In the not so distant past sports was actually a pastime, not a multi-billion dollar business. Yankee Hall of Famer and legendary phrasemaker Yogi Berra sold suits at a clothing store in Newark during the off season early in his career. In 1961, when the Bronx Bombers won their ninth World Series since Yogi came on board, his salary was $57,500. That’s pocket change to today’s athletes drafted from college into the big leagues with seven and eight figure contracts, as well as endorsement deals for sports drinks, apparel and athletic shoes.
I’m all for players, who actually supply the means of production in these industries, getting an adequate share of the profits from their labors. Unfortunately many of these instant millionaires are unprepared for their newfound wealth and the number of people looking to cash in on their abilities. And without good advice from people they can trust many quickly adopt lifestyles that they won’t be able to sustain.
These thoughts were inspired by the arrests of an Adidas marketing exec, basketball coaches from several big name colleges, financial advisors and even a custom tailor, who sells suits these athletes can wear on draft day. It’s a fascinating story, in which none of the principals comes off well, but in case you haven’t heard, it involves paying at least $100,000 to the family of a high school basketball star in order to get him to commit to the University of Louisville’s program, which is sponsored by Adidas. With the number of schools involved and one of the participants caught on a surveillance tape worrying that a rival company was offering the kid’s family $150,000 if he committed to a different college, it’s unlikely this was an isolated incident. Whether or not that “bribe” is really a criminal act is debatable, but that’s not my point.
The question of whether or not college athletes should get paid is too big to address here, but there does seem something wrong with a system where the head coaches in high-profile sports draw millions in salary for coaching these “amateurs.” In New Jersey for example, the highest-paid state employee is Rutgers football coach Chris Ash, whose $2 million salary doesn’t come close to some of his peers in the Big Ten Conference. (Jim Harbaugh at Michigan pulls down $9 million in compensation.) But while the coaches are pulling in big bucks, the “student athletes” are lucky if they end up with a degree, never mind an education. And if they’re going pro, what these kids really need is a financial education.
It seems that for the financial advisor and money manager identified in this case, the only concern was what kind of commissions they would be able to pocket from this kid, who hadn’t even made it out of high school yet.
The financial services industry, epitomized by Wall Street and the banks that are too-big-to-fail has had a serious trust issue over the last decade or so, what with Bernie Madoff and the subprime mortgage scandal on through the latest revelations about Wells Fargo. This latest scandal only serves to reinforce that image of financial professionals as predators looking to take advantage of the unsuspecting, which with the abysmal state of financial literacy in this country, is almost everyone.
One of the biggest issues debated in the financial industry right now is the idea of fiduciary responsibility. At its simplest, the concept can be summed up as doing what’s right for the client above all else, but this video from HighTower probably expresses it better. It’s kind of like the medical profession’s credo to above all, do no harm.
The Department of Labor during the Obama administration tried to implement a fiduciary standard for those in the financial business who work with people planning for retirement. Not surprisingly, many industry voices were opposed on the grounds that it would be cumbersome and expensive to implement and would actually be a disservice to people who need help planning for retirement. Under the current administration the implementation of that has been continually pushed back and it’s now set to go into effect June 1, 2019, although legislation has been introduced to scrap it all together. The SEC has also been working on a fiduciary standard as well, but that effort may never come to fruition either.
When I covered the financial services business as a journalist I spoke with many financial advisors and the majority gave “wanting to help people” as the reason for choosing that profession in the first place and I believe those feelings are sincere. After all, just because doctors and lawyers can make a lot of money in their fields, doesn’t mean they don’t also help people. But they also have an obligation to do the right thing. Maybe someday soon, financial professionals will too.