In 1972, Derek Sanderson was on top of the sports world.
After Mr. Sanderson helped the Boston Bruins win their second Stanley Cup in three seasons, the World Hockey Association's Philadelphia Blazers signed the former National Hockey League Rookie of the Year to a $2.65 million contract, making him the world's highest-paid athlete.
But a decade later Mr. Sanderson was flat broke, his earnings from 13 years as a professional hockey player gone, most of it lost in a series of bad investments touted by friends and business advisers.
"There is really no one to blame but myself. I allowed myself to be taken advantage of because I trusted the wrong people to do the right things for me," Mr. Sanderson says now. "I never got involved with my money. I gave up power of attorney. I made mistakes. It wasn't that I was stupid - I just dedicated every second I had to my sport. I didn't leave time for anything except my game."
Mr. Sanderson could not regain the millions he had lost, but he decided he wanted to keep other athletes away from the same financial pitfalls. After retiring from hockey and his second career in broadcasting, he began working for Tucker Anthony as a stockbroker, and in 1997 went to State Street Research, a Boston subsidiary of Metropolitan Life Insurance Co.
There he established State Street Research Sports, a unit geared to teaching jocks about stocks. He leads a team of 14 investment managers, who work with professional athletes to help them structure their financial lives, and makes sure clients such as Bruins legends Cam Neely and Bobby Orr stay in the black.
Mr. Sanderson is part of a growing cadre of professional money managers, including many retired athletes, who are giving a financial hand to young athletes.
Professional athletes, perhaps the most extreme examples of overnight affluence, have unusual income patterns - nearly all their money is earned early in life. They can also be a bonanza for financial firms because their accounts tend to produce a high amount of fee income.
Elias Sports Bureau, a New York compiler of sports statistics, says 3,415 professional athletes now play for the National Football League, the National Hockey League, the National Basketball Association, and Major League Baseball. As a group they earned $4.77 billion in 2000. Their average age is 26.
And their pay continues to soar, thanks to collective bargaining, which has helped set player salaries for two decades. Average player pay has risen from $90,879 in 1980 to $1,314,787 last year - a 13-fold increase.
But earning such salaries is one thing, and saving and investing the earnings wisely is another. Players truly need help with this, the investment managers who work with them say. Their careers are brief, and injuries can cut them shorter. Players are also young and unsophisticated, making them vulnerable to friends or relatives with get-rich-quick schemes. Only a fraction of what these athletes earn, the managers say, is properly invested to last them their lifetimes.
A professional athlete who saves $3.5 million can have a lifetime annual income of $200,000. But most athletes in the NBA, NFL or Major League Baseball, a University of Chicago study found, must have five-year careers to earn $3.5 million. And only one in four athletes reaches five years, the study said.
Young athletes are realizing they need sound investment management as much as good coaching, and financial services firms of all sizes have been working to serve them.
Merrill Lynch is the biggest. Last July, it linked up with the Cleveland sports agency IMG to form McCormack Advisors International, a joint venture half owned by Merrill and half by IMG. IMG's clients include tennis stars Pete Sampras and the Williams sisters, basketball guard Vince Carter of the Toronto Raptors, shortstop Derek Jeter of the New York Yankees, and quarterback Peyton Manning of the Indianapolis Colts.
Rodney Woods, chairman and chief executive officer of McCormack, said it provides IMG's clients with a wide range of investment and financial management services, from tax counseling to individual portfolio management. It teaches clients about their own finances and puts together financial plans, he said.
Mr. Woods, who used to be an executive vice president of marketing at Merrill, said each client's investment profile is based on factors unique to professional sports, such as the sport played and the compensation conventions for each sport, as well as the client's own financial circumstances.
For example, Mr. Woods said, contracts for football players, unlike those for hockey, baseball and basketball players, are not guaranteed. So football players must invest more of their signing bonuses and initial pay early on to play it safe. "It is important to make the right investment decisions, because they don't have a long investment horizon in which to make mistakes and learn from them," he said.
Boutique money management firms are also entering the business. Assante Corp., a Winnipeg investment management firm that caters to a celebrity clientele, has been working with sports agent franchises in Canada and the United States since 1999 to offer investment advice and education to professional athletes, especially younger ones.
According to Phil Kenner, an Assante senior vice president, it manages $2.9 billion of assets for 900 clients including baseball player Manny Ramirez, football players Troy Aikman, Deion Sanders, and Ray Lewis, and hockey player Pavel Bure.
"We want to work with athletes at all asset levels, from those just drafted to those with contracts north of $100 million," Mr. Kenner said. "A lot of our clients who make big contracts were smaller clients of ours three to five years ago. You have to start with clients when they are rookies."
"There is really a short window of opportunity for professional athletes to make the money that has to sustain them for the rest of their lives," said Dan Fegan, a Los Angeles basketball agent who is now with Assante. "If you are an executive and you lose money early in your career, you chalk it up to a learning experience. Athletes, because their careers are so short, can't afford to make mistakes."
Before Mr. Fegan's practice was purchased by Assante, he did not offer investment management services, but rather acted, he said, as a "watchdog" to steer them away from bad investments. Because basketball pros have an average career lasting four years, it is crucial to put them in the hands of good wealth managers, he said.
Mr. Fegan represents, among others, the Detroit Pistons' Joe Smith, the NBA's No. 1 draft pick in 1995. Mr. Smith earned $17 million between 1995 and 2000, when he played for the Golden State Warriors, the Philadelphia 76ers, and the Minnesota Timberwolves, but had lost much of it to bad investments and was broke when he hired Mr. Fegan last summer.
"When the money's gone, it's gone. There is no way to work another five or ten years and get the money back," Mr. Fegan said. "This is the dirty, dark secret of professional sports."
Sports agencies and franchises say that their young, high-income clients often need to learn basic money management, and that many have signed multimillion-dollar contracts without any idea how to balance a checkbook, pay bills, or handle pocket money.
Nina Mitchell, senior vice president at SFX Financial Advisory Management Enterprises Inc., a unit of the Washington, D.C., sports management firm SFX Management, said such athletes must be brought to understand early in their careers that their money can last only if they make the right decisions.
"The best client is a well-educated one," said Ms. Mitchell, who counts basketball players Michael Jordan and Patrick Ewing, and Boston Red Sox shortstop Nomar Garciaparra, among her clients. "These are men with multimillion-dollar contracts. They could have anything they want today, but we try to make them realize that what they make today has to be there for them at the end of their careers," she said.
Ms. Mitchell teaches young clients about everything from balancing a checkbook to investing in mutual funds. Before even considering investment management, she said, she and other advisers at SFX help create each client's budget. Players pay a retainer to SFX Financial, to pay for services provided such as paying their bills and taxes, and advice to help them fulfill insurance and estate planning needs, among other things.
Only after arranging such basic matters do representatives sit down with each client to create an investment strategy.
"We teach them about risk tolerance, find out what their goals are, and put together a full asset allocation plan based upon the recommended investments," Ms. Mitchell said.
She said SFX Financial, which manages $300 million of assets for its 40 athlete clients, prefers that clients invest 50% of their annual salaries. The typical strategy is to allocate 35% to tax-free bonds, 5% to cash, 5% to equities, and 5% to hedge funds, leaving them free to do as they wish with the remaining 50%.
Ms. Mitchell said she advises players to remain constantly alert. "We tell our clients to make sure that when they invest with friends and family, that they invest money they are willing to lose," she said. "If a deal sounds too good to be true, it probably is."
Professional basketball players and football players and also introduced to basic money management in the NBA and the NFL's "rookie camps," where they learn to balance a checkbook and read the stock pages. Major League Baseball gives 90 of its top prospects a similar financial orientation every year.
Young athletes who have been signed by major-league teams but are not yet playing in the majors are at even higher risk than rookies of blowing their earnings - and they constitute a much larger group. According to the Elias Sports Bureau, one out of every 50 minor league hockey players makes it to the NHL. And in baseball, only one out of every 100 minor leaguers makes it to the majors.
In baseball and hockey, players are drafted out of high school and given large signing bonuses. They can then spend years in minor-league cities from Albuquerque to Zion, Ill., until they make the pros and officially become rookies. Some never do.
It was for these young players that Derek Sanderson established The Athlete's Fund, a dedicated large-cap mutual fund, when he worked at Freedom Capital Management in Boston. The fund is now managed at State Street Research. The athletes can invest part of their signing bonus, or a minimum of $10,000, in the fund. And its quarterly reports are written in language they can make sense of.
Mr. Sanderson said that the best person to advise an athlete on investments is often another athlete - someone who understands the needs of newly rich but financially inexperienced people, and who will not talk down to them.
"When I started as a player, my agent took me to an investment manager who insulted my intelligence and made me feel like an idiot," Mr. Sanderson said. "I never want a player to feel that way."
"Most athletes don't start planning for their futures until it is too late," Mr. Sanderson said. "Before they know what is happening, the window is closing, their career is over, they've spent $7 million somewhere and nothing is left. We want to change that."