SOURCE: Abacus Wealth Partners

April 25, 2007 16:29 ET

Will Draft Day Produce the Financial Results That NFL Prospects Expect?

Expert Source: Financial Advisor Jason Cole Is Available for Interviews About the Financial Side of an NFL Career

PHILADELPHIA, PA -- (MARKET WIRE) -- April 25, 2007 -- The 2007 NFL draft will launch a new class of athletes who may focus on living the lifestyle of an NFL player without considering the financial challenges they may face in the next few years of their young lives. For example:

--  25 percent of players who have played three years or fewer will be
    bankrupt within one year after they stop playing.
    
--  78 percent of those players who play more than three years will be
    bankrupt, divorced or unemployed two years after their careers end.
    
--  Only 37 percent of ex-NFL players said they could maintain their
    current lifestyle after they retired from football.
    
Athletes may avoid the above scenarios if they have some financial training rather than only athletic training.

Expert sports financial advisor Jason Cole is available to discuss the financial side of the NFL Draft and how players can come out ahead and avoid bankruptcy or other financial pitfalls. The financial decisions that players make even before the draft will impact the quality of their lives for years beyond their playing careers. Below are examples of Jason's expertise.

A rookie who receives a $1,000,000 signing bonus and a salary of $360,000 per year will net about $1,000,000 (before any spending) over the average NFL career of 3.3 years after the fees taken by a business manager and agent, taxes, social security and union dues. If the player spent $100,000 after taxes per year during his playing career (3.3 years) and earned seven percent on savings, he would have a net worth of $825,000 when he retired. If invested appropriately, he will be able to spend about $40,000 per year out of this amount if he wants his money to last for the rest of his life. If he continued to spend $100,000 after taxes and had no other earned income, he would run out of money after only 11 years.

NFL (which sometimes means "not for long") careers are very short. Rather than spending, athletes need to save. The NFL matches player contributions 2:1 up to $20,000 into its 401K. A player can elect to defer a maximum of $15,500 for 2007 thus receiving a $20,000 tax-free and tax-deferred contribution from the NFL.

Many athletes do not realize that the state where they reside when they receive the signing bonus determines how the bonus will be taxed. This means paying 10.3 percent to California, which includes a millionaire's tax of one percent. If they want to save taxes, they should establish residency in states like Texas or Florida before contract signing to avoid state income taxes.

First-round draft picks will sign contracts with large salaries and bonuses; however, most of the league's players will not. In 2007 the minimum salary for rookie or first-year players is $285,000; second year is $360,000; third year is $435,000. Since these salaries pretty much apply to all but the first 35 players drafted in the first round, and considering that salaries in football, unlike baseball and basketball, are not guaranteed -- signing and roster bonuses are the only real guarantees in what are traditionally four-year rookie contracts.

While getting drafted is an accomplishment it does not guarantee employment with the NFL. From 2000-2005 an average of 35 draft picks were released prior to opening season rosters. In 2006, 40 drafted players were not on opening-day rosters and 12 were placed on the reserved list.

Jason Cole, CFP®, is a Managing Director of Abacus Wealth Partners and a member of The Sports Financial Advisors Association, www.SportsFinancial.org, a non-profit organization that was formed to ensure that world-class financial planning expertise is being delivered to athletes, coaches, players associations and athletic organizations. Jason frequently counsels compliance departments of major universities to educate student athletes about making wise financial decisions.

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