Former basketball player who became a consultant offers money advice to college athletes

University of Arizona Wildcats guard Joe McLean plays defense against UCLA Bruins guard Kevin Dempsey during a Pacific-10 Conference match on January 7, 1993.

Ken Levine | Getty Images Sport | Getty Images

Like many former NCAA college basketball players, Joe McLean had dreams of playing in the NBA.

The 6’6 “striker played four years for famed coach Lute Olsen at the University of Arizona Wildcats. He reached the Final Four in 1994 and averaged nearly 10 points per game in his final season. McLean played professional basketball in Europe for three years, followed by a training camp with the Sacramento Kings before giving up his NBA dream.

“I was good, but others were really good,” he said.

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McLean eventually found his calling as a financial coach and advisor to professional athletes who are having a notoriously difficult time managing their happiness. According to a frequently cited Sports Illustrated survey in 2009, 60% of NBA players went bankrupt within five years of leaving the game at that time.

McLean, now managing partner of San Ramon, California-based Intersect Capital – ranked 94thth on CNBC’s Top 100 Financial Advisors list in 2021 – believes these figures are exaggerated.

But he also believes the survey results brought a much-needed awareness of the very real challenges that professional athletes face in coping with sudden wealth.

CNBC spoke with McLean about the many challenges.

CNBC: Why do so many professional athletes who make so much money end up in financial difficulties?

Joe McLean: With anyone coming into sudden wealth, there is a risk of crashing and burning. Age comes into play. The younger you are, the more likely you are to be a bony. We work with young people who typically do not look past next Friday, and we are talking about a 20-year-old making money who, if proper planning is in place, will last for generations.

The biggest problem is that the qualities that make someone a great athlete or a successful entrepreneur are not the same qualities that you need to be a successful investor. The drive to win and the willingness to take risks and bet on yourself are not well transferred to managing money.

CNBC: What are the key challenges facing young athletes?

JM: Most people live and spend and save the rest of their income. With athletes, you need more intensive financial planning because you are working with a five-to-10-year income stream that may need to last a lifetime. I ask customers to compete on the court, not in the locker room.

There is an over-consumption dynamic. At an early age, lifestyle can start to make decisions for you. A watch for $ 50,000 today could have been worth half a million dollars in a few decades from now.

CNBC: What’s the most important piece of advice you have for young professional athlete clients?

JM: I tell them to be patient with the money that comes in. My clients must save a minimum of 40% of every dollar they earn in their first contract; 60% of their second contract; and 80% of their third. If someone does not buy into that idea, then the relationship is unlikely to work.

I’m not there to tell people what to do, but to empower them to get positive results. The sooner they adopt an organized savings process, the better they will have it.

CNBC: How much advice do you give customers about their expenses?

JM: For most of our athletic clients, we are their personal finance manager. We help pay bills and make major purchases such as a new home and cars along with setting up their first LLC or S Corp. We all need to learn how to manage a home for the first time. Understanding what things like utilities, property maintenance and taxes cost puts the customer ready for financial success. One day they will pass on knowledge to the next generation.

CNBC: What is your investment approach to all the savings that are accumulating?

JM: We begin each investing conversation by talking about three buckets: the safety and security bucket; the growth bucket; and the dream / entrepreneur bucket.

In the first, we recommend that you put enough money to cover at least one year of all fixed and variable costs, including the cost of life insurance, a will and trust, and possibly their first home. We then start filling the growth bucket.

Early in a client’s career, we invest in a mix of cheap, tax-driven stocks and fixed-rate assets. We also start investing up to 15% of the portfolio in income-producing real estate, but until the customer has experience investing, we keep them very liquid.

When the two buckets are full, we leave 5% to 10% of the money to the dream / entrepreneur bucket. This can be invested in private equity, venture capital and small businesses. It can also include buying another car or a home they want. Most people want to fill the dream bucket first, but this approach allows customers to take more risk over time in the third bucket, knowing that they have filled the other two first.

Do not spend money until you earn it. Honor your mother with a financial plan for the future, not just a new house.

Joe McLean

managing partner at Intersect Capital

CNBC: What would you tell one of the 60 athletes who will be drafted by an NBA team next month?

JM: These players are living out their dreams in the NCAA Tournament, and some will have the opportunity to play beyond college. If you watch a draft, you will see a lot of people celebrating with the athletes. Many of them have your interests at heart, but many of them also have expectations that you will help them financially.

I write a letter on social media before each draft with ideas that athletes should consider going into the process. They include things like not spending money before earning them. Honor your mother with a financial plan, not just a new house. Give your friends and family the opportunity to get jobs, do not give them one. Seek advice from experts and people who have been there.

They need to be patient with the money. We all do bony things. That is why it is so important to have a process to get on track early.

CNBC: How do you convince young people to be disciplined in that situation?

JM: I think it’s more helpful to talk about the reasons why professional athletes remain wealthy, rather than horror stories about why they broke down. There are so many ways to lose money and there is no judgment. We all do bony things. That is why it is so important to have a process to get on track early.

CNBC: Other tips for young athletes coming for big money?

JM: Learn to play golf. It allows you to spend two to four hours with people to learn about them and from them. Golf is a humiliating sport, and humility is the new smart.

In minor league baseball and hockey, they put you on buses, and buses humiliate you. I think there is a connection between traveling by bus and being successful when signing a major pro contract. The slower the money comes to someone, the longer it lasts. Be patient.

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