Big banks like RBC racing to manage pro athletes' money as salaries rise
John-Michael Liles knows the temptations that can accompany a lucrative NHL contract. His came in the form of a '69 Chevy Camaro.
Back when the retired defenceman was a rookie in 2003, he was wowed by a muscle car owned by a Colorado Avalanche teammate. Liles vowed that if he ever landed a big National Hockey League contract, he'd build that custom Camaro. Five years later, the Indiana native signed a four-year deal with the Avalanche — then proceeded to fritter away US$100,000 on a yellow convertible with black racing stripes.
“I probably spent more money on it than I realistically should have,” Liles, 38, said in a phone interview from his home outside Vail, Colorado. “It was a great car and I loved it, but at some point I had to become an adult. I have two kids and it’s not exactly child-friendly.”
To help him avoid bigger lures and protect 14 years of NHL earnings, Liles said he has relied on Royal Bank of Canada (RY.TO).
The firm was earlier than most in specifically targeting hockey players as clients and thinks it can replicate that success with other athletes. As its hometown Toronto Raptors celebrate breaking Canada’s 26-year championship drought in the biggest North American sports, Royal Bank sees an opportunity.
It has plenty of competition from major banks trying to ride the wave of surging salaries in professional sports. Morgan Stanley (MS.N) established a Global Sports & Entertainment division almost five years ago, and now has 132 directors and associates in the group. Goldman Sachs Group Inc. (GS.N) made a similar move last July, setting up a Sports and Entertainment Solutions business in its private wealth-management division.
“We have longstanding relationships with clients who are within the sports and entertainment industry, going back decades. Within the past year, we decided to have a more dedicated presence,” Nicole Pullen Ross, who oversees the business at Goldman, said in an interview. “We’ve been extremely fortunate to have some very early success.”
It’s not just banks. Smaller companies, independent money managers and boutique firms are clamouring for some of the action in a business with mammoth contracts and sponsorship deals. Financial adviser Chris Moynes, who spent a decade in Royal Bank’s sports division before becoming managing director of One Sports + Entertainment Group, handles about 75 NHL players. Even former athletes have made the leap. The latest example: Tony Parker, a four-time National Basketball Association champion who retired from playing last week, joined NorthRock Partners LLC’s sports, artists and entertainment division.
The biggest firms are on the hunt for sports clients eager to avoid getting burned in a world rife with financial mismanagement. Professional athletes alleged almost US$600 million in fraud-related losses from 2004 through 2018, Ernst & Young LLP said in a report.
And there’s plenty of money to be taken: Multiple baseball stars signed contracts this year paying more than US$300 million, and a dozen NBA players may score nine-figure deals this summer. Average athlete salaries in the NHL, National Football League, NBA and Major League Baseball ranged from US$2.7 million to US$7.1 million in 2017, according to the EY report. Endorsements and sponsorship deals brought in US$887 million for the top 100 earners.
In serving those highly paid athletes, Royal Bank stands out, having advised pros for almost three decades. It focused initially on hockey players, whose careers often shuttle them between the U.S. and Canada.
“Nobody has our cross-border capabilities,” Bob McKee, Royal Bank’s managing director for sports professionals, said in an interview at his Vancouver office. “That is the key.”
The company works with about 900 sports professionals, about 80 per cent tied to hockey — mostly NHL players, but also those playing in the American Hockey League or Europe, as well as drafted junior players, retired NHLers, coaches, agents and executives. The rest are in MLB or the NFL, where Royal Bank expanded in the past two years, or in the NBA or professional golf.
A 38-member Royal Bank team includes a dozen private bankers in Canada and the U.S. who act as “quarterbacks,” coordinating the bank’s response to client needs, along with 15 investment advisers, McKee said.
“It’s not a 9-to-5, Monday-to-Friday job,” said McKee, 63, who spent years as a private banker for athletes before moving into his current role. “You’ve got to be able to work 24/7, seven days a week. It’s not a job for everybody.”
Royal Bank established a North American sports professionals segment within its private-banking division in 2004, consolidating services for athletes scattered across its branch network. But the beginnings reach back further, when McKee was a senior loans officer at a branch near the Canucks’ Vancouver arena. His break came in 1991, when he landed players Trevor Linden and Cliff Ronning as clients.
Royal Bank’s U.S. foray starting in the late 1990s helped expand the practice of serving border-hopping NHL players. The firm extended its reach when it bought City National — Hollywood’s “bank to the stars” — in 2015.
A playbook emerged: Get athletes when they’re young — often 18, 19 or 20 years old — to give them guidance before the big paychecks and bigger temptations arrive. To win over those players and their families, attending the annual NHL entry draft became a requirement — including this week’s gathering in Vancouver.
“The opportune time is before they sign that contract, before they start to think about what they’re going to do with this money — and some of it could be frivolous like buying a Ferrari or something,” McKee said.
Royal Bank also attracts athletes midway through their careers or approaching retirement. Today, about 18 per cent of clients are retired players.
Daniel and Henrik Sedin, Swedish twins who played their entire 18-year career with the Canucks before retiring last year, know about heady career trajectories. The longtime Royal Bank clients went from getting about US$100 a game in a Swedish league in the late 1990s to earning about US$1 million a season with their first NHL contract, a three-year deal in 1999. Their salaries reached US$7 million a season in their final years.
“It’s easy to say a lot of players make a lot of money, but for the most part players make league minimum or up to a million and a half, maybe US$2 million,” Henrik Sedin, 38, said in a phone interview. “If you play for three or four years, you’re not going to be able to live the rest of your life doing nothing — and that’s the case for the majority of players in the league.”
The Sedins are a wealth manager’s dream: They had long careers and lucrative contracts, yet are restrained in their spending. Their biggest indulgence came when they each spent around $150,000 on motorboats for their oceanfront home in Sweden that they didn’t really enjoy, and sold a year later at a loss.
“We grew up in a family that never really talked money — we didn’t think that way,” Henrik Sedin said. “We were never guys that bought anything luxury or stuff like that.”
Still, the former captain relied on Royal Bank’s acumen to help on complicated financial issues, including putting together a mortgage for an apartment in Stockholm and transferring the money abroad ahead of a tight deadline.
Out-of-the-ordinary demands from sports stars have been the norm for Royal Bank’s David Vander Voet during his 13 years as a private banker in Toronto.
“I’ve played real estate agent, I’ve taken delivery of cars, I’ve delivered paperwork and so forth to weird places, to hotels. I’ve gone down to the depths of locker rooms, gone to the practice facilities,” he said in an interview. “You make yourself available to them, at their schedule.”
Vander Voet works with “brand-name athletes” as well as hockey executives, agents and retired players. He typically manages around 150 households, and currently 20 are in sports, including active players in the NHL, MLB and NBA. His first client as a private banker was a newly acquired Toronto Maple Leafs player, and he’s since built relationships with young athletes and their families, from their junior hockey days, to American Hockey League debuts, and on to the NHL.
Young players tend to be “a bit boring” in their demands, Vander Voet said, unlike some players taken on later in their careers. “I have clients that I’ve inherited when they’re close to retirement, when it’s been more of a 911 instead of a 411. It’s been a bit of a tire fire and we’re trying to get them right again.”
Like his colleagues, Vander Voet won’t disclose client names. He’s dealing with one player eager to buy a $10 million house, and once had a Raptors basketball player who was paying $8,500 a month in rent for a condo and even more for Toronto parking stalls for his cars and those driven by his entourage.
Liles’s tastes have been far more modest, Camaro notwithstanding. He bought and sold some homes, but mostly rented during his career. He was tempted by a vacation club, but his Royal Bank adviser, Trevor Johnson, made him reconsider.
“Any time I had something in my mind that wasn’t on track with my plan for my career and post-career, Trevor was always there to say ‘Let’s just table this one for a little while,’” Liles said. “For the most part, we’ve made some pretty sound financial decisions.”