The 2014 NFL draft launched a new class of athletes who may very well focus on living a higher lifestyle than they can afford without considering the financial challenges awaiting them.

The financial decisions that players make even before they sign their contract affect the quality of their lives for years beyond their playing careers.

First-round draft picks will sign contracts with large salaries and guaranteed bonuses. Most rookies, however, will not. In 2014, the minimum salary for rookies is $420,000; for second-year players – $495,000; for third-year players – $570,000; for fourth-year players – $660,000. First rounders’ receive four-year contracts with a fifth year option. All other draft picks receive four-year contracts and can’t negotiate until after the end of their third year.

No guarantees

Unlike MLB and NBA contracts, NFL deals are not guaranteed. Signing and roster bonuses are the only real guarantees these players will receive.

Getting drafted does not guarantee employment in the NFL. Over the past decade, according to Colin Lindsay of GBN Report, an online NFL draft site, an average of 37 draft picks annually, or 15 percent of those players drafted, were released prior to opening-day rosters. A record 73 players who went undrafted in 2013 were on opening-day rosters.

Further, under the 2011 Collective Bargaining Agreement, income escalators are standardized versus previously agents could negotiate them. So, players drafted in rounds three through seven receive a “proven performance” escalator, that goes into effect during their fourth season of play. The escalator these players receive is based upon them playing 35 percent of the time during two of their first three seasons, or an average of 35 percent of the time during their first three years. If a player hits either of these benchmarks, then in their fourth season of play, their salary will escalate to the right of first refusal amount.

Easy come, easy go

A rookie who receives a $1 million signing bonus and a starting salary of $420,000 will net about $1.2 million (before any spending and after fees taken by a business manager, agent, taxes, social security and union dues) over the average NFL career of 3.3 years.

If the player earned 7 percent on investment savings while spending $100,000 after taxes per year during his 3.3-year career, he’d accumulate $1.5 million at retirement. This will create an annual income stream of $62,000 (with annual cost-of-living increase) if he wants his money to last for the rest of his life. If he continued to spend $100,000 after taxes and had no other earned income, he would run out of money after only twenty years.

In 2013, 73 players who went undrafted made the 53-man active rosters to start the season. Assuming $0 signing bonus and an average career of 3.3 years, each will net about $550,000 over their careers before any discretionary spending. It is no wonder most NFL players are bankrupt after their playing days are over.

Blueprint for success

Financial decisions NFL rookies make even before they are drafted or sign their first contract can affect their lives long after their playing careers end. Being prudent in the early years is crucial to achieving ultimate off-the-field success. Rather than spending, athletes need to save.

It makes sense to keep a portion of one’s earnings invested in safe short-term cash and cash equivalents if for nothing else but to have some liquidity and a safety net. I recommend that these rookies seek financial training.

In most cases, rookies have poor or zero credit once they leave college. To establish good credit, they must pay their bills on time and avoid accumulating too much debt.

Rookies who are concerned about poor spending habits and lack a handle on their cash flow should hire a business manager to hold them to a fixed monthly budget. I recommend paying oneself back in the form of forced savings to start building a nest egg for retirement.

Through the NFL Player Second Career Savings 401k(k) Plan, a player’s NFL team matches the player’s pre-tax contributions 2 to 1 up to $24,000.

Thus, a player who elects to defer a maximum of $17,500 pre-tax from his paycheck will receive a $24,000 tax-deferred matched team contribution.

I encourage my clients to contribute annually to an after-tax IRA that has a maximum contribution of $5,500.

Due to players getting only 17 paychecks during the season and then receiving no paychecks during the off season, planning for one’s spending and savings has to occur well in advance of the off season.

Establish residence

Many athletes do not realize that the state where they reside when they receive their signing bonus determines its taxation. In California, this means paying up to 12.3 percent, plus an additional millionaire’s tax of 1 percent. To save or avoid state income taxes, look to establish residency in states such as Texas or Florida before contract signing.

I often advise rookies to set up an LLC for all marketing, endorsement and trading card income streams. With an LLC, they can elect to make an additional pre-tax retirement contribution (up to 20 percent of net LLC income), as well as deduct certain travel, agent, financial adviser and business management expenses.

In all of the excitement and anticipation from last month’s draft and the upcoming NFL season, let’s not forget the reality of short careers and poor money decisions that these players will unfortunately experience.

Jason Cole ( is a certified financial planner and Principal at Abacus Wealth Partners.