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Planning for the Stars: Financial & Investment Planning for Entertainers and Professional Athletes

K. Eli Akhavan, Esq., and Jonathan I. Shenkman
Published Date:
Jan 1, 2017

Challenges for Practitioners

Financial and legal advisors representing entertainers and professional athletes—“celebrities”—confront unique circumstances not usually present when working with more traditional clients. These challenges include the “sudden wealth” effect, short earnings horizon, inconsistent cash flow, unrestrained spending habits, limited financial literacy, and incompetent advising.

The following discusses some of the financial and estate planning tools that advisers can use for their athlete and entertainer clients to help protect and grow their clients’ wealth.

Financial Planning

The “sudden wealth effect” can make conversations about financial management challenging. NBA star Antoine Walker declared bankruptcy shortly after retirement because he spent his $108 million of career earnings on gambling and supporting his entourage. In many cases, the biggest challenge advisers face in planning for the entertainer or professional athlete is not identifying the most sophisticated estate planning, optimal tax planning, or best investment option. Rather, it is educating the client on the importance of planning for the unique challenges of their career and—perhaps most significantly—helping the client resist peer group and other pressures.

Entertainers typically have a different career progression from athletes. Rather than being drafted to the big leagues right after college, entertainers can spend years with minor roles and limited cash flow until they become financially successful. Hollywood legends Harrison Ford and Samuel L. Jackson are examples of entertainers who got their break later in life. Ford worked as a carpenter before being approached to play Han Solo in Star Wars at age 33. Similarly, Jackson spent many years playing minor roles before landing the role of Jules Winnfield in the film Pulp Fiction at age 45.  This career trajectory makes some entertainers more receptive to conversations about budgeting, cash flow management, and savings—because they spent many years getting by on the bare minimum, waiting for their big break.

Retirement Planning:

The average career for an athlete is 3.5 to 5.6 years. Advisers have the task of making these few years of earnings last through the inevitable very long retirement. The fact that many athletes are accustomed to living extravagant lifestyles makes this even more challenging. An often-quoted statistic is that 60% of all NBA players are bankrupt within five years of retirement despite an average salary of $4.7 million a year, among the highest of any sport in the world. The challenges of planning for a short initial earnings period followed by a long retirement are significant. A major unknown in this planning process is whether the athlete will be able to successfully launch a post-retirement career. Former San Francisco 49er’s Hall of Fame quarterback Steve Young joined a private equity firm once he retired from professional football. Conversely, former NBA All-Star, Vin Baker, had major financial problems after retirement and now works at Starbucks. Advisers should plan for the latter scenario, which is far more common than the former.

League Pension Plans:

Most professional sports leagues provide pensions to their players with relatively short vesting periods. The quality and generosity of a league’s retirement plan vary by sport. The Professional Golfers’ Association (PGA), for instance, does not guarantee retirement benefits; they are tied to a player’s performance during the season. If a player performs poorly or does not play in many tournaments, he or she may have limited retirement benefits. In the NBA, on the other hand, 1% of a players’ basketball-related income is invested into an annuity, 5-10% percent of their salaries are automatically deferred into a retirement savings plan, and—if a player plays for 11 years and retires at age 65—they are guaranteed $195,000 a year in retirement.

Pensions for Entertainers:

Entertainers may also be eligible for a pension. Businessman and President-Elect Donald Trump turned heads when his financial disclosures indicated that he is collecting $110,228 from the Screen Actors Guild pension. Trump’s career in the entertainment industry primarily consisted of his work on The Apprentice, The Celebrity Apprentice, and various other cameos. Pensions are payable starting at age 65 even to people who continue working, like Trump. Entertainers earn pension credits based on their earnings on work under the collective bargaining agreements. A high-paid celebrity, like Trump, will receive a higher pension than a B-level actor with lower level earnings.

Most pension plans won’t offer enough savings to last an athlete or entertainer through retirement. Furthermore, athletes will need access to the money well before the normal retirement age since they generally can’t work past their mid-30s. It is imperative for the adviser to recommend other strategies that will supplement the traditional pension plan.


The use of annuities is one way to supplement an athlete or entertainer’s income during retirement. While many advisers look suspiciously at annuities because of the fees, there are products available for a more modest cost. The analysis also differs from a traditional client since an athlete or entertainer may appreciate the tax-deferred growth, forced savings, and ability to offset risk to an insurance company afforded by an annuity. Another benefit that pertains particularly to athletes and entertainers is the lack of liquidity associated with an annuity. Many high-profile clients feel pressure to keep up a certain image of success and to help out friends and family. An annuity provides a safeguard to overspending since it ties up the owner’s money for a number of years and is not easily accessible.

One complication of annuities is the penalty imposed for taking money out before the owner turns 59½. Because professional athletes stop competing at the highest level by their mid-30s, there is a significant gap between an athlete’s retirement age and when they can technically start receiving income payments without paying a penalty. Fortunately, there are exceptions allowed through IRC section 72(q)/72(t) that allow early withdrawals from annuities and other types of retirement accounts. One such exception is to receive income as a series of “substantially equal periodic payments.” To qualify, the owner must receive a series of income payments that are calculated based on their life expectancy utilizing the Life Expectancy Method, Amortization Method, or Annuitization Method. These payments must continue annually for five years or until the age of 59½, whichever is longer. Payments may be stopped after this time if desired.


In addition to pensions and annuities, it’s also important for advisers to recommend additional ways for their client to constructively manage capital. The important parameters that need to be considered for athletes and entertainers include diversification, tax efficiency, liquidity, and securing additional streams of cash flow.

Diversification: Too many celebrities put a significant amount of their capital into one idea or one asset class, which is a recipe for financial disaster. Actors Kevin Bacon and his wife Kyra Sedgwick lost their savings because they had it all invested with Bernie Madoff. Meanwhile, actor Nicolas Cage declared bankruptcy after investing too much money into bad real estate investments that included an ancient Bavarian castle, two Fifth Avenue apartments, Dean Martin’s former home in Beverly Hills, and two islands in the Bahamas. The collapse of the housing market during the Great Recession forced Cage’s properties into foreclosure.

Taxes: Athletes and entertainers will be in a high tax bracket during their peak earning years. Do to their constant traveling for performances, games, or filming, they are hit with high state income taxes as well. Any investments that can provide some relief in this area should be considered.

Lack of liquidity: Where liquidity is usually a positive for traditional clients, this can potentially be a negative trait for athletes and entertainers since they tend to spend well beyond their means. If a celebrity’s investments are illiquid, it might minimize the chance of these assets being depleted rapidly or being used for poor investment decisions.

Additional Streams of Income: Some athletes’ careers have flourished after retirement; however, many struggle to make ends meet. This is similar for entertainers who have experienced a decline in their career after a certain age. If the adviser can recommend investments that will appreciate in value and provide a source of income, this will help the client maintain their lifestyle after they retire.

Two investments that fall within these parameters are private equity real estate. While both areas require hiring an experienced manager, they can benefit the client for many years in the future.

Private Equity:

Private equity is an investment made in a company that is not publicly traded. Professionals in the private equity business will take several years to improve a particular company—and then eventually sell it or take it public to make a profit for their investors.

When the investment is first made, there is a lockup period where the money is not accessible to the client. During this time, the investment experiences what is known as a ”J-curve” where the money goes down in value as the private equity firm makes investments and expenditures to turn around the business. If all goes according to plan, investors could experience significant returns on their investment. Typically, the longer the lockup period, the better the potential return on one’s investment.

If the private equity firm holds an investment for a number of years, these restructured companies can provide healthy cash flows to the investors. These cash flows can be favorably taxed if the athlete or entertainer is a partner in the deal because of the “carried interest” tax benefit. “Carried interest” is profit made by the partnership, which is taxed at approximately 20% as opposed to up to 39.6% for income and wages.

Real Estate:

Owning real estate as a hard asset—as opposed to publicly traded REITs—typically provides the most benefit for an athlete client. From a tax perspective, the owner of real estate has a myriad of tax deductions from which to benefit—including operating expenses; mortgage interest; and expenses such as property tax, depreciation, and repairs for the rental of a dwelling unit. One can also deduct costs associated with maintaining the property, including utilities, maintenance, advertising and insurance.

Another benefit is the lack of liquidity. In most areas of the country, real estate is not nearly as liquid as investing in the stock market, where an investor can raise cash almost instantly. Generally, selling real estate can take time, effort, and money. This process gives the athlete more time to reconsider a bad financial decision and will hopefully give the adviser enough time to encourage their client to stick with the current investment strategy.

Owning a rental property could also provide the celebrity with an additional income. Hiring a competent real estate adviser and management company is imperative. It ensures that all decisions are left to seasoned professionals who can maximize the value of the property over the years.

Other Investments:

Real estate and private equity are not the only suitable investment options. Many athletes and entertainers enjoy the benefits of investing in the stock market as well. Supermodel Cindy Crawford and Saxophonist Kenny G work with an investment professional to invest in a mix of stocks and bonds based on their specific risk tolerance and comfort level. Crawford began investing after her first modeling engagement in college, and Kenny G is a long time investor in stocks.

Similar to traditional clients, when it comes to investing, it’s imperative for the adviser to sit down with their client to gauge his or her risk tolerance, comfort level, and knowledge base—and to determine a strategy that the athlete or entertainer will be able to stick with over the long-term.

Please look for part 2 of this piece to appear in the February TaxStringer focusing on estate and insurance planning for entertainers and professional athletes.

Disclaimer: Oppenheimer & Co. Inc. does not provide legal or tax advice. Opinions expressed are not intended to be a forecast of future events, a guarantee of future results, and not investment advice. This material prepared by K. Eli Akhavan, Esq. does not necessarily reflect the opinions or recommendations of Oppenheimer & Co. Inc. Oppenheimer & Co. Inc. and Jonathan I. Shenkman are not affiliated with K. Eli Akhavan, Esq.

Eli_akhavanEli Akhavan, Esq., is the managing partner of the Akhavan Law Group LLP, a boutique law firm specializing in the areas of domestic and international asset protection, estate, and tax planning for high net-worth individuals and their families.  Eli’s clients include entertainers, professional athletes, corporate executives, real estate professionals, owners of closely-held businesses, entrepreneurs, and hedge fund and private equity professionals.  Eli designs customized asset protection and privacy planning for his clients to mitigate their exposure to potential future creditors (e.g., family members and business associates).  In addition to his full-time law practice, Eli also serves as an adjunct faculty member at St. John’s University Law School teaching International Taxation.  He is a member of the American Bar Association’s Asset Protection Committee as well as its Estate and Gift Tax Committees.


ShenkmanJonathan I. Shenkman is a financial advisor, OMEGA Portfolio Manager, and the founder of the Shenkman Private Client Group of Oppenheimer & Co. Inc.  Jonathan and his team work with clients to develop an overall financial plan, manage their investments, and put them on track to achieve their financial objectives. Jonathan’s focus is on working with multigenerational families, endowments, and businesses to define and translate their values into a comprehensive and customized investment strategy. In addition to advising more established clients who have already achieved a significant level of wealth, Jonathan is also passionate about working with individuals who are still building their nest egg. Jonathan has spent his entire career in the investment business. Before joining Oppenheimer & Co. Inc., Jonathan ran a boutique wealth management practice at Morgan Stanley where he managed the liquid capital for C-level executives, real estate investors, entertainment professionals, and partners at major law and accounting firms. Prior to working at Morgan Stanley, Jonathan spent time at Merrill Lynch where he was a partner in a financial planning practice that worked with professional athletes and business owners. Additionally, Jonathan has experience working in the research department of several buy-side investment firms.