Life in the game: How to build financial security on and off the ice

October 07, 2022 | RBC Wealth Management


As sports professionals look ahead to their first game and their first paycheck, what are the pitfalls of sudden money?

Playing in the National Hockey League (NHL) — and the fame and fortune that come with it — is a dream for many young hockey players. In reality, very few make the big leagues and even then, despite the rewards and recognition, financial success isn't guaranteed.

There are several stories about professional athletes who make millions of dollars in their careers, in both salary and sponsorship deals, but lose most or all of it due to poor financial decisions.

In some cases, players are drafted with great potential but wind up benched either due to injuries or the intense competition for ice time, which can significantly curtail their earning power.

For the healthy, top-draft picks that play regularly, patience is required before collecting those multi-million-dollar paycheques.

"It takes a few years before you're getting professional dollars on the salary part of the contract," says Bob McKee, managing director of RBC Sports Professionals, based in Vancouver.

It's why McKee believes financial planning is critical for athletes once they turn professional, and should continue throughout their careers both on and off the ice, as they prepare for whatever happens.

"Players should start thinking long term, and get on the right path from the beginning," McKee says.

No one career path for athletes

There is no "typical career" for NHL players, according to a study commissioned by RBC Wealth Management, together with The International Institute for Sport Business & Leadership at the University of Guelph, Ont.

The study, based on an examination of more than 11,000 NHL players, predicts only 42 percent of drafted players in the 2019-2020 NHL season will play a single game. And while players have the potential to earn between about C$2.1-million to $11.3-million in an entry-level contract, 36 percent will earn a lifetime salary of $10-million.

The study says players drafted in Round 1 achieve the highest lifetime earnings, but there's little variance among players drafted in Rounds two to five. Players who enter the NHL as free agents can also command sizeable lifetime earnings.

"These statistics are something to think about," McKee says.

Getting financially fit

Sports is one of a few industries where professionals make most of their money early in their career, which means more pressure to manage it in a way that ensures it lasts a long time, maybe even a lifetime.

It's why professional athletes are urged to develop the same discipline with their finances as they do in their sport — and the earlier the better. Financial skills athletes pick up early in their career can help set them up for a successful future, regardless of how far their athletic career goes, McKee says.

For some, a signing bonus or contract payment could be their first real paycheque. While the dollar figure may be high, especially as their performance and experience improve, so too are the expenses, such as taxes and fees for a wide range of professional services, required to help them manage both daily activities and overall wealth.

"What many young players may not realize at first is that, if they earn $1-million for example, it isn't going straight into their pockets," says McKee.

He says players also should plan for the inevitable, which is the short-term nature of the profession. "With hockey, you can't plan your future in the same way you might be able to as a doctor or a teacher or a banker," McKee says.

Building a team of professionals off the ice

Most hockey players thrive thanks to a team of people, including fellow players, coaches and trainers that help them boost their athletic performance. When it comes to finances, players should consider a team of legal and financial advisors to build and protect their wealth.

"The more confident players are that their finances, tax and legal matters are in order, that's one less distraction they'll have when they're out on the ice playing," says McKee.

It starts with becoming financially literate, which helps players make the right investment decisions early on, says Boris Gluzberg, senior vice president and team leader in the sports and entertainment banking division at City National Bank.

"The biggest mistake is not taking responsibility for your money whether it's a $20,000 bonus or a $100,000 bonus," says Gluzberg, whose team is based in New York. "The onus is on you. It doesn't matter how old you are or where you are in your career ... Identify your support team as early as possible and educate yourself."

He says players should begin focusing on finances as soon as they're drafted and stick with it throughout their career, both during and after hockey. "You don't have to be the highest-paid player to be successful, financially," Gluzberg says.

Building a brand on and off the ice

Athletes should see themselves as the CEO of their own brand and appoint a "virtual board of directors" to help them build and maintain it, Gluzberg says.

"When you create that virtual board of directors, it strengthens you and your brand," he says. It's particularly important once a player starts to gain more ice time and, in turn, more celebrity.

"When you wear that jersey, everyone wants to be your friend," he says "Use that to your advantage to build your brand and your network and the net worth may/could come."

He also recommends players seek out professional mentors, including more seasoned players, to help them make decisions about managing their money and personal brand.

Gluzberg often brings in more seasoned players, who are his clients, to help mentor younger athletes about finances.

"It's important to have an athlete ambassador who has been there and done it," he says.

Protecting your personal brand

Having a financial plan in place is important, but players also need to manage the risk that comes with being a professional athlete, and maybe even a celebrity.

McKee says professional athletes, especially those with multi-million-dollar contracts, are approached regularly to make investments in startups or by people looking to cash-in on their earning power.

"They're a target," McKee says, while recommending players use advisors to help make investing decisions that suit their wealth goals. “Let us be the bad guys if necessary, if the answer is 'no.'"

Players also need to protect their wealth by properly managing their brand, which includes bring careful about what they say and do in public, including social media.

There are many examples of celebrities whose reputations and brands were tarnished by something they posted on sites such as Facebook or Twitter.

"You have to think before you say, or Tweet. It could save you a lot of grief," McKee says. "We tell players, 'You have a brand. It's like a credit rating. you want to protect it with everything you've got.'"

The strategies, advice and technical content in this publication are provided for the general guidance and benefit of our clients, based on information that we believe to be accurate, but we cannot guarantee its accuracy or completeness. This publication is not intended as nor does it constitute tax or legal advice. Readers should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy. This will ensure that their own circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change. When providing financial planning services, or engaging in any mutual fund related activities, private bankers are acting on behalf of Royal Mutual Funds Inc. Products and services such as GICs, personal and business banking, loans, and credit are products provided by Royal Bank of Canada. Royal Mutual Funds Inc. and Royal Bank of Canada are separate legal entities that are affiliated. Certain services may be provided by companies under RBC Wealth Management®. Royal Mutual Funds Inc. is licensed as a financial services firm in the province of Quebec. ® Registered trademark of Royal Bank of Canada. RBC Wealth Management is a registered trademark of Royal Bank of Canada. © Royal Bank of Canada 2021. All rights reserved.

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Financial Literacy