A Letter to the NFL Draft Class of 2017

2017 NFL DraftTonight is the first round of the NFL draft. The lives of 32 young men will forever change when NFL commissioner Roger Goodell announces their name and welcomes them into the brotherhood that is the National Football League. Fitting perhaps that Philadelphia, the city of brotherly love, is playing host to this year’s draft.

In the city that Rocky made famous for underdogs and big dreams, 32 dreams will be fulfilled. Dreams that may have seemed like long shots a decade ago when these players graced the pop-warner fields. In a few short months their hard work and dedication will land them on an NFL field. 

While one journey ends with a dream fulfilled, another is just beginning. After tonight their lives will never be the same. Every aspect will change and perhaps the biggest change will take place in the financial arena and not on the football field. Overnight they’ll go from poor college students to multi-millionaires.

They’ll be inundated with advice. Their time, attention, and finances will be pulled in every direction. The problem is everyone “advising” them will have a personal stake. They’ll be trying to sell business ideas or financial services for their benefit and not the player’s. 

While some may be more altruistic than others, there won’t be a single person advising these players who doesn’t benefit from how the player will spend or invest his money. 

So consider this a public service announcement for 32 young men. I have no vested interest in their finances. I will never meet them. I’ll get neither benefit from their financial success nor consequences of their financial failures. The below letter is written  from the perspective of a father. This advice is what I’d tell my sons if either of them found themselves in this position.

To the first round NFL draft class of 2017,

Congratulations! Your sacrifice and work ethic just allowed you to join some pretty elite company. All those grueling hours in the weight room and mind numbing hours in the film room have paid off. In a few short months you’ll put on your uniform embroidered with the NFL emblem and walk onto an NFL football field.

But for tonight, you should celebrate. You have certainly earned it. Tomorrow you’ll remind yourself that your hard work got you in this position and it will be an even more important ingredient for staying in it. Tomorrow you can get back to work. Tonight- enjoy the moment.

If by some miracle a member of the draft class does end up reading this, you are likely thinking, “who is this guy?” I’m nobody. Nobody to you at least. I’m just a fan. And as a fan I am rooting for your success. But not just on the football field. I want you to be successful off the field as well.

As a fan it is frustrating to see young men like you get these amazing opportunities only to squander them. Either through poor behaviors, unwise decisions, or simply by keeping bad company.

So tonight, you should celebrate. But tomorrow I hope you come back and read what I’ve written here. I hope that it serves as a sobering reality to the fantasy world that tonight brings. I don’t want to rain on your parade, I simply want to prevent the fantasy from turning into a nightmare.

Your Huge Contract Really Isn’t that Huge

You are about to be a one percenter. Which will jump you into the highest tax bracket. This means that huge contract that everyone is talking about is going to get smaller…a lot smaller.

The majority of your income will be subject to a nearly 40% federal tax rate*. So for every million dollars you earn, $400,000 will go directly to Uncle Sam. This will leave you with $600,000 left over per million dollars earned.

But wait, there’s more. You’ll additionally need to pay state income tax which can range from 0% all the way up to over 13% depending on the state you play in. So assuming the worst case, of being drafted by one of the 4 California based teams (you have a 12.5% chance of this happening), you’d pay an additional 13.3%.

This would drop your one million dollars down to $467,000. But you guessed it, there’s more. Your agent will want his cut as well, which will take another 3% (or $30,000) off your $1,000,000. So you’ll be left with $437,000.

Don’t get me wrong, $437,000 is still a lot of money, but it’s a long way away from the one million dollars you thought you’d be getting.

Your Taxes are Going to be Complicated

Because of the nature of your job, your taxes are going to be complicated. Without getting into too much detail, your salary will be divided between every week of the season. This means that 17 times during the season you’ll get a huge paycheck.

When the season is over, the well will run dry. To complicate matters, your weekly salary will be subject to state income tax based on the state you happen to be playing in. So if a California based team didn’t draft you, you still could end up paying California State taxes on a percentage of your income. The exact percentage will depend on how many games you end up playing in California.

In all likelihood you’ll have to pay state income taxes for 9 different states each year; one being your new home state for the 8 home games you will play in and 8 additional states for the 8 road games you play each year.

That’s a mess! How do I keep it all straight?

All of this is to say you should hire a CPA (Certified Public Accountant) to handle your taxes. Let me rephrase: you should personally hire a CPA, after interviewing numerous candidates. Making a poor choice in this area could end up costing you tens of thousands of dollars if not more. Do not delegate this decision to a family member or friend, make this decision and all other financial decisions yourself.

Meet with at least 3, but hopefully no less than 5 CPA’s and pick the one who can explain the complexities of this tax process to you in a way that you can understand. Do not pay them on commission, but pay them a flat hourly rate. If you don’t understand a term they use, ask. If they can’t explain it to you in a clear way, don’t hire them.

Let’s Talk Expectations

Expectations are going to be a big part of your playing career. On the field there will be the expectations of the owners, coaches, teammates, fans, and the media. Off the field they’ll be family and friends. Not to mention your own expectations for life on and off the field.

While I’m sure a book can be written on every form of expectation you’ll face over your playing career, I want to focus in on two such expectations. Your salary and the longevity of your playing career.

Salary

Let’s start with your rookie contract. The drama has been taken out of this process through the collective bargaining agreement. Your rookie salary will essentially be tied to your draft position. If you were drafted at the beginning of round 1 in 2016, your contract was nearly $20 million more than if you were drafted at the end of round 1.

Last year’s first overall pick, Jared Goff, inked a four-year deal worth just shy of $28 million, which is a mind-boggling number. That kind of number brings a lot of expectations with it. Expectations from yourself (I can buy whatever I want) and from those in your life (he can buy me whatever I want).

What’s the Real Number

Let’s take a closer look at that number. $18.5 million of the $28 million figure came from a signing bonus, which means it won’t be a part of Mr. Goff’s yearly income. And as we now know, he won’t see anywhere near that $18.5 million signing bonus. His actual bonus will be a lot closer to $8 million.

$18.5 million  x  40% Federal Tax  x  13.3% State Tax**  x  3% agent fee  =  $8 million

**You guessed it, Jared Goff got drafted by one of the 4 California based teams. California’s state tax info.

$8 million isn’t exactly chump change!

Yep, $8 million is still an impressive figure, but far from $18.5 million. And when you are young and think you have the world at your fingertips, it is surprisingly easy to blow $8 million on houses and cars and “friends”.

Even if our number one draft pick ends up blowing his entire signing bonus, he still has his salary to fall back on. After taking away $18.5 million from his $28 million contract, we are left with a $9.5 million salary. Not too shabby.

However, after filtering out the tax hit and agent fees, we’re left with $4.18 million. We then have to further divide that over the four years of the contract and our $9.5 million has turned into slightly over $1 million per year.

$9.5 million  x  40% Federal Tax  x  13.3% State Tax  x  3% agent fee  =  $4.18 million  /  4 years  =  $1,045,000 yearly salary

Yes, this is an incredible salary. The average person would be thrilled to take home a million dollars in a single year (or decade). However, if you’re trying to live a $28 million lifestyle on $1 million per year salary, you’re going to get a painful dose of reality very quickly, and many professional athletes do.

Keep in mind, we’ve been talking about the highest paid player in the entire draft. A mere 30 picks later the Seahawks used the last pick of the first round to select Germain Efedi whose 4 year rookie contract netted him just over $8 million. Half of which was a signing bonus, leaving his average yearly salary after you remove taxes and agent fees at roughly $471k.

$4 million dollars  x  40% Federal Tax  x  9.9% State Tax***  x  3% agent fee  =  $1.88 million  /  4 years  =  $471,000 yearly salary

***Efedi was drafted by the Seahawks and Washington State has a tax rate between 6.5% and 9.9% depending on income and where you live. Washington state tax info.

Playing Career

The other expectation we need to address is your expected playing career. When you are 21 years old and just got drafted into the NFL in the first round, you are about as confident as they come. You’re likely convinced you’ll be playing this game for the next 15 years, which feels like forever when you are 21.

The statistics tell a different story. Of the 8 players with the longest NFL career, only one of them was drafted in the first round (Darrel Green was selected 28th overall in 1983).

According to the NFL players association, the average length of an NFL career is just 3.3 years. Admittedly players that get cut before opening day skew this statistic. However, even if you manage to make the opening day roster, you can expect a 6-year career.

But I’m a first round draft pick; these stats don’t apply to me!

Let’s go back a few years to the 2012 NFL draft. A lot of impressive names in that class; Andrew Luck, Luke Kuechly, and Fletcher Cox to name a few. However, you don’t have to look far to see what happens to high expectations in the first round; Pick 2 – Robert Griffin III (likely a backup QB for one of the worst team in the NFL); Pick 3 – Trent Richardson – out of the league; Pick 5 – Justin Blackmon – out of the league.

So your first round status doesn’t make you immune to a shortened NFL career. My point is this: you should not think of your rookie contract as a taste of the good life while you wait to sign a more lucrative contract in 4 years time.

Sooooo…what should I do?

Instead you should see your rookie contract as the most money you will ever make in your entire career. In fact, for some of you what you make in the next four years will match what you end up earning the remainder of your working life.

This outlook should shape how you handle your money. While it may seem crazy when you just signed a multi-million dollar contract, I’d encourage you to live off the income of the average college graduate: $50,000/year. Then invest the remainder of your income in Index Funds.

You’ll already have 2 huge advantages over your college graduate counterparts. 1) Your $50,000/year has already had the taxes taken out while your counterparts will still need to pay taxes on their income. 2) You were in college on a scholarship and don’t have any student loans to pay back, while your counterparts have an average of over $37,000 in student loans to pay off.

That was funny but for real, what should I do?

I get it, you’re not going to live off of $50,000 when you just signed a multi-million dollar contract. So instead, how about we agree that you’ll save 50% of your take home income? That still leaves you with a lot of money to live off of during your playing career.

With the 50% that you’re saving you should first max out all your tax advantaged options. Then just plant the rest into index funds in a brokerage account. Here’s the most important part: FORGET THE MONEY IS THERE. Don’t touch it. At least until after your NFL career is over.

If you remember nothing else from what I’ve said, remember these two things:

  1. Your playing career will be short (even if you play for 15 years, it will still be short), so make the most of your opportunities and don’t forget to enjoy it.
  2. Your financial life will likely be decided in the next 4 years. Your rookie contract may not end up being the biggest contact you sign, but it will be the most important. Developing good money management habits in the next 4 years will set you up for life or leave you in bankruptcy at the end of your career.

Sincerely,

Your Fan (I may not always be rooting for you on the field, but I’ll certainly be rooting for you off of it.)

I’d love to hear what the readers think? Do you agree with the advice I gave or would you offer any different financial advice to these young men?

Disclaimer: I’m not a financial expert, tax expert, or contract expert of any kind. Just a guy who harnessed the power of the internet to do a little research and put this together for your entertainment. The information provided in this post is not intended to be a 100% accurate representation of the players actual financial situations. It is intended to give a broad generalization of the scenario these young men are facing. It is not a dollar for dollar representation of the player’s actual circumstances.

*I understand that the 39.6% tax rate only applies to the income earned the over $418,400 threshold. However, to keep things simple and to illustrate the point, I’m using the 40% tax rate as an example. My apologies if this offends any tax purists out there.

15 Comments

  1. Great financial breakdown. They have a short career and that pot of money shrinks quickly with expenses and taxes. I wish them all well. They worked hard to get to this point. Also, I hope they all play long enough to be vested in the NFL pension and to make it to a second contract.

    1. I knew their salary would take a big hit with taxes, but didn’t realize just how big until I did the research for this piece. I appreciate you stopping by to comment!

      I hope they all have great careers too! I look forward to watching them all play on Sunday.

  2. Personally, I don’t really watch football except for the Super Bowl. Lol. However, I do enjoy watching the stories about the players’ lives and their backgrounds or what not. Considering all of that… I enjoyed this article. I knew that they paid a lot in taxes, but the amount is mind-blowing. It would be great if even just one of them read your article and learned something! It’s always nice to see young people make good decisions and do the right thing with their money from the start!

    1. Absolutely, I occasionally read a story of a player who still drives their 2001 car despite signing a million dollar contact. I’m always really impressed with these players. But all too often you hear about a player who’s earned millions going bankrupt. Sad stories. Thanks for reading (even if Football isn’t your thing.) Be sure to run it by Omar, he might get a kick out of the article. I think he made a reference to players going bankrupt in one of his pieces.

  3. clarification, Washington has no income tax at a state or local level. for individuals, it is purely sales tax and property tax

  4. Nicely done, MSF!

    When you factor in the Pease limitation, the top bracket exceeds 40%, so I wouldn’t worry about the tax purists.

    I’m rather scrawny and surprisingly slow. I was a terrible junior high football player. But for eleven years now, I’ve earned close to the NFL minimum salary. By living well below my means (just as you’ve intelligently recommended), I’m in good shape to retire when I’m good and ready.

    A handful of NFL players have behaved as though they’ve read your letter: http://www.physicianonfire.com/live-like-an-nfl-player-and-retire-early/

    Cheers!
    -PoF

    1. Thanks PoF! I think there’s a slightly less chance of CTE in your chosen career as well!

      Great piece on NFL players, I loved the Alfred Morris story. I remember seeing pictures of his ’91 Mazda parked next to pimped out Hummers and other such luxury vehicles. It’s one thing to write about it from afar, it’s a whole other to live it day by day.

  5. Really great article and advice. The part about length of career is very true and it can end quickly. I’ve seen a few rebound in other areas after a short career, like David Pollack (due to injury), but so many of those drafted are ill-prepared for what’s ahead of them financially.

    1. Thanks for stopping by Jerama! So true, it’s crazy how quickly a career can end. One day your on top of the world, the next you’ve been kicked to the curb. I’ve heard the NFL has taken some steps to help prepare players for life in the league, but think the preparation should probably start in college (if not before). I appreciate you commenting.

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