Van Hees Strategic Advisory
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Footballers and financial knowledge: have respect for money and remain indifferent to it.
Most professional footballers earn a lot of money, but do not know what money really is. A lot of money without knowledge creates a previously unknown pressure for players. This pressure arises because people look at money the wrong way. By money, in this case, I mean the euro and the dollar. And yes, I am convinced that this is a pressure in the football world that has not yet been explained. Van Hees Strategic Advisory is unique, and you can see that in our working method. Addressing and explaining topics such as these through blogs is one of them.
Everyone has pretty much the same image when it comes to having a lot of money: large houses, flashy cars, extravagant parties, expensive designer clothing, jewelry and expensive watches, exclusive dinners, and so on. This is what mainstream media shows, and people use it to symbolize status and success. A lifestyle that is reserved for a few, which is why the attraction to that life is enormous, often unconsciously. It is a seed that is planted in the mind at a young age, as explained. As one gets older, that seed grows into a final plant. Mind you, this is an extremely toxic plant. Lots of money without financial knowledge is truly a total disaster for many. Approximately 50% of professional footballers go bankrupt 5 years after their active career. This is because most people, even worldwide, possess no basic financial knowledge. It results in uncontrolled, emotion-driven financial expenditures. A lot of money stands for success, and with that money, status is purchased, such as the items I just mentioned, including expensive watches and flashy cars.
Most footballers come from normal families with a modest income. The moment such a boy breaks through as a professional, the floodgates of money open. A youth player at Ajax, for example, easily earns thousands of euros per month. Often double what the parents earn per month. Because the parents in most cases are not financially literate, the son is suddenly "the man of the house," so to speak. Everyone is proud and happy, but no one thinks about the future. Often, the footballer in question can do no wrong in the eyes of his family and social environment, creating a certain feeling. A kind of immortal feeling. In many cases, the figures say 50%, the money is wasted. It could be the footballer alone who does this, but it is not ruled out that "help" came from family and the social environment. Eventually, the squandering stops, but the items purchased, such as houses and cars, cost a lot of money annually, and the lifestyle itself is expensive. During the football career, this can still be balanced because there are monthly earnings. It is after the active career where things go wrong. The income has dried up, but the lifestyle, including the fixed costs that come with it, remains.
Footballers usually have some money set aside, but not enough. That is why 50% of footballers go bankrupt after their active career. Now follows a quote from Anton Kreil (ex-Goldman Sachs), and I would like to ask you to read it quietly and take it in.
Kreil: "What do you think the $20 note thinks of you?" Cameraman: "Nothing. It's just money. It's just a piece of paper."
Kreil: "Of course. It can't think."
"It's a piece of paper with 20 written on it. It's a commodity."
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"It doesn't think. It's a commodity that's used to transact for goods and services to satisfy wants and needs. That's all it is."
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"The problem with it, with most people, what they don't understand is that all the problems with money exist with them, not with the money. The money doesn't think anything of you."
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"So whether it's $20, $100, $1,000, $5,000, $10,000, $100,000, a million dollars, it doesn't matter. Because a million dollars or $100,000 or $10,000 is just a whole bunch of 20s that think nothing of you. So there's no difference except monetary value."
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"So this is the second major problem. It's having emotional barriers. Because the more money I put down on the table, the more you think of it."
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"Because you think automatically of what it can buy you to satisfy wants and needs."
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"The key is to be indifferent. So going right back to the beginning, understanding the function of money is very important in order to respect money. But at the same time, you also have to reduce to zero your emotional barriers and you have to be indifferent."
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"Now, this brings up another interesting point. How can you actually be respectful of money, but at the same time being indifferent? It's kind of contradictory, okay."
"But in this context, it's not contradictory. And I'll tell you why."
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"Because respect in this context is simply having awareness. So it's having awareness of what money actually is and being indifferent to money when you look at it, when you see more and more and more of it."
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In other words: More money, more problems. People without financial knowledge are often impressed when they see a lot of money. That can be on paper, but also cash in real life. "The problem with it, with most people, what they don't understand is that all the problems with money exist with them, not with the money. The money doesn't think anything of you." This is the source from which all possible misery begins, you cannot go deeper. Money has no opinion of you, but you do have an opinion of money, including ideas on how to spend it. The euro is nothing more than a medium of exchange.
Fiat money, such as the euro, is referred to by its nominal value (or fiduciary value). No intrinsic value: The banknotes or coins themselves are worth almost nothing in terms of material, and are based on trust: The value rests entirely on the trust that citizens have in the government and the central bank that issue it. What remains is legal tender: The government officially declares the money as a means of payment (the Latin word fiat means "let it be so").
The only real money in the world is gold and silver, and this is by law. I will explain it briefly. Because gold is real money, it served as the foundation (collateral) for fiat money until 1971. This was all still in the time of the guilder and the Belgian franc. Let's take the dollar as an example, because that is the global reserve currency (world trade), and that is where the story begins. Until August 15, 1971, we were dealing with the gold standard. That simply means: as many dollars are in circulation, there must be a proportional amount of tons of gold in the central bank's vault. So if a government wanted to put more money into circulation because they had exceeded the annual budget, there had to be a reason for it that could be economically justified. You need more gold in your vault to be allowed to put more dollars into circulation. This was necessary because every dollar, but also every euro, is effectively debt paper of the state. It is a form of credit, an IOU (I owe you). This meant that you could convert your dollars at the bank into physical gold. After August 15, 1971, that is (temporarily, you read that right) no longer possible. If my mind doesn't fail me, America was in a fight with Vietnam, or it had just ended. Long story short: The United States of America needed money, and the only way to put more dollars into circulation was by temporarily decoupling from the gold standard. Because it could not be economically justified. As a result, the dollar and eventually all fiat money became worthless. It is what Anton said: "It doesn't think. It's a commodity that's used to transact for goods and services to satisfy wants and needs. That's all it is."
Because we are still decoupled from the gold standard, governments and central banks can continue to print. This causes inflation, which simply means that you can buy less and less with the same euro. The more euros in circulation, the less purchasing power remains. I hope you understand this part. Since the introduction of the FED in 1913, the dollar has lost 97% of its purchasing power. 97%! And what can you buy with a euro nowadays? A pack of toilet paper easily costs 20 euros. Toilet paper has more value than the money everyone goes to work for. Again: fiat money like the euro is a means of transaction, so only use it for that purpose. Money has no value, but you can buy value with it.
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In the case of a professional footballer, a huge amount of money comes in every month. By law, it must come in as a salary. You are not allowed to bind yourself to a club via a B.V./N.V. (Limited Company), for example. As a result, a mountain of money sits in a footballer's private current account every month. I am not allowed to give financial advice, as I am not a financial advisor. However, I can speak from my own experiences, and I have a great deal of experience in investing and the business world. See my story in the menu for the concise version. You will also get a sense of who you are dealing with. I am quite transparent, you see.
If I were a professional footballer and a lot of money was coming in every month, I would do the following: I would leave 25% of the income in the current account, regardless of how large the amount. That is the living money, and you should be able to do everything with that. I would deposit 75% into the bank account of my B.V./N.V. Money in a company is subject to different laws and rules than money in the hands of a private individual.
The tax authorities (both the Dutch Tax and Customs Administration and the Belgian FPS Finance) absolutely do not accept it if a club transfers a player's basic salary or match bonuses to a B.V. or Management company to evade income tax. This is directly qualified as a (fictitious) employment relationship. The full sporting salary is therefore taxed at the source with wage tax/withholding tax.
If we leave portrait rights, merchandising, and external sponsorship entirely out of consideration, there is one specific, legal route by which a footballer can get (a part of) his money into a B.V. or company, and that is when he himself monthly deposits money from his private net salary into his own B.V. (as a capital contribution or current account loan).
When a player leaves his substantial net salary in a private savings or investment account, he is heavily taxed on this privately every year. In the Netherlands (Box 3): The tax office levies a hefty tax on the fictitious return on private assets and investments. For million-dollar fortunes, this can be a massive, recurring cost item.
In the B.V.: If the footballer inputs his net cash directly as capital into his B.V., this wealth disappears from Box 3. In the B.V., he only pays tax on the actual returns achieved (via corporate income tax). Does the B.V. make a loss on the stock market or on real estate in a given year? Then the B.V. pays zero euros in tax. In private (Box 3), the fictitious levy often simply continues.
The 75% of the monthly salary that ends up in the B.V. I would utilize to purchase items of value. This can be anything, and depends on the financial goals you set for the investment and your future. I would opt for the longer term (10-15 years), because you only want to claim the accumulated wealth in the B.V. after your active career. Professional footballers often talk about the black hole they fall into after their active career, but believe me: if you are seriously engaged with your money, that will automatically become your new hobby. Because of your new hobby, you will have a daily rhythm after your active career in which you are busy with your money and investments. In addition, you stay nicely involved with the sport, or you go and train for yourself (in the gym or whatever), if you want to leave football behind you. In any case, make sure you keep giving your body what it is used to. It also ensures a clear mind. Running through forests and nature areas is also very good for the mental aspect. But I digress.
I would invest for the long term of 10-15 years, and I would start by first purchasing a home for myself via the B.V. As long as you rent the home from the B.V. to yourself, there is nothing wrong. Draw up a contract, and pay a market-conform amount of rent every month. In this way, you are privately shielded from Box 3, which would otherwise tax you on the value growth of your real estate. This also protects your accommodation from personal mistakes, such as a personal bankruptcy.
I hope to provide handles with this blog that you, as a professional footballer, but also as a trainer/coach or director, can benefit from. Naturally, I can delve further into the whole matter, but for that, you need to make an appointment. If you wish to be guided, I would love to hear from you.
Feel free to take a look at Jack's blog page if you found this blog interesting.