From empty stadiums and playoff “bubbles” to COVID-depleted lineups, the year in professional sports has been unusual, to say the least, and this week’s NHL Entry Draft will be no exception. It is taking place not quite as scheduled (it was originally slated for June) and not quite as it has ever been held before, because for the first time in its 58 years, team staff will connect with each other and make their selections remotely. Yet for all the strangeness of this year’s draft, one thing is no different: for the drafted players and their families, it will be a life-changing event.
Obviously, getting drafted gives players a lot to think about and prepare for – prepping for rookie camps, and what new opportunities a player’s draft status affords them. Yet the empirical evidence has shown time and time again that there is one aspect of preparation that young players and their families rarely consider deeply or early enough: their finances. And make no mistake – being a first-round pick at the Entry Draft can translate into substantial sums of money. Consider the class of 2003, which featured such future stars as Ryan Suter, Zach Parise, Ryan Getzlaf and Eric Staal. By the 2019 season, the 30 first-rounders’ average cumulative salary added up to well more than US$40 million – all amassed by the time they were in their mid-30s. (By comparison, it would take a Canadian with an average annual income of CAD$55,000 more than 800 years to earn that much.)
One might think all that money would set a player up for a very comfortable life. So why is the opposite so often the case? Countless times, players have been handed large salaries early in their careers, only to find it as much a hindrance as a help, both on and off the ice. What’s the difference between those who thrive over the long term and those who struggle?
In our view, it’s a matter not just of the team that chooses the player, but also the team the player chooses. Every player with a chance at a professional sports career should have a set of key advisors in their corner. Most importantly, these advisors must be able to work together to achieve optimal solutions for players, because the actions of each have profound impacts on the others. The need for such an integrated approach is why KJ Harrison Investors has established a uniquely caring service for professional athletes that provides wealth management advice while also coordinating closely with legal, accounting and tax experts to protect and nurture players throughout and after their hockey careers. Whether these relationships are forged through the players’ agent, their families or the players themselves, it is critical that athletes have the team in place before their name is called.
What does this advisory dream team look like? Most players will already have a family advisor or an agent; this is necessary, but not sufficient. A good accountant is also a necessity, to help navigate the complicated landscape of state, provincial and federal taxes a professional athlete may encounter. (One common challenge: so-called “jock taxes,” whereby local jurisdictions tax income generated during a player’s away games.) A good lawyer is also a must. NHL player contracts are relatively standard, but endorsement deals are not, and a player needs someone who can sort through the litany of different clauses and covenants in them. A lawyer can also help evaluate the investment opportunities NHL players inevitably receive and help ensure their new fortunes don’t go up in smoke.
Finally, young players need an experienced financial advisor who understands the complexities of wealth, and who can formulate a plan to maximize the time they have to monetize their talents. The average NHL career is short (about five years), but with sound financial management, it can provide the bedrock for a lifetime of success. A true wealth manager must also be a teacher, who can communicate important lessons – such as how to limit the deleterious financial impacts of “the entourage effect,” and how to keep up (or not) with the profligate spending habits of some colleagues – that will ensure money is left over after the final buzzer sounds.
In short, the path to long-term success in hockey begins before the Entry Draft – with how well players prepare and how smartly they or their parents have enlisted the right people to help. Without strong advice, players could find their attention pulled in many different directions, and that inability to focus on his sport could hinder performance. At worst, the lack of an integrated support team could lead to the squandering of early promise, or to a later life hobbled by financial insecurity.
No doubt, the players in the Entry Draft will be thinking a lot about the team they will be playing for on the ice. But they should be thinking just as much, if not more, about their team off the ice: the wealth, accounting and legal advisors who will be playing for them.
By Mike Jaczko, Partner & Portfolio Manager, and Rob Martini, Private Client Analyst at KJ Harrison Investors