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Monday, June 22, 2020

Pro Athlete Turns to Armanino for Business Management


Summary

Customer Profile: Professional athlete who relies on Armanino’s Business Management team to help them manage their finances, so that they can focus on their career, maintain their lifestyle and be able to support their family through the rest of their career and into retirement. By providing the client with a detailed plan, Armanino has created a pathway for them to be financially solvent going forward.

Software & Services:

  • Armanino Business Management services
  • Aglink
  • QBO
  • Bill.com
  • Libretto

Benefits:

  • Improved client’s financial sustainability by $31 million
  • Mitigated risk profile by securing insurance protection and adjusting portfolio allocation
  • Secured client’s commitment to improved spending habits
  • Provided client with improved peace of mind for their financial life post-career

Challenge

Professional athletes are in a unique situation in that they make a lot of income very quickly but have a small earning window. In this case, a professional athlete came to Armanino as a client with a set of questions regarding a plot of land where they wanted to build a home.

The athlete was well into their career and had about four or five years left. From a planning perspective, they needed to treat their finances as if they were a 65-year-old who would live until they were 130. They had already developed habits and received mixed advice from previous advisors regarding planning for retirement. What the athlete needed was to get an understanding of their assets, income and spending, and how they had to scale back their current lifestyle in order to live comfortably into retirement.

But, with a client who has already solidified many of their habits, how do you get them to change the way they think about financial planning, present them with information that will actually resonate and then get them to keep to the proposed spending budget?


Solution

The Business Management team decided the best way to do this was to assess the client’s balance sheet, all the assets they possess and what their future income was going to look like. This meant speaking with their agent and realistically assessing how many years they had left in their playing career, what the league retirement benefits look like and what their potential sources of income were for the rest of their life.

The athlete was still young, so they could start a new career after their current one finished. But their goal was to be able to retire at the end of their playing career.

We started by breaking up their spending into three buckets:

  • Their current spending habits
  • What their spending should be for the rest of their career
  • What they should spend in retirement

When analyzing their current spending, they saw that if they maintained their current spending habits, they would be $33 million short. Through a priorities-based plan we established their household’s objectives. Once their priorities were clear, we set up a liability-driven assets allocation plan to protect their assets from risks specific to their objectives. From there, we constructed a factor-based portfolio to help the client see what appropriate risks they could pursue to help support their household objectives.

We identified areas where they could reduce spending and adjust their portfolio to protect their assets and maintain their desired lifestyle — or at least have time to adjust their lifestyle — in case of an economic downturn. For example, establishing proper liability and disability insurance provides protection in case of a catastrophic injury. This plan requires quarterly assessments and updates to adjust their plan according to their financial and professional situation.


Results

After significant trade-offs in spending, the client’s financial outlook now shows an overall deficiency of $2 million, which is a vast improvement. They also identified other holes in their financial life that can be filled by reducing their current and post-career spending.

There is now a structured plan in place that can be adjusted on a quarterly basis to give the client an understanding of potential risks, and perspective on any ideas about future purchases and their potential consequences.

By our addressing the client’s initial desire to build a house, they can now see that decision is one that would breed further financial insolvency and could create issues in the future. However, if they want to bet on themselves and build the home, they now understand they would be increasing their resource shortfall, post-career debt and property carrying costs. However, the player is also aware of options to remedy the situation, such as pursuing a second career or reducing spending in other areas.

Next Steps

Going forward, the client needs to adhere to four “totems” to improve their financial life and maintain their preferred lifestyle for the remainder of their career and through retirement.

  • Reduce spending
  • Adjust portfolio allocation
  • Seek insurance protection and risk mitigation
  • Attend a quarterly budget review

Despite their current financial shortfall, and with Armanino’s help, they are within a workable range to attain fiscal solvency, and they have options to pursue a second career after athletics or further reduce spending and be able to retire with a comfortable lifestyle.

They need to keep a spending budget agreed upon with their advisor that includes reducing costs on car leases, travel, wardrobe and personal items to minimize post-career debt. In case of a potential economic downturn, the client needs to maintain a risk-averse financial portfolio. To further mitigate risks, proper disability and liability insurance is required. Finally, they need to attend and actualize decisions made during quarterly budget reviews, so that they can adjust their financial plan as needed and establish accountability for themselves and their dependents.


About ArmaninoLLP

Armanino provides an integrated set of accounting services—audit, tax, consulting and technology solutions—to a wide range of organizations operating both in the US and globally. You can count on Armanino to think strategically, to provide the sound insights that lead to positive action.

Our Business Management Team has more than 35 years of experience serving as a personal CFO and advisor to athletes, entertainment professionals and other high-net-worth individuals who have a desire to focus on their own profession and insist that their business matters receive the same level of attention and expertise. We work cooperatively with a range of service providers, and we assist our clients with the long-term preservation and growth of their net worth by supervising and managing their day-to-day financial affairs and business concerns. Our clients include:

  • Studio Executives
  • Writers
  • Producers
  • Directors • Actors
  • Musicians
  • Athletes

Contact an Armanino Expert:

Robert Abramowitz - Director, Business Management

John Karls - Partner, Tax

Ken Coelho - Partner-In-Charge, Business Management


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