Q&A with Christopher R. Cicalese
Q: Can you talk about your role and what you do as an advisor for athletes and clients?
A: Our CPA firm’s role for athletes and our clients in general is to help them achieve their goals. As a tax advisor, we primarily work with clients to minimize tax liabilities. The important thing that many athletes and clients do not realize when first entering a sport or business is that their multistate tax return is not as simple as the TV commercials make it seem. It is important for athletes and clients alike to not only partner with a professional, but also take some interest in understanding how their tax return works. By understanding the bigger picture, it’s easier to see how making a large transaction could push back the time frame of achieving one’s goals.
Q: You and your company have over 20 years’ experience dealing with some of the top athletes nationwide. What are some of the misconceptions you see amongst athletes when it comes to finances?
A: We have found that professional athletes do not always understand that money will not last forever and that they are not immune to aging. Everyone will grow older and, as a professional athlete, pushing your body to its limits can cause a limited career span that can unexpectedly cap earning potential. It is important for athletes to learn about preserving their assets and they should be encouraged to educate themselves on how to properly do so with a trusted licensed professional.
Frequently in the news, you hear about professional athletes suing their advisors or even a family member for bad investments and poor management. Most often, the athlete may not have understood the risks involved or had no clue where their money was going. At the end of the day, athletes put their body on the line and often sacrifice the little things an average person enjoys every day. It is wrong to think they should not be asking questions about who is spending what and where their money is. As an athlete gets older and closer to retiring, goals on and off the field change. The questions they ask can help adapt the plan to where they want to be, whether it be fully retired or starting a new career. Average professional athlete careers are about 5 years or less, which makes it even more important to focus on the future.
Q: Do you think athletes are financially astute to handle their money coming out of college?
A: Truthfully, whether it is a recently graduated professional athlete or an average new graduate, the first real paycheck is exciting and can be overwhelming. Most of the time, it is higher than any other paycheck you have earned at this point in life, but one of the lowest you will receive. It is important to surround yourself with like minded people that will not try to take advantage of your good fortune. The first instinct is usually to go out and spend it, but to make that a habit would be detrimental to one’s future. All graduates face the same spend vs. save decision-making, only on different spectrums. It is more important for recent graduates to educate themselves on how to be mindful of spending and realize that, just because they have the money to buy something does not mean it needs to be spent. Athletes starting out need to develop a realistic budget and should be encouraged to work with professionals to track their spending habits and encourage saving.
Q: As a Certified Public Accountant (CPA) what are simple concepts athletes should know?
A: The most important thing that athletes should know is that their tax returns are uniquely complex. As an athlete travels from city to city, whether it be on a team or individually, each stop often means an additional tax return. The average individual has a federal and state tax return, but you usually must file a return in every state in which you earn income. This means an athlete could easily have 10 or more tax returns. Each jurisdiction follows different rules and sometimes looks for information that was on one of your other returns. Not having a qualified individual as your tax preparer could cause various issues that will lead to more stress in an already stressful environment.
Many athletes are surprised each year when they get their tax bill. Under current federal tax law, the highest tax rate is 39.6%. The highest state tax rate currently belongs to California and is 13.3%. If an athlete both lived and played in California, they could potentially be paying half of what they earn in taxes. In addition, if they were not an employee of a team, they would most likely be paying in their tax quarterly throughout the year for estimated taxes. Some cities, such as Philadelphia, have local taxes that athletes need to pay on top of state and federal. The tax law is complicated and the amount of tax owed can add up very quickly. The expertise that a CPA offers can provide athletes the ability to reduce taxes legally, strategically plan ahead, and make their tax returns less of a headache.
Q: What are some ways athletes can increase their financial literacy?
A: Ask questions. Just be astute and make sure the person you are asking is qualified and knowledgeable in the field. Ideally, whomever is offering you advice is properly licensed or holds some form of degree in the area related to your question. This is probably the most comfortable and least time-consuming way to understand their personal finances.
Alternatively, many colleges offer affordable classes, including online, that can help educate you on financial literacy. Although it may sound embarrassing to go back to school for a class, the things you learn could be very helpful. When selecting a class, make sure that it fits what you are trying to learn and you have the prerequisites to understand what they cover.
Q: Do you feel that it is frowned upon within the athletes’ world to be frugal? What are some ways that you would guide athletes to think long-term?
A: By definition, to be frugal means to be economical. In a professional athlete’s world that can mean something as simple as buying a less expensive luxury car. Not all professional athletes have lucrative contracts.
Some ways that athletes can think long-term:
User per diem wisely.
Set an allowance or personal budget.
Live within your means, not your teammate’s means.
Share a room when traveling.
Don’t purchase top-of-the-line brands or models if you don’t need them.
However, the most important thing to not be frugal about is the preparation of your tax return. Athletes have some of the most involved tax returns and their earnings can easily be found with a quick online search. It is very simple for a state, city, or federal agency to see what your contract said you earned and compare it to what was reported on your tax return. A notice from a taxing authority does not necessarily mean big trouble, but should be handled by an experienced CPA. Using their experience, the CPA will work with the taxing authority to minimize liability and handle correspondence quickly. Tax issues can come back years down the road so, from a long term perspective, it is important to have tax returns done correctly and on time.
Q: Many individuals and athletes don’t understand the average length of a career isn’t that long. LeBron, Peyton Manning, Kobe and players with that status are one-of-a-kind athletes. What advice would you give a common professional athlete?
A: Professional athletes can potentially live a lucrative life traveling across the globe while in the limelight. Unfortunately, the average professional athlete has a career of less than 6 years and average career earnings range from in the hundreds of thousands to millions of dollars. Both the earnings potential and career span in each sport is different, so it is important to look at your specific sport and understand your own limits. While the NBA, NHL, and MLB average about 5 years in career lengths, the NFL and MLS are closer to 3 years. The NBA has the highest potential of career earnings with closer to $25 million, while the MLS has the lowest average of just $500,000. Players across each league need to evaluate their career income potential and have a plan for when they transition from active competition. It is important to plan ahead of time so that a budget is in place and you are prepared for when the big checks fade away.