How an Advisor Invests NFL Players' Wealth

Q&A February 09, 2023 at 05:11 PM

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NFL players sure know their stuff on the gridiron. In the world of investing? Not so much. That's why they, and other professional athletes, need a financial advisor such as Lee Rawiszer.

He impresses upon his football-playing clients that, with their short careers, the money they invest now for the long term is expressly for their retirement, to be left intact to grow.

"This is irreplaceable capital. How many people have a 23-year career like Tom Brady? The average NFL player could be done in three to five years or less," he tells ThinkAdvisor in an interview.

As chief financial officer and managing principal of Paradigm Financial Partners, a firm with about $800 million in assets under management, Rawiszer specializes in helping entertainers, pro athletes and other high-net-worth professionals.

The football teams he works with include the Chicago Bears, Minnesota Vikings and the New York Giants.

His mantra is: "Don't invade the principal!" something he endeavors to impress upon the less-than-investing-savvy athletes.

One big issue in serving pro athletes is that they're easily taken advantage of by unscrupulous people or otherwise induced to invest in high-risk entities they don't understand.

In the interview, Rawiszer discusses this problem: Though he and players' business managers offer athletes sound advice about an investment they've been urged to make by someone on the outside, "they don't always listen" to the experts whom they pay.

Helming Paradigm since 2003, Rawiszer was previously with Capital Management and the New York Life Insurance Co.

He developed the pro athlete niche after he was referred to an NFL player by the business manager of one of his pop music star clients.

Then he was "referred to another and another" athlete. "It was a ripple effect," he says.

ThinkAdvisor interviewed Rawiszer by phone on February 6. He was speaking from Westport, Connecticut, where his firm is based.

What do you imagine highlights his agenda for this Sunday?

"I'm going to a big Super Bowl party in Westport and having a good time. A lot of NFL fans are out here, and there's always an annual party, usually in someone's home.

"I love watching the Super Bowl," he enthuses, "and we make a big event of it."

Here are highlights of our interview.

THINKADVISOR: What insight does a financial advisor need to work with NFL players?

LEE RAWISZER: An understanding of the potential short duration of their career. Very few people have Tom Brady 23-year careers.

You also have to understand that these athletes are approached all the time by so many different people. If they're at a party, for instance, another player will say, "You should meet with my guy. He has this amazing deal that's paying 15%."

Then they come back to me. I look under the hood and find that the investment was very risky. Most of these players aren't investing-savvy or educated; so they can get taken advantage of.

Over the years, a number of pro athletes were blowing through all their money and going bankrupt. Is that still prevalent?

Yes. A lot of professional athletes do get taken advantage of, and that's where they have to be careful. They can blow their money and get into unscrupulous investments with people that rip them off or high risk-investments they thought they understood.

There are a lot of bad actors out there involved in Ponzi schemes and other things that aren't legit. It's the player's business manager's job to protect them from unscrupulous people.

We've avoided those kinds of situations for the most part with our clients, both professional athletes and people in the music and entertainment business.

So the athletes fail to listen to their business managers and you, go off and put their money into something they shouldn't?

You hit the nail on the head! That's actually a problem. They don't always listen. Sometimes they think they know better.

They may ignore my advice and their business manager's advice. We take detailed notes and document those conversations after every meeting — what we advised and what the athlete's reaction was.

Sometimes, when our advice wasn't taken, it didn't turn out well. You can recommend 10 things, and they'll listen to you for nine of them but won't listen to one — and that could be the thing that goes sour.

I suppose you always have to keep in mind the brevity of a football player's career. Right?

Yes. They have to depend on their earnings during their career and invest smartly. [When they leave football], not everybody gets an Adidas endorsement or a job on Fox Sports, like Tom Brady. He signed a contract to be the lead analyst for the next 10 years that's paying him about [reportedly] $375 million when his playing career is over.

But NFL guys do make big money. Don't they have an appetite to spend it lavishly?

Some of them come into very large amounts of money at one time and are tempted to start buying houses for their relatives, luxury cars and expensive jewelry.

What do you do to try to prevent them from doing that?

It's the goal of the business manager and me as the financial advisor to give them prudent advice. You don't want them going crazy and then waking up one day and finding out that they've spent their assets — and then their career is over.

How do you communicate this to the players?

You need them to understand that this is money they're investing for the long term and they shouldn't try to invade their investments or touch them during their careers. You want that money to grow.

There's always the risk that they could be out of the game in a short period of time, but this money has to last them their lifetime.

There's a lot of unpredictability in any professional athlete's career; there's always the risk of injury or of not performing or being cut or not having their contract renewed.

What specifically do you say to the players?

Not to blow the money. Not to put it into the portfolio, then literally make us unwind the portfolio or sell positions and realize taxes because they've spent the money on something that usually isn't necessary, like a fancy car or other luxury.

You have discretion over the players' investments?

Correct. But we build a plan with their consent. They'll agree to the allocation of what percentage is going to be in stocks, bonds. But they're not involved in the actual selection of which stock and which bonds. We work with institutional money managers on our team.

Does the player's business manager have much say about the investing side?

They're heavily involved. They're usually present at all meetings with the athlete. They give guidance and input and have influence.

But as the financial advisor, we're relied on to give the advice.

How do you evaluate the level of risk players can take with their investments?

We build a plan and an asset allocation model and determine, based on their age and when they start their career, how much money is going to be in equities and in what type of equities.

When they're younger, the majority [of the money] would be in stocks and bonds, and when appropriate, alternative investments, so that they have something not correlated to the stock and bond markets.

What's your overarching goal and investing philosophy?

Not invading principal is always the goal. If we've done our job right, when a player's career ends, it's quite possible they could live off the dividends from their equities and the fixed income on bonds without invading their principal.

If you can live off the yield and not invade principal, it's a win-win.

Please talk more about the alternative strategies you mentioned.

We believe in carving off assets in alternative investments, like hedge funds or private equity — asset classes that, as I say, aren't correlated to the stock and bond markets.

For example, last year everything was down across the board. You have to go back 42 years to see a [market] like we had in 2022. But alternative investing has the potential to make money even in down markets.

So having an alternative, something like private equity real estate with a long-short strategy has the potential to make money.

Last year we used a fund that pays dividends of 5.25% and also had growth. We had a hedge fund, Millennium Management, that was up about 11% or 12% last year.

At what point did you invest in the alternatives?

We had them in place before the market went down. That's almost like buying an umbrella even though the sun is out. You have that umbrella in case there's a rainy day.

You don't wait until the market is down. That's usually too late. You want to put the alternatives in place in advance as part of the asset allocation.

How much do you deploy to alternatives?

We never put more than 5% to 20% in alternatives because most of the time, they don't have daily liquidity, like a stock or bond.

A lot of these investments can be locked up for a year. That's why we have a strategy of 5% to 20%, at the most. You have to be careful and not overexpose clients to any one strategy where the money could be locked up for a few years.

So the big objective on your part for these players is for them to have more than enough money for their retirement. Right?

Correct. Or when their career ends. They get an NFL pension, but you want this money to be a long-term investment; and we educate them not to disturb the portfolio. If they're putting money in and taking it out, they're swimming against the current.

We always try to educate them that this is irreplaceable capital. How many people have a 23-year career like Tom Brady? The average NFL player could be done in three to five years or less.

Suppose a player needs money to buy a car or house? Where do they get it?

We do financial planning and create separate accounts to build up cash reserves for emergencies or future goals, like buying a home. And they put money aside for taxes. They work with their business manager not to invade their long-term investments.

We try to segregate the money into buckets: short-term goals, long-term goals, [and] tax money in a separate account that's not going to be touched.

What's your strategy to create a "financial cocoon of security" for the athletes in retirement?

It's building an income stream that they can live on the rest of their life without invading principal and just living off the yield of the portfolio.

For example, bonds don't appreciate in value. But dividend-paying stocks have both growth potential and dividends.

Do any of your NFL clients receive rental income from real estate in retirement?

This situation is very unusual; I have one player who retired from the NFL that built a mini-empire of investments in multi-family housing, commercial real estate [and so on].

His income comes from the properties he invested in. He's living on that without having to even touch income from his portfolio because he lived below his means and made those shrewd real estate investments, which [a real estate] expert recommended to him.

So he invested not only in our portfolio but also in a lot of real estate. Today, now that his NFL career is over, he's living off the rental income.

Do you advise pro athletes to buy insurance?

My business partner uses life insurance as a way to protect the athlete's family. If they were to die prematurely, they have a tax-free death benefit that would go to their family.

This can also be used for other purposes, such as a tax-deferred vehicle using the life insurance chassis, or investment.

Are your NFL player clients aware of what's going on in the markets?

We communicate with them. They understand they're not going to always have a winning season, and they're not going to always have a year where they make money [on their investments.