Protecting Athletes from Financial Fraud: Why It Happens and How to Prevent It

Between 2004 and 2019, an Ernst & Young study found that professional athletes reported nearly $600 million in fraud-related losses due to unscrupulous advisors. This alarming figure highlights the severity and urgency of the issue, with multiple factors contributing to athletes' vulnerability to financial fraud.

Why Is This Happening?

Lack of Financial Education

Many athletes begin their careers young with little formal financial education. Without the knowledge to evaluate complex financial products, investment opportunities, or the credibility of their advisors, they become easy targets for fraud. Athletes often struggle to manage their wealth effectively without understanding the basics of budgeting, investments, and long-term planning.

Sudden Wealth and Short Career Span

Athletes typically receive large sums of money over a short period, often earning most of their lifetime income in a few years. This sudden influx of wealth, coupled with a limited earning window, can lead to impulsive decisions and risky investments. With little time to adjust or plan, they may overspend or invest in high-risk schemes, making them more susceptible to financial exploitation.

Blind Trust in Advisors

Many athletes delegate financial decisions to advisors without sufficient oversight. This trust is sometimes misplaced, leading to fraudulent activities such as Ponzi schemes, fund mismanagement, or embezzlement. Unfortunately, athletes often realize the importance of monitoring their finances only after it's too late.

Pressure to Maintain a Lavish Lifestyle

Social and familial pressures to maintain a luxurious lifestyle can push athletes into risky financial behavior. Advisors promising quick, significant returns may appeal to athletes who need to keep up appearances, leading to poor financial choices or falling victim to fraud.

Isolation from Traditional Financial Networks

Athletes are often disconnected from traditional financial networks and instead rely on friends, family, or personal contacts to introduce them to advisors. These informal connections may lack the same level of scrutiny and regulation, exposing athletes to higher risks of fraud or poor financial guidance.

Despite these challenges, athletes can take steps to protect themselves from financial exploitation.

How Can This Be Prevented?

Fortunately, some strategies can significantly reduce athletes' financial fraud risk. Athletes can protect their wealth and ensure long-term financial stability with proper planning, education, and oversight.

Financial Education

Athletes should receive financial literacy training early to understand the fundamentals of investing, budgeting, taxes, and long-term financial planning. Workshops, seminars, and courses tailored specifically for athletes can help them navigate their finances more confidently and make informed decisions.

Work with Fiduciary Advisors

It's crucial for athletes to work with fiduciary financial advisors who are legally required to act in their client's best interests. Advisors with proper certifications—such as Certified Financial Planners (CFP) or Certified Private Wealth Advisors (CPWA)—and proven experience can help athletes avoid fraudulent schemes. Fiduciary advisors are also more likely to operate transparently, reducing conflicts of interest.

Thorough Background Checks on Advisors

Before hiring a financial advisor, athletes should conduct thorough background checks. This includes researching the advisor's professional history, requesting references, and verifying their credentials with regulatory bodies like the SEC or FINRA. Athletes should also inquire about the advisor's investment philosophy, fee structure, and potential conflicts of interest. Transparent, fee-based models (rather than commission-based ones) are generally safer, as they reduce conflicts tied to advisor compensation.

Regular Oversight and Accountability

Routine financial audits and reviews are essential for ensuring that an athlete's money is managed appropriately. Independent third-party oversight, such as from a professional auditing firm or a trusted family member with financial expertise, can add an extra layer of protection. Regularly reviewing financial reports and advisor actions helps verify that everything is aligned with the athlete's long-term goals.

Diversify Advisors and Networks

Athletes should avoid relying on a single financial advisor or contact. By diversifying their financial team and working with multiple professionals—such as separate advisors for tax, legal, and investment management—they can reduce the risk of being misled or exploited by one individual. A broader network of advisors offers more checks and balances, providing greater financial security.

Focus on Long-Term Financial Planning

Planning for life after sports is critical. Athletes should be encouraged to build long-term financial strategies, including risk management, retirement planning, and steady, low-risk investments. This approach helps reduce the temptation to chase high-risk schemes promising fast returns. Athletes who prioritize long-term security over short-term gains are better positioned to protect their wealth for the future.

Peer and Mentor Guidance

Athletes can learn from peers who have successfully navigated their financial journeys. Seeking out mentors—other athletes who have made wise financial decisions—can provide invaluable advice on avoiding common pitfalls and choosing trustworthy advisors. Peer guidance can offer real-world insights into managing wealth and athletes' financial challenges.

Conclusion: Securing Financial Futures

By addressing these critical issues through financial education, careful selection of advisors, and long-term planning, athletes can significantly reduce their risk of falling victim to fraud and poor investments. Implementing these strategies empowers athletes to take control of their financial futures, ensuring that the wealth they build during their careers is preserved for life beyond sports. With the right tools and guidance, athletes can protect their financial security and thrive during and after their sports careers.