My friend Rand Getlin recently wrote a story about “cash-strapped NFL players seeking high-risk ‘lockout loans.’” In his article, Getlin raised many good points, the most salient one being that players need to be very careful of who they work with to secure loans, and more importantly, the interest rates associated with those loans. Just last week, it was reported that a player borrowed $500,000 at a 23% interest rate. While I do not dispute that it is likely players from at least 16 teams have attained short-term loans with disgusting interest rates, a lot of these players really need the money – as Getlin’s article’s title states, these guys are “cash-strapped.”
A month after Getlin’s article, The Daily published an article titled, In The Pocket: Some NFL players turn to high-risk loans to make ends meet. Lenders, former athletes, and even yours truly were interviewed for the piece, which really dug deep into the borrowing practices of NFL players during the 2011 offseason.
So what interest rates are unconscionable, and what rates are reasonable? I asked my good friend Leon McKenzie of Sure Sports Lending in Fort Lauderdale, Florida his thoughts. He stated,
There are a lot of viable solutions out there. Unfortunately, conventional credit markets don’t readily make themselves available to professional athletes due to the athlete’s short-term revenue streams and public perception of athletes as wasteful. Sure Sports Lending has spent the last three years educating and creating underwriting guidelines in a network of regional and community banks. We underwrite everything in-house and fund these loans directly through these banks with unsecured loans beginning at 6%.
McKenzie’s experience in the lending of money to athletes, which derives from his years in banking as a senior credit analyst, spans over five years and includes loans to players in the NFL, NBA, MLB & even the EPL (English Premiere League).
Just as there are unscrupulous sports agents, there are unethical lenders, but there are also many lenders who are not pumping money to players under obscene terms. As far as one financial adviser suggesting that close to 50% of NFL players will secure lending if the NFL lockout goes on past Labor Day, McKenzie says,
It certainly could happen. The average NFl career lasts 3.5 years and the average rookie is 22 years old, so we are talking about a lot of players between 22-25 years old. Most players are a lot closer to the minimum salary, just above $250k, than those with Payton Manning numbers. It is difficult for a 24 year old to go 8 months without a paycheck. Now we’re asking what happens if it goes another 12 months?…a lot of players will be looking.
And in response to a financial adviser saying that lenders are getting fees of $100,000-$150,000 from players, McKenzie responds,
We service some unconventional loans in-house through our private investors, but we place most of our loans with one of our 37 affiliated banks around the country. In doing so, we typically charge right around 3% of the total proceeds of the loan.
Based on the recent number of articles regarding NFL player loans and the amount of traction it has received in the sports and lending industries, McKenzie believes that more high-priced lenders, like Big League Funding, will try to enter the niche lending space. Most will do it with leery investors seeking large spoils at the expense of these athletes without a firm understanding of lending against a player’s contracted salary. But most of these lenders attract a player looking for funds and then go out to investors, as opposed to having money readily available like Pro Player Funding.
McKenzie encourages players, managers, advisors and other industry professionals to only use their existing banking relationships or established businesses such as Sure Sports Lending that deal exclusively with sports lending. Sure Sports Lending can still place your loan with Pro Player Funding or Big League Funding or any of the other private lenders, if they truly offer the best terms for the player’s needs. But McKenzie says that his company can also provide financing through its affiliated banks at rates up to 75% less than those private lenders.
Players should be skeptical of any lending that requires the loan to be to a business with the player as a guarantor. That practice is an effort to charge the player terms that would otherwise be usurious. Before players accept any loans, they should always consult with their attorneys or financial professionals.