Most sports fans are mulling yesterday's Superbowl game, but as far as sports stars are concerned, an issue they need to watch is how to guard against crooked financial advisors.

(To see the first part of a feature examining this topic, click here.)

The Philadelphia Eagles yesterday ended a 58-year jinx to defeat the New England Patriots. And all the coverage reminds us that sports stars can earn eye-popping sums in a short period. But these stars must husband that wealth because age and the risk of injury can force players to depart the field often after only a few years. And the challenge of managing wealth is made even harder if financial advisors prey on athletes.

The market appears littered with examples of shyster advisors; cases go back several years. In 2002, the NFL Players' Association said in that year that between 1999 and 2002, at least 78 players had been defrauded of more than $42 million from a wide variety of investment schemes. Examples abound: Theodore Kritza ex-business manager of Richard Jefferson, an NBA star, was charged (WHEN) of defrauding Jefferson of $7 million, and, in 2016, the Securities and Exchange Commission charged Atlanta-based investment advisor Charles Augustus Banks with defrauding an unnamed former professional basketball player of $20 million. There’s more: In 2014, FINRA barred Fuad Ahmed, chief executive and president of brokerage firm Success Trade Securities, and his firm from membership, for allegedly running a Ponzi scheme, and ordered it to pay around $13.7 million in restitution to a group of investors composed mostly of current and former professional athletes. 

In 2016, Louis Martin Blazer III, a Pittsburgh-based financial advisor, was accused, by the SEC, of taking money without permission from the accounts of several professional athletes to invest in movie projects. And in August 2017, former basketball star Jamaal Tinsley filed a lawsuit accusing his former agent and attorney, financial managers and housekeeper of taking more money than they were due.

While exhaustive data appears hard to pin down, the number of cases has encouraged efforts to fight back. Vanguard Sports Group, a sports and consulting agency representing Major League Baseball and NFL athletes, in January agreed a strategic alliance with BrightLights, a company that monitors and reviews professional athletes' finances for fraud, in a move highlighting a need to protect such individuals' business affairs.

“The interesting thing about fraud in sports is that it has been happening for decades and decades, but what I have found fascinating is that there is not really a tonne of information or statistics on fraud in sports,” David Byrne, founder of BrightLights, told this news service in an interview.

“The one stat that you can hear over and over again is from the Sports Illustrated report by Pablo Torre (March 23, 2009), which cites that 78 per cent of former NBA stars are broke in five years of retirement, and 60 per cent of former NFL players have gone bankrupt or under financial stress after two years. Everyone cites those two statistics very often, but that report is from 2009,” he said. 

Byrne has plenty of hands-on experience in fighting financial crime; he was previously manager of the anti-money laundering investigative unit at FINRA. He discussed the different types of fraud against sports stars, and said there is a range of ways that financial advisors exploit their clients.

“It really is a mixture of all kinds of fraud (schemes, stealing from clients, inflated fees and buying into investments that sports stars don’t know much about),” said Byrne. “You are going to have different kinds of fraud constantly. There was one [case] recently about inflated fees [where] the advisor was telling a professional athlete you are not being charged high fees, and provided the star with fake documents that he fabricated to lie to him. There is stealing when it comes to private investments that the financial advisor has on his own. In some cases that individual is on the board of directors of that private company and is the money maker, and he goes to the athletes that he manages and takes advantage of them. There are so many different avenues that this could happen which creates a lot of risk because there are different ways it could be done,” he continued. 

Why target athletes?

“I think typically with fraud, there is a pressure in a financial advisor’s life that prompts that advisor to commit a fraud,” Byrne said. “It could be an investment he has, or a gambling debt. In order to solve an issue, he has to defraud somebody. Typically what happens with athletes, the advisor knows them well and knows the review of the athlete’s investments, and because the athlete is not at [an] arm’s length of what is going on. The financial advisor then has an opportunity knowing he is not going to get caught when he takes that money. A lot of that can get backed up to how many of the athletes are educated in finance to understand or oversee what is going on. A lot of them are not,” he said. 

One issue is simply that sports stars would rather focus on winning on the field than spend time handling the finer details of investment and finance; sadly, the industry is littered with examples of mismanagement and worse. Part of the issue is that stars lack the time to focus on their money. In 2009, for example, Michael Seymour, the founder of UNI Private Wealth Strategies, a business headquartered in Philadelphia, said: “In many cases they [sports stars] lack the time and desire to understand and monitor their investments.”

Financial education of athletes seems to be frequent discussion point when talking about sports wealth planning. WealthBriefing, a sister publication to this one, has interviewed various firms to discuss about working with clients and giving them education over their affairs, including RBC Wealth Management and UK private bank Coutts.

Ultimately whose responsibility is it to help the athletes learn about their new-found wealth? The founder of BrightLights said financial advisors should step up.

“A good financial advisor will educate his clients to teach them about finance, the markets and everything that is going on,” Byrne said. “In addition, the NBA and the NFL, and all the major sports leagues in the US at least, have training for athletes to provide them with some financial education,” he said.

“There isn’t much said to athletes on why fraud will happen and the reality that once you provide your money with somebody else, the only thing you can control is the opportunity to give to someone to defraud you,” he said. 

Protection
Byrne also spoke about his firm’s new partnership with Vanguard, and what he hopes for BrightLights over the next few years.

“What BrightLights does is act as an advocate for the athlete to make sure that the financial advisors are managing that money well,” said Byrne. “I think with the partnership, with what Joby [Branion] sees is that, there are number of kids coming up from college into the pros, as well as the veterans, you are going to have some athletes that don’t have the in-depth knowledge of finance or financial markets. They need an advocate behind them making sure everything is above board and that everyone on their financial team are all working together,” he said. (Joey Branion is founder and chief executive of Vanguard Sports Group.)

“My goal is to combat fraud against all sports stars. BrightLights acts as an independent advocate for the athlete. We don’t charge a per cent, which is not typical in the finance industry or in the sports world, and I think that helps separate us. There are loads of articles and problems, and documentaries about fraud against athletes, but there hasn’t been anything to address this other than financial education. The hope is having a good financial advisor, but the problem is that there is a very small percentage that will take advantage of this opportunity. There needs to be accountability in this world and what BrightLights does is provide a bit of that,” he added.

Of course, the firms aren’t entering this space out of altruism and hope to earn a fee protecting sports stars from fraud. But as far as the players and fans are concerned, everyone wins if athletes can focus on what they do best rather than fretting that a shady advisor is taking them for a ride.