There is a fairly immovable theory in the world of sport that many elite professional athletes, especially in some of the bigger sports, are set for life financially once they retire from competition; that they have accumulated incredible wealth simply due to the significantly inflated income and endorsements they had taken home for many a year.

There are two – amongst perhaps a litany of others – glaringly disturbing errors in the above statement. Firstly, income from employment and endorsements only does not equal wealth. Secondly, many don’t accumulate their income, and perhaps spend a large proportion of their income on ‘assets’ (which really are expenses cleverly disguised as assets on your balance sheet to the bank, if one is to use the investment sense of the word ‘asset’).

However, there is obviously a larger number of athletes out there that either don’t earn the stratospheric incomes of the elite, and there are also those elite earners who are relatively prudent with their earnings.

And that is the point of this article. The question I’m attempting to answer is:

“As an athlete, what can I do with my sporting earnings, regardless of the amount, such that when I do retire, I am financially stable to be able to pursue activities that I will find fulfilling?”

Covering all bases

I decided to enlist the assistance of two elite athletes in Australia, importantly from opposite ends of the sporting and athletic earnings scale, namely the AFL (Australian Football League) and AIHL (Australian Ice Hockey League). Note: The average AFL player earns about $329,210pa, while an AIHL player is anything between amateur and semi-professional, depending on the club and cannot make a living off the sport.

As you will see, the advice they imparted was relatively similar, which provided some comfort that I could answer the big question above without fear of disenfranchising one group of athletes over another.

The first athlete in question is Shaun Grigg, who plays Australian Rules football for Richmond Tigers and has a diverse investment portfolio that includes Spudbar as one of the main items. The other is Dayne Davis, an ice hockey goalkeeper for the Melbourne Ice and the MVP in last year’s AIHL finals series, won by his former team, the Newcastle Northstars. Dayne is also an engineer, construction project manager and active investor in small business.

Off the back of the two interviews, I have put together a list of 10 tips that athletes can use to gauge a business investment and ultimately be able to control its performance. Here goes…

1. Accept that your sporting career will end one day

While this sounds trite and could be easy to dismiss, the reality is that your sporting career, like many other professionals in this world, is merely one of several careers you will have in your lifetime. At some point, the earnings will stop and there are only so many media and coaching positions available. As Shaun puts it, “It’s probably not normal earning a large sum of money at a young age. It won’t last forever.”

But, more importantly, this shouldn’t be viewed as a time in your life to grieve over a loss; this is a time to view this as yet another opportunity in your life to overcome the insurmountable odds of achievement that you crave so much as an athlete.

2. Have a basic grasp of financial literacy

No, you don’t need to become Benny Bookworm and start a degree in Macroeconomics and Statistics, unless you want to, of course. It’s really not that daunting and information and assistance are readily available. Like most things in this world, financial literacy is an acquired skill and once you’re in action and applying your knowledge, it’s not that daunting.

Dayne correctly takes a step back and points out that the first step towards financial freedom is “to set a goal and work backwards from that.” Once the goal is in place, he then advises that you get some basic financial education as a foundation.

“Understand a financial spreadsheet – profit margins, costings and forecasting cash flows. Know how dividend payments work and what an ROI is. Also, you don’t need to know how to account for depreciating assets, get an accountant for that. But you do need to know what it is. It’s all just language and simple arithmetic.”

What’s more, this knowledge will actually help you to understand your net worth as an athlete during your career and in terms of contract negotiation: “If you know how many jerseys with your name are being sold, there’s a calculation behind that to work out your net worth. Furthermore, it will help with everyday finances too, such as purchasing property, either as an investment or your own home.”

Shaun, however, is one such athlete who did engross himself in higher education. “I have completed a couple of business degrees.” He also believes that athletes should share the responsibilities of managing their finances and view it as a team effort. “I believe an athlete can not solely rely on their agent/manager. I asked a lot of questions as I wanted to be involved in the budgeting and decisions with my money.” This is great advice; after all, working as a team is part of the joys of being an athlete.

3. Due Diligence

How long is a reasonable period to make informed investment decisions?

Shaun said he studied Spudbar a LOT. “I found out what they were doing, where they were headed and also the people involved. I also looked at the vision and naturally the performance of the business.”

Dayne, laughing, says, “Well, due diligence is at the heart of everything, even when it comes to deciding what partner you’re going to date!”

Returning to topic, he advises that profit margins are initially more important than revenue growth and that knowing the market and hence your competition counts for everything. “Would you rather play in a market where you’re likely to have a 2% share of a $1 billion market or 5% of a $100 million?”

Also, he studies the growth potential, particularly when assessing hospitality and restaurants: “What’s the location, what’s the size of the premises, how many times a night does it turn over their tables, does it have raving fans who are prepared to queue for the experience?”

4. People and Culture

Perhaps the most important part of any exercise in investment analysis is looking at the culture of the business and of your potential business partners. After all, repeat sales and customer loyalty are largely based on how well you can develop authentic interpersonal relationships.

It’s important to know that people costs account for the biggest expense item in most businesses: therefore, it is people, not machinery or tools, that are the biggest factor in productivity and output. Gaining an insight into the culture of a business is, therefore, paramount. Dayne, perhaps tritely, says you can easily tell an environment where employees feel appreciated: “They love going to work.”

Dayne also looks for the following in a business partner: “I see them in business with me for 50 years. I want to know that they don’t make excuses and that they are serving the best interests of the capital and not their own best interests.”

These sentiments are echoed by Shaun. “Simon McNamara, who is involved, has an incredible business record with Boost Juice, Grill’d and Bounce. He was a big factor in why I got involved.”

5. The company’s vision should align with your values and interests

Last year, I read a book by Simon Sinek, “Start With Why”. It has become a business buzz phrase due to the voracious nature of sharing his talks on social media (although quite how many people have actually read the book is up for debate!). But perhaps the biggest, easily digestible soundbite from the book is: “People don’t buy what you do, they buy why you do it.”

And that is clearly the attitude Shaun took with him into assessing investing in Spudbar. “I always keep an eye out for a good opportunity. I came across Spudbar as I liked what they were doing with their menu. Socially, people were becoming a lot more interested in healthy living and watching what they ate. Spudbar was ahead of their time and I could see that.”

Dayne used the example of the world’s most prominent investor, Warren Buffett, on this topic. “He is famous for saying that he is successful because he understands certain ponds and streams, and he kept to those. That’s why he’s never invested in any tech companies. Remember, if you invest in a particular business, you’re going to be the number one salesman, as your dividend is your income.”

6. …but it’s OK to outsource if it’s not your passion

As a continuation to the previous point about Warren Buffett only investing in things that he knows, I did wonder about athletes, who devote their entire lives to their sport and perhaps hadn’t developed outside passions or interests. Specifically, for athletes, if they have an idea that ‘has legs’, but they don’t know yet whether the industry or business is a passion of theirs, can they still follow through with the investment?

Shaun thinks so, based on personal experience. “Food probably still isn’t my passion, but business is. I am interested in expanding or improving businesses, and it doesn’t matter what field that is in. You can definitely outsource expertise and I advise that!”

One can outsource functions that you don’t like, Dayne says. “I did a Construction Engineering degree, but I went back and did a Masters Cert in Financial Management. But I don’t like bookkeeping and hate accounting. But I do like creating income, generating profit, budget analysis. So I outsource the other stuff as it’s not my bread and butter.”

Simon Sinek talks about Why People (the ideas people) and How People (the do’ers) and Dayne sums that up perfectly. “Get your idea down on paper first and then get an NDA (Non-Disclosure Agreement) signed. Then find the professionals to make your idea a success.”

7. Ongoing communication of business performance is vital

As many athletes are full-time professionals, it can be difficult to juggle business commitments with training. And that’s where communication of specific information that will assist in decision-making is crucial to business performance and thus protecting your asset.

It’s really no different to your on-field training learning loop after acquiring a new skill: apply, measure, learn, repeat.

Spudbar does this really well, says Shaun. “The guys are great. I am kept up to date with how we are tracking. But I am not involved in the day-to-day dealings as we have an Operations Manager and a Sales Manager.”

8. Be extra cautious of investing with friends and family

We’ve all heard the stories of athletes, particularly in the NFL and NBA, being taken advantage of by unscrupulous types who sniff an opening when they perceive them to be a high-earning individual. Lured in by the prestige of being a bar or restaurant owner, they unwittingly hand over their cash under the false impression that they won’t need to lift a finger or that their money will achieve a certain level of growth, “guaranteed”. And this situation could get really ugly when friends or family come knocking for capital.

Now I really want to stress that there are a lot of well-meaning businessmen out there and that investing in a bar or restaurant won’t mean you will lose all of your money. And neither does it mean that going into a business venture with a friend or family member will turn sour. What’s important to know is that when looking at an investment, the fundamentals mentioned in any of the previous 7 points above are no different, no matter who you’re dealing with.

“If you are able to put aside the relationship, you just have to look at the opportunity, especially if it is something you’re passionate about. Knowing myself, I couldn’t put it aside, so I would get an outsider I trust to provide me with an impartial assessment, especially if it’s a start-up,” says Dayne.

Shaun said he confides a lot in his financial planner, to the point where friends or family asking for money is not an issue. “I’ll look at opportunities or options, but if they are not the right fit, then I’ll politely decline.”

9. Having only one option is not an option

Investing in businesses is not the only thing athletes can look at to make their money work for them. Property seems to be the asset class that a lot of athletes look at to gain financial security.

While he does have a diverse investment portfolio, Shaun admits that property has been kind to him in the past. He is also a Business Development Manager for Broadband Solutions, one of Australia’s most reliable voice and data providers.

Diversifying your portfolio is a method to reduce exposure to risk – the performances of different industries and regions move up and down at different times – but it is incredibly difficult (some say impossible!) to eliminate risk completely.

“No business is fool-proof, but if you can foresee the risk, you’re able to display better judgement,” Dayne says. “I stay away from stocks and bonds, simply as I don’t understand them. I like to invest in small business; things that you know people need every day and things that serve local communities.”

10. Get a mentor

Most athletes have a coach, even individual ones. It should, therefore, be no different in your business career or in employment. I often use the phrase, “You wouldn’t go to your mechanic if you had a toothache.” And likewise, you will no doubt get plenty of advice – no different to an ‘expert’ fan on the sidelines – from those who haven’t been there, done that, no matter how nice or well-meaning they are.

Shaun advises, “Do your homework and I advise athletes to have a mentor; someone whose brain you can pick for ideas or advice.” This perhaps should have been point number 1 of this post.

A great resource for athletes is the Elite Athlete Business School, started by NRL star Jason Nightingale. Attendees go through a 12-week program where they interact with business mentors and learn business skills, before presenting their ideas in a formal proposal.

Ultimately, if you learn to ask the right questions of the right people, you put yourself ahead of the curve before a ball has even been bowled. All it starts with is a simple enquiry: “What do I need to know and do in order to achieve the result I’m looking to achieve?”

– Rob Flude http://www.thefinalwhistle.com