This past NFL season, I was fortunate to address players at three NFL club’s Directors of Player Engagement (DPE’s) rookie success programs. My emphasis was on assisting the rookies, their significant others and/or parents, on how to better understand financial literacy. That’s right—there’s more to know as an NFL draftee then just football. It’s imperative for players and their loved ones to understand how to navigate business opportunities, multi-state taxes, residence choice, how to account for in-season and off-season expenses, budget earnings and make sure there is enough cash flow to last the entire off-season. The plan is to assist transition through the athletic life cycle—enabling players to become more successful both on and off the field. Most importantly, they can’t be successful without the support of their family members and/or spouses.
At the start of our financial literacy program, some rookies looked like a deer in headlights. During their college years, who educated these players on how to navigate the complexity of the business world, or understand tax compliance and budgeting? NO ONE! Below are some strategies a player should know when he prepares to play for pay:
- Some weeks your net check will be lighter or heavier depending on where the team plays. Back in the early 90’s, the “jock tax” rule required that nonresident athletes apportion part of their salary to the state and city where they played their road games. This could be an advantage if games are played in Florida, Texas, Washington, and Tennessee among others. It could be a disadvantage if games are played in California or Minnesota where tax rates are high. Come tax time, the athlete must file a tax return in most states where games were played, which becomes an expensive and burdensome responsibility. Imagine having to deal with filing 10 state tax returns? One of the most important matters for rookies is state of residence. Should their domicile change to the state where they practice and play their home games or should they maintain a residence where they played college ball, or to where their parents live? The answer is: it depends! During our initial meetings with the parents and players, we review how to complete a W-4 form so the correct federal withholding is taken from the paycheck. We then individually determine which state to declare as a home state. Once the state of residence is determined it is imperative to update driver’s licenses, register for elections, and register a car to prove the player is indeed a resident of that state.
- Teams typically pay players stipends and offer modest pay for mini camps, training camp and preseason. Once the regular season starts however, players will typically receive 16 paychecks. Some teams pay every two games so players may only receive eight paychecks in a season. Pay is allocated over duty days, which were approximately 135 days in 2016. The issue then becomes: what should a player do to cover living expenses, training regimen, vacations etc., when there aren’t game checks coming in during the off-season? Again, the answer is simple: BUDGET! Again, at our initial meetings with players, we review “cash” required to pay all necessary living expenses. Once a financial game plan is put into place, it is important that the player agree to adhere to the budget each month. Part of this budget will include a player salary. In other words, deposit the whole game check into the bank and only take a modest amount as salary for those “special” purchases that absolutely need to be purchased along with cash. Most young guys today don’t even use cash. All expenses are paid for with their debit card or with venmo. We do not recommend they purchase a mansion, expensive car, or watch unless it’s considered affordable and in the budget.
- Accounting for in-season and off-season expenses enables a player to take full advantage of all allowable deductions when they file their income tax returns. Filing season for the 2016 year is due April 15th, 2017, however a player may have incurred deductible expenses back in early 2016. In order to mitigate his tax liability, he needs to track these expenses early and keep track when they occur. I can assure you, while a player is preparing for the combine or for his pro-day, he is not thinking about what expenses to track. However, if the player considers himself the CEO of his own company—by tracking certain expenses like travel, union dues, agent fees, purchases of phones or computers, certain meals, training clothing, cleats, equipment to augment recovery, tax prep fees, and certain lodging—can make a difference when computing tax liability. Cash is king so if these expenses are tracked the player will be more likely to reduce his tax liability and will be able to put more cash in his pocket.
The lesson here is that there are so many things affecting a player’s life after the draft. By game planning ahead of time, the player will become more successful off the field, which should enable him to become more successful on the field.