree that players should invest without a financial advisor in the mix, however. Yes, the 1% (hopefully less) that an advisor gets paid will drag on “pure” performance. But that 1% is negligible considering the drag from the behavior gap of individual investors. A great financial advisor is well worth 1% if he creates personalized plans and then helps his clients stick with it.

One of the keys to the magic of compounding is to stay invested through the rollercoaster of the market over decades. Managing investing behavior may seem easy for most people my age, but a large majority of players were too young to have had any money invested before 2010. This has been one of the longest bull markets in history. A great advisor will lead clients through the stomach-flipping market downturns that are inevitable.

Carl was primarily called out for using a 10% return number and saying that a “bank” could give you that kind of return. Yes, earning a 7% return vs. a 10% return has a huge impact on total return over a long period of time. No, a bank savings account will not give you a 10% return. He knew this and quickly corrected himself after the episode aired.

In his defense, he may have been even more impactful by being incorrect.

Was his goal to tell his teammates exactly how to invest? No. Was it to tell them how much to save or how much they need to retire? No.

His goal was to try and change the present spending choices of his teammates. His “mistakes” may have been more effective than if he had been accurate. He used numbers and terms that his teammates could easily follow – something that all good advisors do with their clients. Using more complex terms and more reasonable rates of return may have lost his teammates from the very start.

The problem with most people – and especially most athletes – is overspending to the point that not enough money (if any) is put aside for investing.

1%, 7%, or 10%; 30 years or 43 years. All of these figures are irrelevant without an actual initial investment.

When an initial investment is made (and how much is invested) can be the difference between retiring early, retiring at all, or being the next broke athlete that feeds the stereotype. The number one financial problem facing athletes is overspending, plain and simple. Carl effectively showed players how their current spending choices can have a huge impact on their future.

An overlooked part of the segment is when Carl told his teammates that he decided not to buy a Rolex to impress Taylor Swift. Investing that $10,000 (and not buying the watch) could grow to $640,000, based on his compounding example.

Carl is trying to stop his teammates from acting on the urge to get that second or third watch or car to keep up with the veteran pulling into the players’ lot with the brand new G-Wagon.


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