We've seen it before and we'll see it again- professional athletes as targets of various investment and business "opportunities." In fact, one of the reasons many professional athletes go broke is because of bad business investments. Whether it's a request to start a barbershop, invest in a real estate deal or to start a widget factory, professional athletes are oftentimes the target of malevolent people looking for someone with deep pockets to invest in their pipe dream. One of the top challenges I see professional athletes face is understanding who is on the other side of a contract they are ready to sign. Here are three ways professional athletes and business leaders can protect themselves from such people:
- Do a Background Check on the Other Party
A background check is a critical tool in understanding who is on the other side of a deal, especially if you've never interacted with that person in the past. Previous client situations have exposed the other party, looking to receive an investment or looking to provide a service (i.e. marketing agent, talent manager or business manager), as having a history of previous arrests or lawsuits against them. As you can imagine- hiring someone who has been convicted of money laundering as a business manager would not be a good business choice.
When you're evaluating investment opportunities or selecting who to hire to become part of your management team, it's crucial to know as much detail as possible about the person. For example, we routinely conduct public records reviews on behalf of our clients and their potential business endeavors. When a client gets involved in a deal, there is the financial risk but there's also the business risk associated with the parties involved. Knowing as much information as possible about others involved in an investment or a personal services agreement can protect you from financial and legal liabilities in the future.
- Know the Financial Situation of the Other Party
This doesn't mean you need to request audited financial records of the person with whom you're getting into a deal (although, that is sometimes necessary) however, you do need to understand their overall financial situation. If you're entering into an investment deal, you want to know if you've got the deepest pockets of everyone involved. Essentially if the deal goes sour, will everyone come after you in order to be compensated?
Professional athletes are often brought into deals in order to bring celebrity status to it, and because they have deep pockets to guaranty loans and numerous other financial aspects needed. For investment deals and personal services agreements, you want to know enough about a party's financial situation to be able to answer the question, "Is this person in a situation whereby they may look to take advantage of me?"
If the other party is in a situation where they don't have much money or other assets and are looking to make money solely based on that athlete, the overall risk of the deal is heightened. In such a situation, it is critical that there is a discussion about not entering the deal, or at the very least, ensuring that all appropriate protections are in place.
- Be Educated on the Deal
My philosophy when working with clients is to focus on making sure I educate, advise and protect them and their businesses. An important aspect about educating yourself on the specific details of any deal or opportunity presented is not to get stuck in the minutia of a deal but to understand the risks. Many athletes just focus on how much money they'll make and what activities are required of them. While important, it's not enough. Once educated, then a client can be appropriately advised as to whether it is the type of deal for which they should enter. If the answer is yes, then it is important to ensure that the client is protected from the risks discovered in the deal through the drafting of appropriate documents.
Whether a professional athlete, entertainer, business executive or entrepreneur it's critically important to have an in-depth understanding of who's lurking on the other side of any contract in which you choose to engage. In order to properly protect yourself, knowledge is power.