To quote the poet Jay-Z, “I am a business, man!” This should be the saying for any professional or Olympic athlete. Filing an LLC, or incorporation documents for an athlete can be extremely beneficial for concerns including asset protection, future business, and security (I call these “Athlete Businesses”).
An LLC provides a legal separation from some liabilities, and provides protection for the athlete who owns, manages, or benefits from the entity. Just like any other LLC or corporation, Athlete Businesses can do a number of things: buy/sell/own property, make/lose money, sue/be sued, and provide a layer of protection for the owners. For your athlete clients all of these things are important for their long-term legal and financial protection.
Athlete Businesses can protect your athlete client’s assets from lawsuits with the general exception of fraud or misrepresentation by the athlete. It is important to note the filing of one LLC is not the best practice. Instead, adding a second LLC layer provides additional insulation for your athlete client to add a second layer of protection and allow one LLC to hold assets apart from the other.
Here is an example: Your new client, Babe Ruth, is set for stardom as a new member of the New York Yankees. Gatorade, Nike, and a host of other sponsors want to bring him on board. But the Bambino has other business dealings that are not so straightforward, opening him up to lawsuits.
There are a number of ways to handle the Babe’s situation. One way is to set up two LLC’s in a manner called a “loan-out corporation”. Your athlete client loans his services and intellectual or other property, and then the loan-out corporation deals with the outside world to conduct business involving the athlete. Third parties pay the loan-out corporation for the use of the athlete’s name, image, and likeness, and then the loan-out corporation pays the athlete a salary, and/or pays out the second LLC for services provided by the second LLC, providing two reservoirs, one of which will be difficult to reach.
Your athlete client can also invest in the loan-out corporation and the investment is tax friendly. With the salary of professional athletes continuing to rise, this is a great tax deduction for athletes to consider utilizing.
Athletic career are generally short. The physical requirements make most professional sports a game for the young, and current athletes will most likely need to have a second career either for income or for something to do after their athletic career comes to a close. One great way of using an Athlete Business is to help develop an athlete’s business skills for the future.
In a previous article I discussed ways to set up a sports camp for your athlete clients, and the Athlete Business should own their camps! The planning, preparation, and execution of the camp can be handled by the athlete and others working for the Athlete Business, and it will help develop business skills your athlete client may not have used in years. In addition to sports camps, there are a plethora of additional business opportunities your athlete client can capitalize on regardless of if they have a loan-out corporation, or a simple Athlete Business. Autograph shows, public appearances, alumni events, consulting, coaching, teaching lessons, media appearances, etc. will all generate revenue for the Athlete Business and help an athlete manage a business budget effectively.
An Athlete Business also provides an added layer of physical and financial security for an athlete client. First, with a separate address, bank, and contact information, an athlete can help weed out those seeking to take advantage of an athlete quickly from those legitimate business dealings.
The language an athlete should use when approached with a business opportunity is “Thank you for brining this to my attention. All business proposals should be directed through my company.” This alerts anyone who approaches the athlete that there are other people involved in the process, and assets will not all be held at one location, lowering the risk of a home robbery.
This strategy also provides an athlete with financial security. It causes serious opportunity seekers to put a plan in writing and have it submitted to the Athlete Business for review and it will foil those who approach your athlete clients with nefarious motives before a proposal is sent. It slows down the decision making process and provides a layer of protection so another set of eyes can review any proposed deals. Your athlete client can pull a salary from the Athlete Business and providing you are watching things closely, the business will have plenty of money to provide for your athlete client for years to come.
Overall, attorneys need to think of their athlete clients as a business they need to help protect, sustain, and grow. An Athlete Business has assets for sale, and enemies who will try to take advantage. Protect your athlete clients by providing layers of protection through the use of corporate structures, and your clients will stay safe from being called out!