Getting comfortable with new riches

For Ja. Lewis, NFL rookies, big money a big challenge

July 25, 2000|By Jon Morgan | Jon Morgan,SUN STAFF

With the signing of his new contract on Sunday, 20-year-old Jamal Lewis not only officially joined the Ravens, he also joined one of the most elite, and unusual, clubs in the world: people who have suddenly struck it rich.

Membership has its obvious advantages. But it conveys an immediate change in lifestyle and carries with it new concerns, according to Joe Geier, a financial expert whose company specializes in high-income athletes.

Lewis' six-year contract includes a $6.516 million bonus, payable immediately. Depending upon incentive clauses, Lewis could make $14 million over the next year and more than $35.3 million over the next six.

Geier, president of Geier Financial Management Inc. of Ellicott City, said rookie clients with big checks often come to him with visions of fast cars and palatial mansions.

He does his best to bring them back to earth.

"Most guys are going to get a nice car, and that's fine. But I'm not going to let them get a $250,000 Lamborghini Diablo. For one thing, at their age, their insurance would be astronomical on that. They have no need for it," Geier said.

"If they want to get a Mercedes SL500, that's OK. And it's only $75,000 to $80,000."

Similarly, he steers his clients toward homes in the $500,000 range, instead of gated mansions.

The idea, Geier said, is to adopt a lifestyle that they can maintain after their playing days are over - a moment that can arrive with the suddenness of a twisted knee. A well-invested nest egg of $3 million can provide a comfortable annual income of $200,000, after taxes, Geier said.

"Live a lifestyle a normal, wealthy person would. You don't need to flaunt your wealth," he said.

Geier's clients include the Orioles' Brady Anderson and the New Orleans Saints' Darren Perry, but not Lewis. Asked for the sort of advice he would give Lewis, or any other of the Ravens' top-pay rookies, Geier said he would recommend several things.

The first, and most mundane, is to pay off any outstanding loans.

Next, Geier suggests putting aside what the player will need to pay the government on April 15. Because most rookies come directly out of college, they haven't had a lot of income in previous years. That presents a unique, one-time tax advantage.

The Internal Revenue Service requires estimated taxes to be paid in quarterly installments, but bases the amount on the previous year's income. That means a rookie like Lewis - who faces the maximum federal tax rate of 39.6 percent -- can stow the $3 million or so he will owe Uncle Sam for his signing bonus in a short-term investment, earning him an extra $150,000 between now and April 2001.

The next step is to prepare a budget. When Geier puts together a budget for a player, he calculates immediate needs and long-term investment objectives.

Generally he recommends putting $1 million into a safe harbor, such as tax-free treasury bills, for an emergency. This is especially important for an NFL player because the league, unlike baseball, prohibits guaranteed contracts. That is why so much emphasis is put on non-refundable signing bonuses in NFL contracts.

Finally, it's time to play the market. But Geier takes a prudent approach, pulling what is left over into a good portfolio of blue-chip stocks and mutual funds. He generally buys $100,000 of each.

"For the first contract, I always say, `Let's keep it simple.' There's no need to get invested in every sexy investment that's out there," he said. "You don't need to start up the next Internet venture."

He advises against putting money into businesses that the player will have to run, at least until the athlete becomes established and can manage the distraction. Later, as retirement nears, the player can explore businesses that might lead to post-playing careers.

"The objective is to get them financially secure for the rest of their lives. Once they start to elevate their lifestyle, it tends to go fast, so I try and get it locked up right away," Geier said.

Keeping the money invested also provides the client with a ready excuse when a long-lost buddy approaches with a can't-lose restaurant concept or a distant relative calls looking for a loan.

"For a young kid to be saddled with that much money is a big life change. It's like being a lottery winner. You have to teach them that it's a big responsibility," Geier said.

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