Risk management and insurance

Key topic

It is important for athletes to identify and manage potential risks so that they can take measures to protect themselves from such risks.  Athletes can protect themselves and their personal finances in a number of ways, whether that means buying different types of insurance to cover basic and sport specific needs, protecting their wealth and their family or limiting the disastrous financial effects of a divorce.  This lesson outlines the elements of risk and insurance.  It also discusses the concepts associated with risk and insurance and offers advice as to how athletes can treat these elements at different points of their lives both within and outside of sport.

Learning objectives

• Athletes are facing different types of risks due to the special nature of their circumstances.
• Insurance is a form of risk management whereby you transfer the risk from you to the insurance company for a fee.
• The basic insurance needs of athletes include health, auto and home contents insurance.
• The specialized insurance needs of athletes include temporary disability, career ending, loss of value and accidental death clauses, loss of endorsement coverage, sports travel insurance, and ransom and extortion insurance.
• Asset protection and estate plans are a necessity for professional athletes to guarantee the preservation and protection of their wealth for a longer time horizon.
• Prenuptial and cohabitation agreements have a positive effect on the financial lives of athletes, and they save them from future hardship, in case of divorce.

Introduction

Insurance is a form of risk management. When you buy insurance, you pay a relatively small amount of money called a premium on a regular basis either monthly or annually to an insurance company. By paying the insurance premium, you protect yourself against a large, unpredictable expense called a loss or claim that you might incur, if something bad like an accident, illness, or injury happens to you. Basically, insurance transfers the risk from you to the insurance company for a fee.

Essentially, insurance is an agreement that states something is protected if it is damaged, hurt, or stolen. If anything happens to the insured item that’s covered by the policy, you can receive funds from the insurance company to have the item replaced, fixed, or you may receive a cash settlement.  People purchase insurance to have protection against the “what ifs” in life.  You never know when you may get some type of illness, break your leg, or need medication. It’s important to have medical insurance to cover these costs. In the same manner, you need to insure your car to protect it against any damage that may occur during an accident.

Insurance protects your financial future by reducing your risk.  If you have an accident or a major health problem and no insurance, you could be faced with a potentially large bill to pay. If you’re unable to pay that bill, your credit score will be adversely affected, you might even have to declare bankruptcy.  In addition, insurance provides extra protection against lending.  Having insurance makes it more likely that you will get a loan, and it is required most of the time when you apply for a loan. In today’s age, having insurance is vitally important, both to your personal well-being and to your finances.

Real Life Examples You can be careful and try to avoid injuries, but you can’t be prepared for the unexpected: Canizares was to be Spain’s number 1 at the 2002 World Cup, but an incident involving an aftershave bottle ruined the plans. Specifically, he dropped the aftershave bottle on his foot, severed the tendon in his toe and was forced to miss out Manchester United and England legend Rio Ferdinand somehow strained a tendon in his knee while playing Pro Evolution on his gaming console. Apparently, he was resting his leg on the coffee table for far too long

The definition of risk and hedging against it

Risk is the potential of gaining or losing something of value.  It can be defined as the intentional interaction with uncertainty.  Risk is the consequence of an action taken despite uncertainty.  There are so many risks out there: the risk of getting sick, the risk of injury, the risk of a car accident, the risk of a house fire, the risk of theft, the risk of losing your job, etc.

There are various ways to manage risk, which depend on an individual’s personality, circumstances, and risk tolerance. Some of the key strategies include:

Risk Avoidance – When you avoid becoming involved or withhold from a situation to avoid risk

Example: Joel is a professional basketball player who loves clubbing. His friend Jack invited him to go out with him to the best club in town. Joel is excited and tells Jack he’ll join him but later feels it is a bad idea because the team code of conduct he has signed requires him to be home by midnight the night before a game, or else he could face a fine and other forms of disciplinary measures. Although no one might see him when he is out clubbing, Joel decides not to go out with Jack and sends him a text to let him know he’s decided not to go.

Risk Reduction – When you take measures to reduce your overall risk in a given situation

Example: Jenny had an ACL injury early in her career. In order to reduce the risk of having the same injury again she has been strictly following all the advice her strengthening coaches have been giving her over the years. Now after a career of 15 years she is still ACL injury free.

Risk Sharing – When you take measures to share your risk with another, through insurance or risk transfer

Example: Ken knows that an injury can affect the level of income he will earn in the future and can shorten his career. Although he is insured by his college, he adds extra Long-Term Disability, Career Ending, and Draft Protection insurance because the team’s insurance only covers the term period of his present contact. The plan he chose, insures a certain amount of income, should injury shorten his expected career period.

Risk Retention – When you accept a given risk and budget to prepare for that risk

Example: George is a soccer agent. His client Thomas is 17 and has just signed a big contract with one of the top 5 clubs in Europe. Thomas, although talented, is also very careless in what he says to the press and through his social media posts. George feels that this might put Thomas’ endorsement deals into risk, so he convinces him to take insurance against loss of endorsement for his sponsorship/endorsement contracts.

Action Steps – Exercise 1 (10 minutes):

Discuss the above examples with the athletes and ask them to give more examples from their lives that fall into the above categories.

Basic insurance categories

There are several basic categories of insurance. Four of the most common forms are Health, Liability, Property, and Life.

Health insurance covers part or all of an individual’s medical expenses, protecting their health, quality of life, earning ability, and their family’s financial stability.

Liability (Third Party) Insurance protects you from having to pay for damages or injuries caused to other people. For example, if you have a car accident and cause damage to the other person’s car, you may be held liable for the cost of repairing the car.  If another person is injured in the crash, you might be held liable for their hospitalization and/or medical expenses. If someone slips and falls on an icy sidewalk that sits on your property, you could be held responsible for that person’s injuries.  However, if you have liability insurance, much of the expense for this damage is transferred to the insurance company.

Property Insurance covers loss or damage to your physical belongings.  For example, homeowners purchase property insurance to cover damages from fires, floods, or other disasters. Renters should also insure their personal belongings with home contents insurance, which covers losses due to theft, fire, or damage caused by the rental property’s condition, such as leaky pipes or structural deterioration. If belongings are damaged or stolen, the insurance company either covers repair costs or reimburses the owner for their value.

Life Insurance is an agreement between you and the insurance company where you pay a regular premium so that, if you die, the company will pay a specified sum of money to the person(s) you choose. Life insurance may provide a lump sum payment to your family which will help them to maintain their standard of living.  Also, there are insurance policies that could replace your income and cover your mortgage as well. A person who is the breadwinner of a family usually buys life insurance to make sure their survivors and dependents are secure if something happens.

Some life insurance policies will build up a cash value, which can be another form of savings which may allow you to borrow against the total benefit; that means life insurance can play a substantial role in your financial planning.

Action Steps – Exercise 2 (10 minutes):

• Sam has just gotten a new house. It’s in a very good neighborhood and in a state that enjoys good weather and therefore he is hesitant about purchasing comprehensive property insurance. He thinks, “Why should I pay for something I may never use? Give Sam reasons to purchase comprehensive home insurance.
• Sam’s football team is implementing a new medical plan with which they offer extra coverage to their team members where they share the cost with the members of the team. Sam will have a deduction from his monthly paycheck of approximately $2,000 per month since along with the rest of his teammates, they are considered high risk for injuries. Sam is very healthy and did not sustain any injuries nor has he been to a doctor in two years. He thinks the health insurance is not worth purchasing. He could really use the extra cash, so he opts not to get the medical insurance. Why it’s important to have medical insurance, even though you may be young and healthy? Can you think of any examples to support your case?

Insurance for sports professionals

Insurance programs are not geared towards the very specific conditions of the pro athlete’s life; athletes might be continuously outperforming their insurance packages as they achieve greater visibility, expand their income flows, buy additional assets, gift property to family etc. Any, and all of these factors can affect the insurance needs in many unpredictable ways, hence leaving the athlete financially vulnerable to losses after an incident, theft, lawsuit or accident. Moreover, pro athletes, like other celebrities and public figures, are more likely to be targets of crimes such as burglaries, identity theft, kidnap or extortion situations, and are more likely to travel extensively and internationally.

It is, furthermore, commonplace for professional athletes to purchase cars and housing for family members or even close friends and associates. Although this is something to be commended mostly, it’s equally important to be clear about ownership structures. That is because, the more assets an athlete has under their name, the higher the liability risk. Plus, if the athlete is legally the owner of the home, but not its primary resident, there could be insurance implications.

Not to worry though, as there are a number of tailored insurance types that are available to athletes which we will explore one by one.  These include:

• Personal Accident Insurance
  • Temporary disability injury
  • Career ending injury
  • Loss of value insurance
  • Accidental death
• Loss of endorsement coverage
• Sports Travel Insurance
  • Injuries out of state and abroad
  • Medical coverage out of state and abroad
• Kidnap, Ransom & Extortion Insurance

In today’s digital era, many insurance providers offer online platforms and mobile apps that allow athletes to manage their coverage, file claims, and access policy details in real-time. This eliminates the need for in-person visits and enables faster processing of claims and policy adjustments. In addition, Artificial intelligence (AI) is transforming sports insurance by enabling real-time risk assessment. Some insurance providers analyze data from wearables and training logs to predict injury risks and tailor coverage based on an athlete’s unique risk profile.

Let’s go over the various types of insurance in more detail so that you can understand how they help athletes hedge against certain athlete-specific risks.

Personal Accident Insurance

An injury can be critical to an athletic career and it can be a financially debilitating event. Temporary Total disability insurance is designed to respond if a professional athlete is temporarily unable to play due to an accident, injury or sickness and it normally covers their sports regular income which is lost due to an injury. In the event of a career ending injury such insurance usually covers a lump sum to compensate for the athlete’s future earnings.

Loss-of-value insurance protects against the risk, in certain situations, of injuries preventing athletes from realizing their expected future financial gains. For instance, a college athlete protege, who is projected to be the top Draft pick for the pros but suffers an injury in the senior year pre-Draft, resulting in a much lower draft pick can insure against that contingency in economic value.  Accidental death insurance will grant a lump sum benefit to the athlete’s estate for accidental death.

Loss of Endorsement Coverage

Professional athletes usually have endorsement deals therefore they need to also consider loss of endorsement coverage for large deals. Serious injuries and illnesses can impair their ability to meet performance expectations which can reduce their exposure and post-game endorsements. Also, the trigger for coverage may be “media coverage of conduct or alleged conduct that generates adverse publicity or public contempt.” If the professional athlete’s status is affected due to an event that causes them negative publicity, the loss of an endorsement contract can have a huge impact on their income, so it is recommended that athletes prepare for that contingency with the right insurance.

Sports Travel Insurance

Athletes, particularly those that travel frequently both nationally and internationally, either because of the nature of their sport (e.g., tennis), or due to their team’s commitments (e.g., basketball players), need to be covered for a variety of scenarios including medical expenses incurred due to an injury abroad.

Kidnap, Extortion and Ransom Insurance

In recent decades, there has been a significant increase in terrorist incidents and transnational crimes, with public figures and high-net-worth individuals frequently targeted.  A number of professional athletes have built admirable wealth (and fame) and they are thus more prone to kidnap, ransom and extortion.

This new phenomenon not only broadens the base of incident probability in respect of kidnapping and extortion, but it creates unique needs for coverage that had previously been unavailable. Kidnap and extortion are not just financial crimes. The impact on the athletes and their families who are directly affected can be even more severe. The protection offered under this type of insurance covers kidnap ransom, extortion related bodily injury or death, property damage, malicious detention and hijack.

Real Life Examples Former LSU running back Leonard Fournette had taken out massive insurance policies in the event of injury. Before joining the NFL, he was one of the most heavily insured college football players ever, covered for a total of $20 million—$10 million in total disability for a career-ending injury, and $10 million for “circumstances that would lead to him falling from his projected NFL draft spot. Argentinian forward Lionel Messi is widely considered one of the best players of his generation. He is reported to have his legs insured paying 500-700k per year for a policy for over 750 million euro. Formula 1 driver Fernando Alonso took a policy on his own, insuring his thumbs for $13.5 million which protects him in case anything happens to them. Five-time Pro Bowl player, Troy Polamalu wears his hair long as a tribute to his Samoan heritage. They have been insured for $1 million by Head and Shoulders, the shampoo brand that is endorsed by the athlete.

Action Steps – Exercise 3 (10 minutes):

Ask athletes to identify which of the above types of insurance they may need right now and why.  Continue with a discussion on how loss-of-value insurance can be useful for athletes in prospective drafts and discuss the need for loss of endorsement insurance.

Choosing the right insurance agent

Selecting the right independent insurance agent to take care of your insurance needs should not be a hasty decision.  You are looking for a long-term relationship with someone you can trust.  We set below 6 things to look for when choosing an insurance agent so that you make sure that you select the right agent.

1. Make sure that the insurance agent understands your needs, your goals and what your objectives are.
2. You want to work with an agent who can provide you with both coverage and cost options.
3. Check out whether the agent works with reputable insurance companies.
4. Look for an agent with credentials and professional designations such as Certified Insurance Counselor (CIC), Chartered Property and Casualty Underwriter (CPCU), Associate in Risk Management (ARM). To maintain these credentials, insurance agents must take continuing education classes, which means that they are up to date on the latest trends and product offerings of the insurance industry.
5. Ask for referrals from family, friends and colleagues and you should particularly ask about the agent’s customer service and follow-through tactics.
6. In today’s digital world, athletes should consider whether an insurance agent offers online access to policy details, claims management, and instant customer support. Agents who work with insurers providing mobile apps or digital dashboards make it easier to manage coverage on the go.

Safeguarding the assets and lifestyles of athletes requires tailored recommendations, privacy and expertise that can only be achieved through an advisor whom the person trusts and has the required insurance broker qualifications.  Normally, the insurance company will not pay if the insurance policy is not correct or has issues.  Many people choose insurance based on the cheapest rates. But going for the lowest rate can cost more in the long run for those who select a substandard company that doesn’t come through when they need it. Insurers recognize the need for expanded, special coverage and offer enhanced policies to provide the level of protection needed for the unique assets and lifestyles of athletes.

As your career evolves, whether in athletics or another field, your insurance needs will change accordingly. The right agent will proactively manage your insurance program and adapt it to the changing realities of your life.

Reputational risk and loss of sponsorship contracts

The sport’s celebrity image, like all brands, is vulnerable to being dependent on such intangibles as people’s opinion of them.  A celebrity’s good name or reputation is the regard which they enjoy within society.  The opinion of a celebrity held by society has a definite effect on their commercial value.  If society does not approve the actions of a celebrity, their reputation will be in a bad state.  If the celebrity’s image fits in well with society’s convictions, then their reputation would be positive, and this would have a direct, positive effect on their commercial value.  A number of sports professionals who enjoy world-class recognition and an excellent reputation earn enormous endorsement amounts, in some cases higher than their sports contracts.

The income generating capacity of the sports celebrity is highly volatile though, because it depends on the public’s perception of the sports star and their reputation.  The celebrity is greatly dependent on a positive reputation, and it is the celebrity who is the origin, the foundation of that reputation.  A number of athletes have been known not to live up to the public’s expectations thus tarnishing their brand, sometimes overnight, and jeopardizing their earning power.  Several athletes have lost large amounts of money when they were found positive to illegal substances. Sponsors would not want to be associated with athletes who are involved in controversial stories.

Athletes with endorsement deals can insure their endorsement contracts. If a sponsor terminates an agreement, the insurance policy compensates the athlete for the lost earnings. Under these types of arrangements, the insurance company will cover the athlete for the resulting financial loss due to the termination of the contract.  It is quite important for athletes to take insurance policies on their sponsorship/endorsement contracts, so that they ensure that they will receive the stipulated amounts of their sponsorship contracts even if such contracts are unilaterally terminated by the counterparty.

Protecting the sports celebrity brand from unauthorized use

The NIL rights of athletes are an asset with potentially large commercial value.  Therefore, it is paramount to protect their name, image and likeness from unlicensed use by others.  As the potential for sponsorships and endorsement grows, so do the opportunities for unauthorized use and profit by third parties.

The right of publicity, otherwise called personality right, refers to the individual’s right to control the use of their likeness, name and identity for commercial use.  A company or person cannot use an athlete’s NIL for monetary gains without permission or contractual agreement. Image Rights are the expression of a personality in the public domain.

Unauthorized use of an athlete’s NIL can be manifested in a number of ways including:

1. Trademark infringement through unauthorized use of an athlete’s registered trademarks.
2. Brand dilution by creating look-alike logos, names, or merchandise that mislead the public.
3. Unfair competition and false advertising that misrepresent an athlete’s endorsement.
4. Cybersquatting or domain name misuse, such as registering web domains incorporating an athlete’s name (e.g., Ronaldo’s CR7).

While athletes could possibly rely on unregistered rights to prevent third parties from using their name, image and likeness, in cases of ‘false advertising’ arguments or ‘dilution of their mark’ through the use of look-alikes, such claims and arguments can prove to be quite challenging and fact sensitive.

In order to protect your sports brand, it is important for you to identify your relevant trademarks. Most often, the protectable trademarks of a sports celebrity are their name, image, as well as their likeness. Once trademark rights are established in a name or likeness, the next step is to register these trademarks. In the United States these trademarks can be registered with the USPTO, and such registration expands common law trademark rights to the entire United States. While in the United States the personality rights are to some extent recognized and protected, there are a number of countries including the UK, where there are no specific legal tools which define image rights or address the harmful effect of the unlawful use of a person’s image.

In the case of NIL rights of sports and other personalities, the traditional tools of copyright and trademark protection are not as clear-cut in order to offer the required protection to athletes in relation to the unlicensed use of their name, image and likeness.  For a claim to succeed in court the athlete must be able to demonstrate that:

• At the time of the event, they had a significant reputation and/or goodwill.
• The actions of the defendant gave rise to a false message which would be understood by a not insignificant section of the general public that their goods/products/services have been endorsed, recommended and approved by the athlete.

With the expansion of Name, Image, and Likeness (NIL) rights, particularly in the U.S., athletes must proactively manage their personal brand and legal protections from early in their careers. This includes securing trademarks, licensing agreements, and digital enforcement strategies. The ability of college athletes to profit from their image rights signals a shift in how young sports professionals approach brand management, making early legal action essential for long-term success

 

As the value of endorsement and sponsorship revenue of athletes continues to grow exponentially, the need to protect this type of revenue becomes more and more   urgent

Action Steps – Exercise 4 (5 minutes):

Ask the athletes to identify any distinct characteristics they may have which could be used commercially for profit.  Continue the discussion with reference to registering these characteristics as trademarks to protect them from unauthorized use.

Protecting your assets and your family

Professional athletes usually create their wealth at a very young age and in a short period of time.  Therefore, the preservation and protection of this wealth for a longer time horizon is of utmost importance.

While wealth protection is important for everyone, professional athletes face unique asset protection and estate planning challenges that require specialized financial strategies. In the world of professional sports, the athletes’ ability to attain celebrity status at such a young age creates a mindset focused on professional successes, often at the expense of personal protection with many athletes overlooking some simple ways to protect the assets they have accumulated so early in their lives.  Also, as an athlete, you should actually plan for two different retirements, the first from sports and the second from working altogether.

We will take a look at the risks inherent to professional athletes, and we will explore how they can protect themselves, their assets and their family from such risks.

In the physically demanding world of sports, athletes are prone to injuries which could turn out to be career ending.  Therefore, they should be adequately insured to be able to overcome the sudden loss of their paycheck.  They can take on additional insurance in terms of disability and their financial plan should cater for such circumstances by including a cash cushion which they can access in case they are unexpectedly left without a paycheck.  In addition, they should have both healthcare and financial powers of attorney in place, in case an injury leaves them incapacitated—as it unfortunately happened to Michael Schumacher.

A healthcare power of attorney nominates and authorizes a particular person to make healthcare decisions on your behalf in the event that you are in a state of not being able to make decisions yourself.  The financial power of attorney authorizes a different person to make financial decisions concerning your assets in the case of incapacitation.  Furthermore, you can opt to have a living will in place which specifies what end-of-life actions should be taken in case you are permanently brain dead or terminally ill with no hope of recovery.  Having such protective mechanisms in place can be advantageous for several reasons:

• Ensures that the person that you want to make decisions on your behalf is the person making those decisions. This enables you to pick someone whose judgement and/or mindset is similar to yours.
• You can decide in advance as to whether your attorney is to have the ability to make decisions on life-sustaining treatment
• You can provide your attorney with guidance. For example, you might want to be cremated and so you instruct the nominated person to do that.
• You can ensure that bills, medical expenses and other financial obligations continue to be met whilst the person is without capacity.

Professional athletes usually own a number of assets such as real estate, collections of valuables, etc. and since a large number of athletes have international careers, such assets can be scattered all over the world.  These assets can become a target by creditors. To hedge against these assets becoming prey to creditors, athletes can create a trust and place their assets therein or even create separate entities which will hold such assets, offering them entity-based asset protection.  Protecting wealth within a trust structure can keep earnings safe until the time comes to pass on the estate and it also offers added privacy.  Another word of advice for athletes is to make sure that they do not leave their assets exposed and subject to legal claims by avoiding to give personal guarantee of debts for their business or investment entities or for third parties such as friends and family.

Given the high divorce rates among professional athletes, prenuptial agreements are a vital tool for protecting assets and preventing costly legal disputes. In addition, professional athletes want to provide for their children both during their lifetime and after their passing.  The best way to do that is through a Last Will and Testament which outlines how an athlete’s property will be distributed upon death. A will also identifies the person who will be making such distributions as well as who will serve as guardian to minor children. A will is basically a letter of wishes which ensures that one’s desires are met in case of an untimely death.

Asset protection and estate plans are a necessity for professional athletes because there is a lot at stake.  Once these plans are in place, they must be monitored and modified over time to adjust to changes in salaries and other compensation as well as changing family circumstances.  Properly drafted asset protection and estate plans ensure that the athlete, their family and their loved ones will be provided for during the athlete’s lifetime and beyond.  Modern estate planning must account for digital assets, including cryptocurrency and NFTs. Smart contracts and blockchain-based trusts are emerging tools that provide automated wealth transfer and asset protection. As more athletes invest in digital assets, securing these holdings with legally recognized digital wills and decentralized finance (DeFi) solutions is becoming an essential part of comprehensive wealth management.

Real Life Examples           The case of Jose Fernandez Most of Fernandez’ assets were held in a trust, in which Fernandez and his mother were beneficiaries. He also had multiple insurance policies. However, Fernandez did not have a will. MLB Marlin’s pitcher Jose Fernandez was killed when his fishing boat crashed into a jetty in Miami. Scott Boras, his agent, kept “in case of death” records for all his clients, with lists of assets, where they are held and who their beneficiaries are, as a strategy to protect the interests of his clients and their families. Shortly before Fernandez’ death, he found out he was going to be a father. Because the mother of the child and Fernandez were neither formally together nor married, she had no claim to her baby’s father estate. Neither did the baby apparently. His teammates and agent came up with the brilliant idea to contribute to a trust fund for the benefit of Fernandez’ at the time unborn daughter.

Getting married: Set up your financial relationship and let your love flourish!

Even though you may be single and don’t even think of marriage yet, we believe that it is important to raise your awareness of the fact that setting up a proper financial relationship with your better half will let your future marriage and relationship flourish!

Marriage is considered as one of the most important events in a person’s life. Couples usually spend a lot of time planning every little detail and may hire a wedding planner to assist them through the whole process. What many couples choose to skip before “tying the knot”, intentionally or not, is setting their common financial future on the right basis.  Prenuptial agreements are a necessary legal step, to spell out a couple’s financial relationship before marriage. A prenup establishes the property and financial rights of each spouse during the relationship, as well as in the unfortunate event of divorce. Contrary to popular opinion, prenups are not just for the rich, they are also essential for those who are about to come into a great deal of wealth or work in a field where financial security fluctuates significantly from year to year: An athlete’s career has this exact characteristic.

Although you have every right to be optimistic about the future of your marriage, this shouldn’t be a factor in your decision to sign a prenuptial agreement or not. According to the U.S. Census Bureau about half of all first marriages among people under 45 ends in divorce. An estranged spouse can often get half of your worth if you don’t have some sort of marital agreement in place.

Here are a few reasons why a prenup is important before getting into marriage:

Designate the passing of separate property to children from previous marriages – A marrying couple with children from previous marriages can use a prenup to clarify what will happen to their property when they die, so that they can pass on different and separate property to their children and still take care of each other, if necessary. In the absence of a prenup, the surviving spouse might be entitled to claim a great portion—or even everything— of the dead spouse’s property, leaving much less for the kids.

Set financial rights and responsibilities – Couples with or without children, wealthy or not, may simply want to set their financial rights and responsibilities during their married life.

Protect spouses from each other’s debts – Prenups can also be used to protect spouses from each other’s debt obligations, and they may address several other relevant matters as well.

Maintain privacy – In case a prenup is not in place, the divorce court will have to determine how a couple’s wealth will be apportioned, with the media probably lurking outside or even inside the courtroom. As athletes are usually in the public gaze, media interest will always be heightened.

Ease the divorce process– Couples may want to avoid potential disputes in the case of divorce, by defining in advance how their property will be divided, whether or not either spouse will receive alimony payment and how much, etc.

In today’s digital world, prenups should also include provisions about digital assets such as cryptocurrency, NFTs, social media earnings, and online businesses. Clarifying the ownership and distribution of digital wealth helps avoid complicated disputes in the future.

Of course, no one can guarantee that creating and signing a prenuptial agreement with your spouse is going to be an easy or a very romantic process. Discussions can bring onto the surface uncomfortable differences in a couple’s expectations and values, and you will have to be ready to deal with them.  You should prefer to consult a lawyer for advice and for drawing up the prenuptial agreement, so that it has greater legal recognition. The two parties should take separate legal advice before getting into a prenup.

As difficult as it may seem, a prenup should be considered as an opportunity to build trust and provide the security and relief that allows you and your future spouse to focus on the most important aspect of your marriage, loving each other! Emerging digital platforms enable easy, secure drafting and management of prenuptial agreements online. In the near future, blockchain-based smart contracts could further streamline this process, automatically executing prenup terms transparently.

Real-Life Examples Reality TV star, Khloe Kardashian and NBA player, Lamar Odom had a prenup which protected Odom’s estate, which was valued at more than $30 million. The agreement provided for Khloe: Access to a joint account (funded by Odom) to pay all expenses $2 million for the 4 years they were married ($500,000 for each year) Court side seats to the Lakers games A new car every single time the lease is up $5,000 a month shopping allowance $25,000 a month for support $1,000 a month for beauty care To keep the house When Michael Jordan and his first wife Juanita Vanoy got a divorce, they had not prenup in place and he ended up having to give her $168mn of his fortune plus a mansion in Chicago. Michael Jordan seemed to have learned from his mistake and therefore set up a prenup with his next fiancée Yvette Prieto. The prenup stated that in the event that their marriage breaks down both Jordan and Prieto will each walk away with the assets they came into the marriage. The prenup stipulated that Prieto is entitled to $1mn for every year they remain married and if their wedding lasts longer than a decade, then Prieto will receive $5mn for every year after the decade milestone.

Protecting your family from the inevitable:  Estate and inheritance planning

A number of people prefer not to focus on their mortality; others simply do not believe that it is a necessity.  In both cases, not planning for your departure from this world can be a major mistake.  You should put in place an estate plan to ensure that what you have built in your life so far will be there to provide for your loved ones, your children and perhaps later generations as well. The absence of a will and an estate plan will give rise to legal battles between those who want to fight for what they think you may have wanted or those who feel that they are entitled to receive from you.

As a sports professional, you should start planning your estate from a young age, when you are at the peak of your performance and at the height of your earnings. The truth is that the relative youth of athletes when at the height of their earnings, makes it necessary to utilize planning strategies that do not require irrevocable decisions, as such decisions will have a much longer time horizon for athletes than that of older people planning their estate.  Moreover, while the amount of wealth you have accumulated from your professional sports career may be substantial, you may need to rely on that wealth to maintain a desirable lifestyle for a considerable amount of time, therefore your estate plan should cater for that.

An estate plan provides you with the ability to spell out your wishes and intentions, how you want those wishes carried out, and by whom you want them carried out.  In the event of your incapacitation or death, a proper estate plan will:

1. Provide structure for your beneficiaries’ inheritance by maximizing the amount of money and assets that will be transferred to loved ones while minimizing the taxes your beneficiaries must pay on those assets.
2. Set forth your desires as to how your assets will be managed and distributed.
3. Avoid public disclosure of the size and distribution of your estate as well as avoid the cost and delay of a probate.
4. Utilize gifting strategies, irrevocable trusts and other planning techniques to potentially save your estate large amounts of taxes.
5. Safeguard your minor children as you will have a final say in who serves as their guardian should you and/or your spouse die prematurely or unexpectedly.
6. Minimize the emotional and financial burden placed upon your heirs, while minimizing arguments among heirs over your estate.

Real Life Examples Washington Redskins Sean Taylor was shot dead when a group of intruders broke into his home in 2007, leaving behind his long-time girlfriend, a daughter and many other family members. Taylor died without an estate plan and because of that, everything in his estate, worth nearly $5.8M, went into a court-ordered trust for the benefit of his 3-year-old daughter. As a result of the court’s decision, Taylor’s mother was forced out of her home and lost many of her belongings because Taylor was making the payments and his mother couldn’t afford them on her substitute teacher salary after his death. Similar situations took place with other family members who could no longer afford to live the life Taylor provided for them.

Below, we list what we consider as the basic components of a proper estate plan with the objective of assisting you to realize both lifetime and at death goals, from a tax and a non-tax perspective.

1. A Last Will and Testament through which you will designate how assets are distributed. Aside from directing the disposition of assets, a will enables you to:
   1. Choose a guardian for children if a spouse does not survive.
   2. Choose an executor.
   3. Direct how and by whom taxes are to be paid.
   4. Provide for the management and control of assets through trusts.
   5. Give discretion over distributions of income and principal to trustees.
   6. Avoid misunderstandings and conflicts among family members over your intentions.
   7. Provide for any special needs of dependents, especially minor children.
   8. Coordinate the distribution of various employment benefits.
   9. Provide for charities.

Your will should always be up to date.  Major events in your life such as marriage and divorce may render some or all of your will invalid if the will is not updated accordingly.  Also, you should be very careful about disinheriting children because a disinherited child might very well challenge the claims of others and create family chaos.

2. A Trust where you will transfer assets. Property that you place in an irrevocable trust is no longer considered part of your estate, meaning that the property is not included in your estate’s value when it comes to determining the amount of death taxes you owe.  Also, a trust can offer protection against bankruptcy or divorce proceedings.  By passing your estate to your children, it will form part of their estate.  Should they face hostile creditors, bankruptcy, divorce, or require care, the estate passed to them might be diluted.  It might also be the case where your children are unable to look after money themselves.  Alternatively, you can make a will by passing everything to a trust for the benefit of your children and their descendants.  Your children can have the use of the trust property, without it forming part of their estate thereby offering protection against hostile creditors.  Finally, you can obtain a term life insurance policy and put it in a trust, to provide liquidity upon death for estate taxes.  You do not want your heirs to be forced to sell assets to pay for resulting estate taxes.
3. Digital Wills & Smart Contracts (Blockchain-Based Estate Plans)
   Digital Wills and blockchain-based smart contracts are emerging as secure, transparent ways to manage estate planning. Smart contracts can automate asset transfers according to your wishes, eliminating ambiguity, reducing administrative burden, and minimizing disputes.
4. Powers of Attorney
   1. A health care power of attorney nominates and authorizes a particular person to make health care decisions on your behalf in the event you are incapacitated and cannot make such decisions yourself.
   2. A financial power of attorney authorizes a different person to make financial decisions concerning your assets, if and when you become incapacitated.
5. A Living Will which specifies your wishes about provision, withholding or withdrawal of life sustaining medical treatments, if you are in a terminal condition or permanently unconscious.

When it comes to dealing with the inevitable you should always remember that preventive planning and preventive action are critical. Your best bet is to talk to a specialized lawyer who can help protect your assets and pass them on to your loved ones and your favorite charities with the least tax implications, while fully respecting your wishes.

The risks and legal traps of gifting property to family

Gifts between members of the same family are quite common. In its simplest form, gifting provides a transfer of wealth and assets from one individual to another. Athlete examples include Kevin Durant, Tiger Woods and Anthony Walker. It is alleged that Dwayne Wade bought his mum a church; yes, an actual church.

How is a gift different from a sale? In a sale, a person gives up their property in return for money; in other words, an exchange occurs that is accompanied by a legal document – a sale deed – that proves the exchange. A gift is defined as something voluntarily transferred from one person to another without compensation. Due to their high earnings, many athletes donate assets to their relatives (parents, siblings, cousins), either by transferring ownership or by granting them an exclusive right of use. However, this common practice often brings both athletes and their loved ones into legal trouble.

Some of the gifts that wealthy athletes usually give to their family members are luxury cars and homes. Athletes need to be aware that the maintenance costs for such gifts are often enormous, making it difficult for those who receive the gift to cope. In particular, a luxury car requires payment of road taxes and has a high overall cost of both general and mechanical maintenance. A bigger problem arises when it comes to luxury properties. The acquisition of a luxury home entails special expenses for its maintenance and the payment of various taxes related to the property. In case the ownership of the house was not transferred to the family member, if this member is unable to pay the taxes associated with the property, then the possible administrative and criminal sanctions will be borne by the athlete, as the owner of the house.

Another illustrative example is purchasing a business (e.g. restaurant, shop etc.) by the athlete for the benefit of their family members, without transferring ownership to them. This can lead to significant problems for an athlete if the business does not comply with the tax law or other legal obligations related to its operation. In addition, as an owner, the athlete will probably have the largest share of responsibility, which may even lead to criminal charges. For the above reasons, the simultaneous transfer of ownership is paramount for the athletes to avoid administrative, civil or criminal sanctions.

In addition to the above, in case an athlete makes a gift directly to a family member (e.g. child), they should be aware that third parties may use this asset against existing or future financial debts of the family member upon completion of the transfer of ownership. Moreover, depending on the applicable jurisdiction, the spouse can claim the property in case of divorce under family law. There are, however, jurisdictions in which any property a child acquires during the marriage as a gift from their parents is and remains their property even when their parents get a divorce.

Another important legal issue that athletes should consider and keep in mind before gifting property is the capital gains tax. In many countries, giving a gift to someone is accompanied by the obligation to pay capital gains tax. However, when the transfer takes place between spouses (married couples or civil partners), an exception is granted under certain conditions in many countries. In some other countries, the exception also includes members of the same family (e.g. parents, children, grandparents).

It should be noted that athletes should do their homework and seek legal advice when wishing to gift property to family members in order to avoid any unpleasant surprises in the future. They must also consider the additional costs that will arise as a result of the gift and the legal framework applicable to their jurisdiction to avoid potential legal traps. It is also strongly recommended that they actually transfer ownership when they wish to gift a property to a family member so as to stay away from any future liability in connection with the gifted property.

 

 

Action Steps – Exercise 5 (10 minutes):

Have the athletes take the Insurance Quiz to test their knowledge on risk and insurance.  Follow with a discussion of their answers vis-à-vis the correct answers.

Insurance Knowledge quiz (by Kiplinger)

1. You lend your car to a friend. Does your auto insurance cover him or her?
   1. Yes
   2. No
2. During a storm, your neighbor’s tree falls on your house. Whose policy covers the damage?
   1. Yours
   2. Your neighbour’s
   3. Neither
3. Your basement floods. Good thing you bought a separate flood insurance policy ahead of time. What does it cover?
   1. Carpet
   2. Furnace
   3. Furniture
   4. All of the above
4. You rent a car. Does your existing auto insurance protect you in case of damage?
   1. Yes
   2. No
5. Are your child’s belongings covered under your homeowner’s insurance while he’s living in a college dorm?
   1. Yes
   2. No
6. Does your home insurance policy cover you for earthquake damage?
   1. Yes
   2. No
7. How about if there’s a nuclear accident or attack nearby?
   1. Yes
   2. No
8. What if a volcano erupts? Are you covered then?
   1. Yes
   2. No

Quiz Answer Sheet

1. A

Generally, your auto insurance will cover a friend driving your car, as long as he or she has a license and has your permission to use the vehicle.

2. A

If a tree falls on your house, you are covered by your own home-owners insurance policy, not your neighbour’s.

3. B

The only thing on this list that’s covered is your furnace.  Flood insurance covers structural elements and essential equipment in a basement but not living improvements made down there. That means it won’t pay for furniture or carpets in a basement room, or damaged drywall that has been painted. (It will cover those things upstairs, however.) And don’t expect your homeowner’s policy to pick up the tab, either.

4. A

Typically, your auto insurance will cover a car rental. Before you take a trip, you should check to be sure, or you may need to buy insurance from the rental car company. Check with your credit-card company, too — it may also provide coverage.

5. A

If your child is a full-time student and younger than 24, his belongings are usually covered by the parents’ policy if he lives in a dorm. If he moves off campus, he might need to get his own renters insurance policy.

6. B

Unless you buy separate earthquake insurance, you’re not covered.

7. B

Nope, you’re not covered.

8. A

You’re in luck! A standard homeowner’s policy will cover you against a volcanic eruption.

Lesson wrap-up

Our topics today were rather grim, but they are nevertheless possibilities—distant ones but still possibilities. Part of acquiring a solid financial foundation is to become aware of the precautionary measures that you can take in order to reduce the risks that you and/or your loved ones might face in the future.  During the lesson we explained what risk is and how it relates to your finances before moving to a long list of different types of insurance that you need to be aware of. We also talked about mechanisms—such as prenuptial agreements—that could prove useful when trying to ensure your financial viability in the long run and we covered the basics of inheritance and estate planning, which we will all need at some point in life.

With the rise of digital assets, we examined how modern estate planning must now include cryptocurrency, NFTs, and smart contracts for automated and secure asset distribution. Additionally, we explored Name, Image, and Likeness (NIL) rights, which allow athletes greater control over their brand, sponsorships, and financial future from an early stage.

Finally, we highlighted how technology is transforming insurance, with AI-driven risk assessments, blockchain-based contracts, and digital claims processing providing faster and more effective protection.

At this point, we will wrap-up today’s lesson.  First, we will go over the learning objectives of today’s lesson to see whether they have been achieved and then, we will address any questions you may have.  Please feel free to ask anything you’d like in relation to today’s lecture, and we would love to hear how the concepts we discussed today, relate to you and your greater life plan.