Justin Bass – Your Generational Wealth Management Expert
You can live like a King for a couple years or a Prince forever, says Justin Bass, Managing Director at MAI as he helps athletes and HNIs create and develop custom portfolios that enable them to create and sustain generational wealth, read the interview below to find out how he does all that.
Tell us about your journey. How did you go from studying law to helping athletes manage wealth at MAI Capital Management?
I played baseball in college and once I realized that I wasn’t going to make a living playing sports, I began thinking of ways to find a career in sports. While finance wasn’t an obvious choice, I decided that getting a law degree would provide me with a great education that could be used in any number of fields, so I pursued that path before ultimately discovering my niche.
Serving as a Financial Advisor to professional athletes (and other high net worth individuals) enabled me to find a career that allows me to combine my passions for sports, business, investing, and the law. I love the interpersonal nature of what I do and believe that educating my clients is equally as important as advising them. In fact, I enjoy the teaching component so much that I also taught Sports Law at a local law school as an adjunct professor for several years.
What is your role as a financial advisor to professional athletes? Do you do more than just make investment recommendations?
MAI serves as a multi-family office specifically designed to provide financial and investment advice to high net-worth individuals and families, with an emphasis on athletes and entertainers. We focus on providing a broad suite of services and have an open architecture wealth management platform that empowers our clients to protect and grow their legacy. Not only do I strive to provide the tools for long-term financial success but, equally important, is to continuously teach and educate our clients along the way.
I think of my role as being the “financial quarterback,” whose job is to help clients make choices about everything that impacts their financial lives. My job isn’t to make clients rich, but rather, to help keep them rich and assist them in creating generational wealth. This isn’t accomplished by simply telling clients what types of investments to make, but by providing clients with sufficient information to make informed decisions about all financial related matters, while focusing on both the short and long-term impact of those decisions. We create a specialized investment portfolio for each client, tailored to balance each client’s risk profile with reasonable levels of return. Inherent in serving as a Financial Advisor is a fiduciary responsibility to provide clients with the highest standard of care.
Investing money is only one part of a bigger picture, as my job entails much more than constructing a client’s portfolio. For example, I work closely with clients to determine a reasonable budget so they can live a comfortable, but sustainable life-style. Although athletes have huge earning potential, their high earning years are limited based on the short nature of their careers and the money doesn’t last forever, particularly after taxes and expenses are taken off the top.
Additionally, I regularly stress the importance of setting financial goals and preparing for retirement. While most young athletes are surprised to hear discussion of retirement so early in their careers, it’s never too early to start planning and saving for retirement. To that end, I always teach clients about the power of compounding interest – the earlier you start investing, the more your money can work for you!
By creating a reasonable budget, implementing good savings habits, and establishing an appropriate investment strategy with the client, we’re then able to focus on other things like how to help friends and family members and how to make a difference in their communities, either through foundations or other types of charitable giving and ultimately, how to create and maintain generational wealth.
What are areas that athletes need the most guidance in?
One area where athletes need guidance is how best to help family and friends. Even though it comes from a good place, sometimes an athlete’s desire to help does more harm than good. That’s not to suggest that athletes shouldn’t provide assistance, but it’s a question of HOW that help is provided. Athletes need to be careful about simply giving material items to people. Reasonable gift giving is fine, but not when taken to excess. Not only can giving gifts create ongoing financial obligations for the athlete, but it also stifles the recipient’s growth as an individual. If you want to help a loved one, use your wealth and stature to invest in them becoming independent and accomplishing their own dreams. Rather than simply buying things, think about paying for someone’s tuition or job-training, which enables them to develop the skills necessary to become self-sufficient. As the old proverb goes, ‘Give a man a fish and he’ll eat for a day. Teach a man how to fish and you feed him for a lifetime.’
Another area where athletes & entertainers need guidance is learning who to listen to, particularly when it comes to their financial affairs. Athletes today are not just players, but large businesses – they are their own individual companies. As Jay-Z said: “I’m not a businessman, I’m a business, man.” While the athlete is the CEO, he or she needs to be supported by a team of competent and trustworthy professionals. Athletes must undertake proper due diligence in selecting their Financial Advisors and other professional team members to assure that a proper system of checks and balances is created. Hiring professionals doesn’t mean just hiring people you grew up with or people who will say “yes” to everything. Rather, athletes need experienced advisors who can help them objectively evaluate opportunities, identify the risks, and provide enough information to help them make informed decisions. Sometimes, this actually means having to say “no!”
What does the portfolio construction for athletes look like? Are there any particular areas of interest that athletes get excited about investing in?
As a starting point, I encourage clients to think of wealth accumulation like a pyramid. I like to explain that the reason the Egyptian Pyramids have survived so long is because they were built upon a solid foundation. Similarly, an athlete’s finances must be built upon a solid foundation of cash, fixed income, and “blue chip” stocks. While real estate, private equity, venture capital, and “other” investments often sound more exciting to athletes, I encourage clients to avoid taking unnecessary risk. If a solid foundation is established first, with a slow and steady approach, there will likely be room for other opportunities later (in reasonable amounts). However, taking unnecessary risk too early can significantly damage the foundation, causing the whole pyramid to crumble. We start with a focus on wealth preservation. From there, we incorporate other asset classes like real estate, high yield bonds and alternative fixed income – where there is more of an emphasis on generating income. Then, eventually, depending on a client’s appetite and overall financial situation, we might move into areas like private equity and venture capital.
One area of interest that has grown tremendously with athletes is venture capital investing. This comes in the form of investing directly into companies (or funds), or through entering into endorsement deals, where the athlete gets paid in the form of equity. This is one area where I’ve seen the most change over the last 20+ years, as athletes have become much more sophisticated investors. It used to be that teammates were comparing cars in the locker room, but today they are more likely to be comparing which venture deals they got into early.
What is the scope of real estate investing in an athlete’s portfolio?
Real estate plays an important role in an athlete’s portfolio. Investing in real estate can take many forms, each with its own pros and cons, so specific real estate opportunities need to be evaluated on a case-by-case basis. However, there are 4 main categories of real estate that athletes tend to invest in: (1) Residential real estate, such as personal residences, single-family rentals, condominiums and small multifamily buildings; (2) Commercial real estate, like retail shopping centers, office buildings, large apartment buildings, or mixed use properties; (3) Industrial property, including cold storage facilities, warehouses, and distribution centers and; (4) Land for future development, such as agricultural land used to grow crops or raise livestock, subdivided land in a subdivision, and individual lots upon which to build a home or building.
There are numerous potential benefits to investing in real estate. For example, real estate investors can make money through rental income, appreciation, and profits generated by business activities that depend on the property. The benefits of investing in real estate include passive income, stable cash flow, tax advantages, diversification, and leverage. Additionally, real estate investment trusts (REITs) offer a way to invest in real estate without having to own, operate, or finance properties.
We like to advise clients to think of real estate as an income producing opportunity that will help replace their income once their contracts are over. While an athlete can’t necessarily hope to match the tremendous sums they earn through their annual salary during their playing years, we try to aim for investment returns that are in excess of the client’s ongoing expenses, with a goal of never having to invade principal to pay bills.
What are some of the challenges you experience working with athletes and how do you overcome them?
One critical challenge to help athletes remember is to always be cautious when investing. If an investment sounds too good to be true, there’s a reason, as it’s usually illegal or extremely risky! Athlete clients need to be careful of investing with friends or in “get rich quick” schemes. I regularly remind my clients to ignore these overtures and let us, as your Financial Advisor, help evaluate the true merits of an investment opportunity, while reminding them that they hire Financial Advisors for their expertise, not for their friendship – and sometimes that means having to say “no.” Of course, it’s equally important to remember the other side of that coin . . . that just because someone is a trusted friend doesn’t make them qualified to give investment advice or run a company that is funded with your money.
What are some common financial mistakes that you help athletes avoid?
You can live like a King for a couple years or a Prince forever – Athletes need to beware of the “lure of the tangible” or “keeping up with the Joneses” mentality. Athletes face tremendous pressure from outsiders who expect them to live an ostentatious lifestyle and from competition amongst their own peers. Even though you’re earning $1,000,000 this season, which is unquestionably a lot of money, the teammate dressing in the locker next to you has another zero in his salary (making $10,000,000). The pressure felt in the locker room (and from other external sources) can be intense, however, athletes need to avoid overspending. Instead, athletes need to establish a reasonable budget and learn to live a comfortable, but sustainable, lifestyle while living within their means. By doing this, they can set themselves up for a lifetime of financial security and provide generational wealth. Just because you make more money, doesn’t mean that you have to spend more!
Money Talks, but real wealth Whispers – Some athletes feel like they’ve finally “made it” when they can afford to buy or do certain things. The phrase “money talks” is usually taken to mean that people with money can do certain things. To some people, posting selfies on Instagram of jewelry, expensive cars and private jets is how they measure wealth or try to prove to others just how wealthy they are. In contrast, the phrase “wealth whispers” essentially means that those with tremendous wealth are so comfortable in their situation, that they don’t need to show it off to or try and prove anything to anyone. Look at Warren Buffet & Bill Gates, two of the most successful business people of our lifetime. One common trait you’ll notice is that these people, despite their tremendous wealth, remain frugal and don’t feel the need to flaunt their wealth. They have everything they need and want for nothing, yet they still don’t feel any pressure to prove their wealth to others. Quite the contrary, they do things like make generous donations anonymously and find ways to help improve society, not because they want people to know how wealthy they are, but because they can make a difference.
Pay Yourself First! – When it comes to planning for the long term, I always advise clients to pay themselves before paying anybody else. Beyond skill and hard work, part of what enables professional athletes to succeed is self-confidence. However, one major challenge to attaining long term financial security is overestimating the length of one’s career. When it comes to financial well-being, athletes should plan as if their current contract will be their last. Most professional athletes feel invincible, but they aren’t! An athlete shouldn’t rely on saving for retirement from his or her next contract, because there might not be another contract. It’s never too early to start saving for retirement and the athletes who are most successful financially heading into retirement are the ones that start planning early and contribute regularly to a retirement account.
How has your role changed over the years with the new wave of athletes wanting a bigger piece of the pie and being exposed to more opportunities?
At the core of what I do is try to help athletes make prudent financial decisions, assist them in evaluating opportunities, and try to manage expectations. While everyone tells my clients that they should “buy this house, buy this car, buy this jewelry, invest in this can’t miss opportunity, etc.” I try to get my client to slow down, step back and give thoughtful consideration to any financial related decisions. With that in mind, I try to help clients evaluate (a) if an opportunity is objectively “good,” and, if so, (b) does it fit their overall financial plan – both in terms of timing (i.e. can they afford to make this type of investment) and in terms of risk profile (i.e. do they understand/appreciate the risk/reward).
I’d say four key areas that have evolved over the years are: (1) Athletes taking greater control of and maximizing their celebrity status, (2) the evolution of endorsement deals, (3) the rise of technology & social media, and (4) the growing interest in venture investing. There’s certainly overlap between these areas, but each can also be considered individually.
For example, let’s look at athletes taking control of their celebrity. While he isn’t a client of mine, Lebron James is a prime example. Lebron is universally regarded as one of the best basketball players of all time. When he became a pro athlete, he began with his NBA contract and several standard endorsement type deals. However, over time, he’s parlayed his basketball talent into a business empire with many different components, working with an incredible variety of companies (AT&T, GMC, Nike, PepsiCo, Rimowa and Walmart) and business moguls along the way. Lebron has the leverage to opt into business partnerships only when he receives equity in the companies that he works with. For example, by taking an ownership interest in Beats By Dre, he ended up earning $30M when Beats was sold to Apple. Additionally, he’s been able to grow his media empire (Springhill Entertainment) and other business interests (like Blaze Pizza and ownership of the Liverpool Football Club), all while turning himself into an entertainment icon (produced and starred in Space Jam).
The evolution of endorsement deals is another area that has undergone tremendous change – The intersection between athletes and corporate entities has historically been focused on brand ambassadorships and endorsement deals. The largest brands in sport leveraged the power of individual stars to market their products and reach consumers. While these traditional transactional relationships remain fundamental to the marketing strategies of major brands, an increasing number of equity-based relationships have emerged over the last decade. Several factors contribute to this growing trend:
–Growing influence of the individual athlete: The rise of social media enables athletes to engage directly with fans and create/market their own personal brands. Athletes are able to leverage their followings to provide value to companies. By being active on social media, athletes have seen the power of controlling their own narrative and building themselves into authentic brands.
–Access to investment opportunities – The increased prominence of celebrity investors in the funding ecosystem coupled with technological developments means athletes, entrepreneurs and founders are better situated to find one another, making for a closer connection between the worlds of professional sport and venture capital. You needn’t look any further than the floor seats at any Golden State Warriors home game to see a who’s who of tech founders and execs, along with Venture Capital and Private Equity players looking to create partnerships.
This growing influence through technology and access to investment opportunities has yielded a tremendous rise of athlete entrepreneurs – usually through Venture Investing.
In addition to Lebron’s success by taking equity in Beats, many people have also heard about Kobe Bryant investing $6M in Body Armor sports drink in 2014, which was subsequently valued at $200M in 2018 when Coca-Cola purchased a minority share in Body Armor. More recently, it was reported in 2021 that the Kobe Bryant estate will make roughly $400 million for its stake in the company. Needless to say, both of these are tremendous success stories.
Of course, as an advisor, I often have to remind clients of several caveats. First, most people don’t have the means to invest $6M in a risky illiquid deal (like Kobe did) and, second, most people don’t hear about the great percentage of the other illiquid investments that become worthless, which takes me back to an earlier point – that every situation needs to be carefully evaluated based upon, not only the opportunity itself, but how that opportunity fits specifically into the client’s risk profile and timeline.
What’s the next area that we should be watching for with respect to athletes as investors?
We are currently at the infancy of another sea change for athletes in the form of NIL. NIL refers to the rights of college (and high school) athletes to monetize and profit from their personal brand, which consists of their Name, Image, and Likeness (NIL). It means that amateur athletes can sign sponsorship deals with corporate brands, charge money for autographs, and create their own brands. Less than a year old, the NIL marketplace is really an untapped area, which is already demonstrating tremendous opportunity for creativity amongst companies and athletes.
USC Quarterback, Caleb Williams, has led the way, not just in terms of landing deals, but in demonstrating a strategic approach to NIL deals, previewing the future of how college athletes will build their personal business portfolios. Unlike most athletes, who entered into purely transactional relationships with companies where they get paid money to endorse a product, Williams has taken a much more creative approach to his NIL deals. Not only did Williams sign lucrative deals with Beats and Fanatics, but he also invested his own money into upstart male grooming brand Faculty, becoming a part-owner of the company and the face of future marketing campaigns and revenue partnerships. Continuing to innovate his NIL portfolio with another first-of-its-kind deal, Williams partnered with a real estate private equity fund that manages close to $2 billion in assets. Partners of the firm plan to educate Williams about the real estate industry in general and potentially partner with him on future investments.
While Williams is the first to acknowledge that not every athlete will have the resources or cache to enter into these unique types of deals, he’s put the building blocks in place for a secure financial future for himself and created a road map for collegiate athletes to follow as the NIL landscape continues to evolve. The NIL space should definitely be an area that gets talked about more as we watch it develop in real time.