I just signed my first pro contract. Now what?

professional athlete with a hockey stick hitting a hockey puck

When professional athletes come into a considerable amount of wealth at an early age, this brings many challenges, including the temptation to spend it all on sports cars, houses, jewelry, or a lavish lifestyle. However, as is the case with most professional athletes – including basketball, baseball, soccer and football players – the career span of a hockey player is short lived.

When pro athletes acquire sudden wealth

According to Sports Illustrated, an estimated 78 per cent of NFL players are bankrupt or facing serious financial stress within two years of ending their playing careers, and 60 per cent of NBA players are broke within five years of retiring.

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Given that financial mismanagement is common among professional athletes, it is important that young hockey players establish a solid, well-rounded plan that will help them preserve their wealth for the many years after their playing days have ended. Many pro athletes assume the money will keep flowing for years; but for the majority this is not the case.

Many pro athletes assume the money will keep flowing for years; but for the majority this is not the case.

The importance of bench strength

In these complex times, it is important for players to surround themselves with knowledgeable advisors who have the experience to deal with their unique situation. It’s uncommon for a professional to possess all the skill sets required to cover the tax, legal, investment and business issues that can arise. A proper team should consist of an agent, lawyer, accountant, and investment professional. This team will provide the athlete with advice from professionals who specialize in these areas and much needed “checks and balances” from independent parties.

Once drafted, athletes often fall prey to an array of “can’t miss” business opportunities, many of which come from friends and family. These business ventures may include sports bars bearing the athlete’s name, fast food franchises, motion pictures, and inventions, to name a few. While these “sexy” opportunities often draw interest from the player, unbiased advisors who have knowledge in the area must weigh in.

A quarterback tax strategy

NHL players will receive varied advice based on subtle differences, such as getting paid over a seven-month period. Unlike a doctor or dentist whose income normally rises over the years, the earning curve - or lack thereof - affects how and what to invest in. In addition, careful planning in the area of taxation can have a significant impact both in the present and after the athlete’s playing days have ended. Residency determination for the NHL player should be one of the first items to be examined post-draft.

Income taxes will likely be an NHL player’s largest expense. The multiple filing requirements of a cross-border hockey player are complex and should be handled by professionals who specifically deal in this area. The choice of country of residence will influence what taxes he pays. The Canada-U.S. tax treaty that prevents double taxation may be complex but offers those with an understanding of it many planning opportunities. With Ontario’s top tax rate of 53.53 per cent, a player could be looking at a 16.53 per cent reduction from the top U.S. federal tax rate of 37 per cent. As a result, an 18-year-old Canadian player drafted by a U.S. team could drastically reduce his overall tax burden and thus increase his after-tax cash flow.

The high visibility and skyrocketing salaries of athletes have not been overlooked by either the Canada Revenue Agency or the Internal Revenue Service. In the governments’ quest for increased revenues, a player must take the proper steps to ensure his residency choice is properly documented. This is best done on the advice of a cross-border tax professional.

You focus on your game - we take care of the rest

The Crowe Soberman Sports & Entertainment team are leaders in the world of cross-border and international advisory services. For more information related to tax planning for professional athletes, please contact the authors of this article or any member of our Sports & Entertainment Group.

This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Please note that this publication should not be considered a substitute for personalized tax advice related to your particular situation.