Business Management is really a misnomer. The service is really closer to life management. At Fragnoli & Company, CPAs, in Brentwood, TN, our partners have been associated with, the management of the financial affairs of athletes, entertainers and other high income producing individuals for nearly thirty years. As the founding member of our Firm, I have seen the misuse and abuse of this service throughout my professional career. It begins with whether or not the person or enterprise really needs this service. Then it is the outrageous fees that are frequently charged on unsuspecting clients by business management firms. Finally, it is the failure to educate the client on the service options and needs.
When necessary and required, business management services are a critical service for the recipient. I heard a former NFL player and sports talk show host on the radio once say that his business manager saved him. He owes his current financial security to his business manager. That seems easy given what these players earn in today’s market, and over the last thirty years; but consider this statement, according to a recent article in Sports Illustrated more than seventy-eight percent of NFL players become bankrupt or financially distressed within two years following their retirement. A former Tennessee Titan’s financial affairs have been well publicized in recent days. Vince Young, the second pick in the NFL draft, who has been paid millions of dollars, and is still of age to play football and attempting to land a position in the league, is financially distressed. We see these stories day after day with athletes and entertainers alike. This also hits high income producers in traditional industry and service markets as well. Bad investments, fraud and abuse are at the forefront of the reasons for these failures. But behind these causes is really the failure of the service provider to educate and obligate the client to follow a proper business management and financial plan.
In professional sports, young men and women come out of college with the simplest of financial affairs. They sign their first contract, which can be worth millions. and then they jump in and pay a “business manager” a percentage of their respective contract for this service. Think about that for a moment. A early draft pick signs a contract with an up front bonus of ten million dollars. Many business management firms out there charge 6% of revenue. In that scenario, he pays his business manager $600,000. The athlete has no real assets yet, no serious financial obligations to manage and basically has a large bank account but pays his business manager $600,000. This is ridiculous. That was mistake number one. The athlete should seek out an business manager who will align him/ her with a top flight, ethical and knowledgeable investment adviser, insurance agent or broker, a banker and who will educate him on the services and bill by the HOUR. The business manager’s service should be estate oriented, with asset protection, income protection and the development of a financial plan that allows the person to live a lifestyle suitable, within reason, to the client’s needs. This is where the “life manager” really becomes part of the equation. At Fragnoli & Company, CPAS, we require that the client sign an “agreement/ understanding” that he will follow the plan and limit his or her “extravagances” and/or playful lifestyle to a predetermined allowance. Deviating from the plan will result in termination of the engagement. It is incumbent that the business manager hold strong to values and leadership to service the best interest of the client. Frequently, business management clients are naive and uneducated in finance and targets of less than honest or skilled advisers.
It is a shame that people with special talents worthy of generating enormous incomes can end up broke and destitute because they didn’t have the proper business management services from the beginning. We hope that these people will seek out the right firms to assist them and hope that they consider Fragnoli & Company, CPAs.