Money Smart Athlete Blog

Combine and consolidate your contracts for financial success

Aug 22, 2018 | Economic Environment

The occupation of professional athlete, has become recognized as one of the most financially rewarding professions. As a result, when starting your sports professional career, dealing with your contracts can be intimidating. While athletes can technically choose to negotiate contracts on their own, nearly all athletes depend on their sports agents to negotiate their playing contracts on their behalf.

Despite the fact that most sports contracts are negotiated by sports agents, as a Money Smart Athlete, you should have a general knowledge of your contract terms and how such contract terms affect you and your finances.

Let’s explore the most important issues in connection with sports contracts, so that you successfully combine and consolidate your contracts for financial victory!

Sports Contracts Categories

Professional services contracts, also known as standard player contracts, are the general, multipurpose contracts that are delivered to all athletes regardless of negotiated salaries or bonuses. The wording of these contracts tends to be reusable, requiring only slight adjustments on financial incentives. For some organizations and leagues, standard player contracts establish a baseline salary for all players, though in others, each salary is addressed individually in an addendum to the contract.  The amounts stated in sports contracts are gross amounts from which all applicable taxes and contributions are deducted.  Taxes and contributions withheld include income tax and social security contributions.

Endorsement contracts are used to govern relationships between athletes and independent sponsors. These contracts are designed to allow sponsors to use an athlete’s name or image in advertising, in exchange for additional compensation. While there are some limitations on the endorsement of certain products, such as medical supplements or alcohol, in general, an athlete is free to sign contracts with a wide range of organizations in addition to his or her core player contract.

Appearance contracts allow for additional compensation for athletes who choose to appear at public functions. For example, an athlete might be invited to speak or participate in a sports camp or tournament. The terms of such appearances and the requisite compensation rates are established in these contracts.

What is included in a Sports Contract

Sports contracts, particularly professional services contracts, tend to be formulaic and include standard elements. As a legal contract, a sports contract is highly detailed, and is designed to provide maximum clarity and specify exactly what an athlete can and cannot do while employed by a sports franchise.

  • Contracts generally begin with common clauses that title the negotiation at hand and describe the parties involved. These clauses are the foundation for ensuing details. Once set, sports contracts must clearly define the contract length of service to the organization as well as whether renewal options exist at the end of the period.
  • Moving on, contracts must describe the precise duties that a player will be expected to perform while employed by their franchise. This can include game time, practices and exhibition appearances. It is also important to indicate whether an athlete is required to hold limited employment with a particular organization, or whether options for additional compensation and employment exist.
  • With these major sections addressed, the remainder of the contract tends to focus on individual salary details, options for bonuses and the steps to be taken in the event of early contract termination. Sometimes, athletes choose to terminate a contract before their term has finished. It is very important for agents to be clear on contract specifications to determine whether their client is permitted to leave their sports team, and what kinds of penalties the athlete may be required to pay should he choose to breach the terms of the contract.

While they may seem complex, sports contracts are largely similar to business contracts. Given the role of many athletes as highly visible figures, the key differences are in the specific compensation requirements, possibilities for sponsorship from external companies and potential for public appearance at a variety of functions.

Lionel Messi and Endorsements

Lionel Messi has an estimated net worth of $340 million. His successful combination and consolidation of his contracts, is an excellent example of an athlete’s financial triumph! The Argentina star is widely considered as one of the world’s best soccer players and has a number of lucrative endorsements. In 2016, he earned $28 million from endorsement contracts only, while in 2017, he signed a lifetime contract with Adidas. Huawei Technologies, Tata Motors and Gatorade, are some of his other endorsements. In addition to his endorsement contracts, Messi officially renewed his sport contract with FC Barcelona in late 2017, with a duration up until the 2020-21 season.

You should always remember that it is important to develop your own understanding and have a general idea about the nature of your sports contracts. A good sports agent, familiar with these types of specifics, can guide you through the complexities of sports contracts, ultimately allowing you to play the sport you love and be well-compensated for your efforts. For more information on sports contracts specifics you can get in touch with us at [email protected].