How should Lewis tackle huge bonus?

Advice: Financial experts would be conservative in investing a sum like the $10 million that Ravens star Ray Lewis is expected to net from his bonus.

August 03, 2002|By William Patalon III | William Patalon III,SUN STAFF

With the ink barely dry on his new contract - and a record $19 million signing bonus forthcoming - Baltimore Ravens star linebacker Ray Lewis must craft a long-term plan that makes sure his financial future isn't someday stripped away like a football from a sacked quarterback, investment experts said yesterday.

Football players generally have short careers. Lewis has "potentially got 50 years of retirement ahead of him, so his investments must have sure footing," said David Citron, a partner in the Towson money manager Wealth Management Services Inc.

"Inflation is not a problem right now, but throughout the rest of his life it could diminish his earning power if he doesn't construct the proper financial plan."

Time and time again, athletes have been separated from their money by such potentially arcane investments as restaurants, electronics companies, racing teams, real estate and limited partnerships so complicated that even the athletes' advisors don't fully understand them. But that doesn't have to happen to Lewis, experts say.

Lewis, 27, signed a seven-year contract this week worth an estimated $50 million, a figure that includes the NFL-record signing bonus of $19 million.

His bonus is strategically significant, since the after-tax proceeds can be invested now, and allowed to grow, while Lewis lives on his annual salary - the remaining $31 million to be paid over the contract's seven-year span.

Taxes will eradicate not quite half the bonus, but even proceeds of $10 million would give Lewis and his professional advisers a tremendous amount of money to invest, said Harold Evensky, a published author and head of the financial planning firm of Evensky, Brown & Katz in Coral Gables, Fla.

"This is money that has to be there when he ends his career," Evensky said.

Some experts would advise Lewis to have a second career ready to pursue after his football career ends. That would give any investment strategy about three decades to work. Less risk could be taken now, these experts say.

Assuming there's still $10 million left of the bonus after taxes, Annapolis investment adviser Robert E. Maloney said, he would advise Lewis to invest $2.5 million in the stock market now and $5 million in fixed-income investments, such as bonds or money market funds.

The remaining $2.5 million could be used to pay off a mortgage, and as "mad money" for Lewis to buy jewelry, clothes, or the car, motorcycle or boat of his dreams, said Maloney, head of R.E. Maloney Assoc. Ltd.

What Lewis has achieved on the gridiron warrants reward, he said.

"If you tell him he has to invest all of it, you're going to lose him" as a client - and perhaps as any kind of investor at all, Maloney said.

Lewis should consider making additional, regular investments in stocks and bonds from his salary, too, according to Maloney.

Keeping the investment plan simple increases its odds of success, said William E. Lauer Jr., chief investment officer of Chevy Chase Trust in Bethesda.

For instance, while he would split the money 60-40 in favor of stocks over fixed-income investments, Lauer said he would stick chiefly with blue-chip shares in the equity portfolio, especially in such a rocky market as the current one.

Seventy percent of the equity portion of the portfolio should be in blue chips, with the rest split equally between small cap and international stocks, Lauer said.

Whenever there's a client with the kind of wealth Lewis is certain to accumulate, estate planning also becomes crucial, said David W. Keister, a managing director and chief trust officer for Chevy Chase Trust in Bethesda.

Tax planning, charitable giving, wealth transfers to other family members and the use of legal trusts would reduce the impact of taxes on the portfolio, Keister said.

"Over time, that will allow the future generations of the Lewis family to reap the rewards of the record the Ravens linebacker set this week. The wealth created today "can have significant benefits for future generations," Keister said.

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