During a 13-year career that began in 1987, Chris Dudley was called on to defend some of the greatest centers in NBA history – among them Shaquille O’Neal, Robert Parish, and David Robinson. While developing a reputation as an exceptional shot-blocker and rebounder, Dudley also devoted time to preparing for his post-basketball career – as a financial advisor.
As his career progressed, Dudley researched investing extensively. He struck up a friendship with David Swensen, Yale’s endowment manager – Dudley is a Yale graduate, with a degree in economics and political science – which spurred his interest in the capital markets.
While some teammates were planning second careers in broadcasting or coaching, Dudley spent a summer interning for Morgan Stanley.
After retiring, he got his CFP, settled in Portland, OR, and researched the landscape of local investment advisors. He landed with Lake Oswego, OR-based Filigree Advisors, and he now serves a mix of athlete and non-athlete clients.
Thanks to a long playing career that placed him on five teams (he played twice for Portland), he has seen it all – excessive spending, bad investments, reckless lifestyles – all of which combine to drive 60% of players into bankruptcy within five years of retirement.
I spoke with Dudley about the unique challenges of financial planning for his professional athlete peers.
Financial planning for the professional athlete
Most basketball players – and professional athletes in general – fail to plan for their financial future, according to Dudley.
“Other than runway models, there is no other profession where your career earnings are compressed into a handful of years,” Dudley said, “and what you make during those years has to essentially last the rest of your life.”
For most people, their earnings increase over the course of their careers. They may make what turn out to be relatively small mistakes along the way, Dudley said. “As people get older they become wiser and better investors, at the same time more dollars are coming in,” he said.
“For athletes it is the opposite – they have the most dollars in their early years.”
And when athletes make financial mistakes, they don’t have the time to recover from them.
“Players go from making five or ten million dollars a year to basically nothing,” Dudley said. “They will never have that kind of income again.”
Usually players are forced to retire earlier than they expect, Dudley said. “The party ends sooner than they were hoping for.”
Unlike in professional football, NBA contracts are guaranteed. But those guarantees do not extend to the risks of injury or death, and a part of Dudley’s expertise is in addressing his clients’ insurance needs.
The NBA offers a 401(k) program and a pension plan, but it does not provide health care for players after they retire. Dudley said health care is now the biggest need among players, as they have a high risk of injury and are harder to insure. Knee, foot, and back injuries are the most common among NBA players.
Dudley should know – among his injuries were five foot fractures.
Dudley tilts his clients’ portfolios toward fixed income, to provide a more stable and secure income stream and for funding for short term liabilities. He uses Treasury Inflation Protected Securities (TIPS), natural resources, and real estate to hedge against inflation risks, and has started using Municipal Inflation Protected Securities (MIPS) as well.
Knowing all his clients’ assets is critical, and Dudley said most advisors fall short in this respect. He captures information on held-away investment accounts, as well as all other assets his clients own – houses, pensions, and contract guarantees – to provide holistic advice reflecting the full scope of his clients’ assets and liabilities.
The path to financial failure
While bankruptcies are often the result of bad advice or bad investments, the most common difficulty facing athletes is the need to adjust to a sustainable level of everyday spending. “It’s hard to get the concept across – not just among athletes, but in general – of the length of one’s life span,” he said. Players who retire at age 30 need to plan for another 50 years, although Dudley runs his models through age 100 to provide a safe cushion. “When you map out how many dollars it takes to live that long, it can be a reality shock,” he said.
Players who have been in the league a while have more realistic expectations, but those out of college – and especially those out of high school – are startled by how little is left of their salaries after taxes and agent fees.
Dudley has seen players fall into the “MTV Cribs” trap, wherein peer and societal pressure lead them to live a life of lavish and excessive spending. It is very hard to rescue players once they reach this stage, he said, and he counsels his clients to adopt a lifestyle that is comfortable and realistic over an entire lifetime.
Bad investments – sometimes the result of “deals” brought to players by their friends – often end tragically. Dudley said many are real estate transactions, such as the purchase of a vacation property with a plan to earn rental income. In those cases, he works with his clients to explain the ongoing costs – like property taxes and maintenance – and the lack of diversification in their assets.
With effective counseling, Dudley said, his clients will end up talking themselves out of the deal before making an investment.
Excessive spending is not limited to personal needs, either – players often support a network of family and friends, and that can be the root of their financial demise. Just a few weeks ago, Jason Caffey, a former-NBA player who retired five years ago, filed for bankruptcy. During his playing days, he signed a contract for $35 million, but he can no longer handle child support payments for his eight children (with seven different mothers).
Infrequently, agents will take advantage of clients. If the agent is getting compensated based on the player’s assets (rather than their income), a red flag goes up for Dudley. “The agent’s role in the planning process is to refer and offer guidance,” he said. “Most agents appreciate that, because they don’t want to be the one getting the phone call when the market is down 200 points.”
On his end, Dudley does not get involved in contract negotiations, unless he is asked by the agent about tax-related issues or, for example, to discuss the likelihood of the player being traded and how this might affect a decision to purchase a home.
Struggling retirees can apply for hardship support through the NBA players’ association, but by that time their assets have been fully depleted.
I asked Dudley whether players who went to the NBA directly from high school have more trouble planning for their financial future. Most of the stars who skipped college – Kevin Garnett, Kobe Bryant, LeBron James, and Tracy McGrady, to name a few – are still playing, and Dudley said it is too early to say whether they will have a tough time. “But players who went to play after high school but didn’t make it in the NBA are struggling,” he added.
Those players who struggle the most are those whose identity is tied up in being a basketball player, Dudley said. “They can’t duplicate what they had – there’s nothing like playing in front of 20,000 fans,” he said. “It can be very tough to walk away from that.”
Read more articles by Robert Huebscher
