It may seem like training hard is the only work that goes into becoming a professional athlete, but professional sports stretch farther than impressing fans at game time. In fact, behind every successful athlete and team, lies a tight business framework that supports their aspirations. In this article we take a look at the balance between sports and finance for professional athletes and the organizational structures that they form part of, and look into some of the key aspects that they have to get right from a business perspective, when it comes to adequately managing their wealth.
Business planning in professional sports
From player contracts to revenue optimization, to thrive in the sporting business, professional athletes must have a deep understanding of the business of sports, including the critical aspect of managing their finances well. Here are some of the business considerations for both sporting organizations and professional players alike:
1. Maximize revenue streams
Professional sports generate revenue from various sources. Ticket sales, merchandise, broadcasting rights, sponsorships, licensing agreements, and concessions all contribute to the financial success of a sports franchise. Each revenue stream requires careful management and analysis to optimize profitability. As a sports manager or sporting team, it is important that you have systems in place to effectively track and analyze revenue streams to maximize the most popular revenue streams and continue growing your sporting business.
As for individual players, they too need to consider the business side of their sport. Professional athletes sign contracts that outline their salaries, bonuses, incentives, and contract lengths. Sportspeople need to consider the financial implications of proposed contracts and look into the long-term financial impacts of various contract scenarios to ensure that it aligns with their financial goals.
2. Consider the financial risks
Professional sports organizations face financial risks associated with player injuries, unpredictable revenue fluctuations, and changing market dynamics. It is crucial that these be factored into the financial planning, budgeting, and risk management of the organization to ensure long-term stability and sustainability.
At an individual level, professional sports players face various financial risks that they need to take into account. These include income volatility as earnings may fluctuate significantly throughout their careers. They would also need to take into account the devastating risk of career-ending injuries that may stunt their career span and put their earning potential at risk. Furthermore, individual players need to plan for post-career transition that can be challenging, both emotionally and financially, and would need to build into their risk management plan the ideal of securing post-career employment or pursuing entrepreneurial ventures to stay afloat once their sporting career expires.
3. Ensure tax and regulatory compliance
The sports industry operates within a complex tax landscape, both at the individual athlete level and the organizational level. Sophisticated income statements and expense records need to be kept to ensure regulatory compliance and accurate tax submissions to the IRS both for the individual player and the sporting organization.
Some of the common things to consider when tax planning is to ensure that athletes and teams are in full compliance with tax laws while maximizing available deductions and credits. Considering tax implications related to endorsement deals, international competitions, relocation, and retirement planning is an important part of the tax planning of professional athletes and sporting organizations. It is also important to understand residency rules and requirements for traveling sports people as regular travel to certain states can impact your tax liability in each state. Adequate research and planning in this regard is crucial to not only ensure more preparedness, but also to reduce potential liability.
The business of professional sports is a multifaceted arena where strategic financial planning is imperative to an athlete’s success. Leveraging the expertise of a CPA that specializes in professional sporting can help sports stars and their organizations optimize and ensure financial stability and long-term wealth.
At Fusion, our CPAs offer guidance and support to professional athletes. We look at sporting contracts to help individuals and organizations optimize their earnings, implement effective tax strategies, make sound investment decisions, and establish a solid financial foundation that extends far beyond their years playing the sport.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.