Nearly 70 NFL players are opting out this football season due to the coronavirus pandemic. While they forwent their salaries for a $150,000 stipend, can these players actually increase their wealth in the long run? Yahoo Finance’s Brian Sozzi and Alexis Christoforous discuss with Justin McCarthy of Mariner Wealth Advisors.
JUSTIN MCCARTHY: It's not so different, Brian, in terms of what we're typically telling NFL players in other environments in the sense of it's a very volatile career path, so, you know, managing both the short and medium-term cash flow needs, along with kind of what their long-term goals might be, is really critical for a player in this position. And now it's even more highlighted by the fact that not only with the decision of opting out of the NFL season, but also the potential of the season being shut down. You know, obviously, every week it seems to change on the likelihood of that, but it is a potential. So it's been different for every player, whether you're a young rookie or a 10-year vet.
BRIAN SOZZI: Are they-- are they foaming at the mouth to get involved in the stock market? The market has had a tremendous run, has defied a lot of odds this year. Where are they allocating their cash?
JUSTIN MCCARTHY: You know, I think the short answer is yes, especially the young guys, who maybe haven't experienced some of the down period. So you get a rookie who's recently drafted, first coming into money in the last three or four months, yes, they see, certainly, a 30% rise in the markets, and they start chomping at the bit. Typically what we're telling guys in their rookie seasons is get through the first season. Figure it out come January.
You know, let's not try and make short-term decisions just based on what's happened over the last couple months. The veterans, you know, that we've been working with for a long time, who we spent a lot of time kind of educating them on the potential risks and rewards of the markets, you know, they're a little more savvy at this point about kind of what to expect, especially with the elections upcoming. So again, it's managing the cash flow and what might change for them if the season were to get shut down.
ALEXIS CHRISTOFOROUS: Justin--
JUSTIN MCCARTHY: You know, there's not a lot-- I thought more people would opt out, honestly, because, believe it or not, there's not just the health concerns, but there are certain situations with players where the way the contracts toll from one year to the next, it actually might be financially beneficial for certain players to opt out.
ALEXIS CHRISTOFOROUS: Yeah, Justin, I wanted to ask you about that, because you actually say that opting out could actually increase a player's wealth in the long run. Connect the dots for us there. How do you see that?
JUSTIN MCCARTHY: So it's kind of a-- very select circumstances. But you have contracts, and especially everybody talks about in the NFL how there's guaranteed money and a lot of unguaranteed money. If a player is, for example, in a long-term contract already, and what happens if the season were to get canceled midway, let's just say for example, any guaranteed money that they had this year rolls forward, and essentially becomes guaranteed in the year that they first don't have guaranteed money.
So just as an example, let's say I have a player who is in a five-year $25 million a year-- $25 million total contract, five a year, and they play half of the year. Let's say the first three years are guaranteed. They play half of this year. That $2 and 1/2 million that they didn't get paid this calendar year, because the season got shut down, would roll forward into that fourth year.
Now, depending on how a contract might be structured, you could have a player who has a, you know, "implied guarantee," so to speak, where, let's say that year that it rolls forward to already has a large portion of it guaranteed. Odds are the team's going to want to pay that remaining unguaranteed piece, because they're not going to pay a large sum of money and then, you know, let a player walk away for a fraction of that year's pay. So a player that has that kind of money, if they only play a portion of this year and that rolls forward, it actually could turn into a net negative cash situation for them, obviously depending on a lot of variables.
But you know, the few players that we had that we highlighted those situations to, I'll tell you, all decided to play. You know, whether it be because they were in the first year of a big contract and they didn't want to, you know, show their teammates, and coaches, and all this that hey-- you know, I don't want to say they were guilted into it, but they themselves chose to kind of be a team player and show up and play. They weren't individuals that were concerned on the health side of things.
ALEXIS CHRISTOFOROUS: Right. And also, you know, your shelf life in a sport like football could be somewhat short-lived. So I'd imagine they want to get out on the field if they can at all. But how do you help them time big investments, given all the uncertainties about regular cash flow for a lot of these players? I mean, if they want to buy a house, a car, et cetera, how do you help them time out those big purchases?
JUSTIN MCCARTHY: You know, it's really about communication, so to speak, where we're showing them, not just saying, hey, this is a concern and that's a concern and why, but actually showing them the different scenarios, you know, modeling out cash flows in terms of worst-case scenarios, maybe even best-case scenarios, but maybe highlighting more of the worst-case scenarios. That way the individuals, the players in this case, can make decisions on their own. They don't just need us to say, hey, yes or no to something. It's really more a function of letting them see what we know, you know, so that they can now help themselves make the best decision for whatever their situation is.
But again-- and there's some things that they might not figure out, like, for example, you might have a veteran player looking to purchase a home. We might actually-- that player's finances dictate they could do that with or without this season's pay, we might want to do that sooner rather than later so they can qualify for an optimal mortgage based on their income requirements and things like that. Whereas, obviously a younger player, less financially established, we might want to kick the can down the road for some of those kind of bigger ticket items so that they're not in a cash crunch in those worst-case scenarios of the season getting shut down.
BRIAN SOZZI: All right, let's leave it there. Justin McCarthy, Advisor at Mariner-- Mariner Wealth Advisors. Good to see.
JUSTIN MCCARTHY: You, too, guys, thanks.