jeff foster, the buffett of basketball

8/3/2019 Jeff Foster, The Buffett of Basketball

http://slidepdf.com/reader/full/jeff-foster-the-buffett-of-basketball 1/6

Investment Moats – Income Investing, Cash, Money and Life

www.investmentmoats.com

Jeff Foster, the Buffett of Basketball Amid the profligate culture of the NBA, the Indiana Pacers veteran did something

radical with his money: He saved it

Early in his National Basketball Assn. career, Jeff Foster, a center for the

Indiana Pacers, became acquainted with a man he came to think of as a

friend. The man followed the team on road trips and called Foster’s hotel

room to invite him for meals. Then one day the man presented Foster with

a business opportunity: For just $2 million, the basketball player could be

part of a surefire venture to open a bed and breakfast in the verdant

Pennsylvania hills. When Foster explained, truthfully, that he didn’t ha vethat kind of money —the Pacers paid him just over $4 million for the first

four years of his career, about half of which was gobbled up by taxes,

escrow payments, and his agent’s fee—his “friend” was undaunted. He

asked Foster to introduce him to an older teammate who had just signed a





much more lucrative contract. Foster declined. “And of course,” Foster says,

“I never spoke to him again.”

Professional athletes are not generally known for shrewd financial

judgment. What was former Notre Dame star player “Rocket” Ismail

thinking when he bankrolled a calligraphy business, for example? Did it

make sense for ex-NBA guard Latrell Sprewell to turn down a $21 million

contract offer late in his career and then buy a yacht? Sports

Illustrated estimates that 60 percent of NBA players go broke within five

years of retirement and 78 percent of National Football League players

“have gone bankrupt or are under financial stress” within two years afterthey stop playing. (According to NBA Players Assn. spokesman Dan

Wasserman, between 6 percent and 8 percent of players end up broke.)

It takes about five seconds to compile a list of once-rich, now-broke sports

luminaries: former Boston Celtics All-Star Antoine Walker (gambling

habits, huge entourage, multiple luxury cars); New York Jets backup

quarterback Mark Brunell (real estate investments in a tanking Florida

market); and, perhaps most notoriously, ex-Philadelphia Phillies center

fielder Lenny Dykstra (who bought and unsuccessfully tried to flip WayneGretzky’s $17 million home, was indicted for bankruptcy fraud, and faces

charges of grand theft auto and indecent exposure; Dykstra denies the

charges).

Such recklessness typically earns athletes more ridicule than sympathy.

And yet for the moment, the ranks of America’s unemployed include pro

basketball players: Because of an owner-led lockout, most NBA players,

even those under contract, will stop receiving paychecks by the end of

October, when the regular season was scheduled to start. Some players are

scrambling for backup jobs, with about 15 percent, including standouts

such as Deron Williams, signing up to play in overseas leagues in the

interim.





For hard-nosed, low-scoring NBA veterans such as Foster, however,

hooking up with a foreign team isn’t a viable option. Foster is a free agent, which means he doesn’t know where he’ll be playing next, if at all. At 34, he

hasn’t achieved the fame of the league’s stars. Look him up on YouTube

(GOOG) and you find this: “Amare Stoudemire dunks Jeff Foster to the

ground!” and “Shaquille O’Neal alley -oop dunk over Jeff Foster.”

Nonetheless, Foster has played in the NBA for 12 years and earned more

than $47 million, and he’s done something extraordinary: He’s saved about

three-quarters of his take-home pay. “Jeff’s an example of a pro athlete

who’s done it right,” says Doug Raetz, co-founder of True Capital

Management, a San Francisco-based wealth management firm that

represents Foster and about 150 professional basketball, football, and

baseball players.

Foster, who is six-feet-eleven, entered the league with advantages that

many of his fellow professional athletes lack. He grew up in an upper-

middle-class home—his mother worked as a high school principal in San

Antonio, while his father ran a property management company. When he

was in 11th grade—the same age as LeBron James when he had hisfirst Sports Illustrated cover—Foster was playing on the junior varsity

squad and thinking about becoming a journalist. That focus on another

career may ultimately have helped him financially. “In our culture, a top

athlete often stops being a student in the seventh grade and the focus is on

sports,” says Peter Dunn, a financial adviser who has worked with several

Indianapolis Colts players.

When Foster graduated from high school, his relatives gave him $1,000,

which he invested in two mutual funds. “I didn’t really need the money for a while,” he said over lunch on Oct. 5 near his home in Carmel, Ind. “I always

had an interest in finance, but actually having my own money in the

markets took it to another level.”

He enrolled in the first school that offered him an athletic scholarship,

Southwest Texas State University (now Texas State University-San Marcos).

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=GOOG

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=GOOG





“My goal was to get a free education,” he says. “I never thought I’d play in

the NBA.” Yet he had a strong college career, and the Golden State Warriorsselected him with the 21st pick of the 1999 draft, before trading him to the

Pacers. His rookie deal of $4.34 million over four years was much less

lucrative than those of NBA superstars, but compared with the average

American, Foster was rich.

“As I learned in my finance classes in college, when you’re in your twenties

you invest heavily in the market, and as you get older, you become a lot less

aggressive,” says Foster. His initial forays into investing coincided with the

peak of the Internet bubble. “I was extremely aggressive investing early on.I put a lot of money into an Internet fund. I watched it go up about

20 percent in the first couple of months, but then it just vanished.”

Foster now considers himself fortunate for having learned an early lesson.

By the time he signed his second deal with the Pacers in 2002—six years for

$30 million—he had become a much more conservative investor. Today,

while he still actively buys and sells stocks, only 13 percent of his portfolio

is invested in the stock market. Although Foster and his advisers declined

to provide the exact amount of his savings, they did provide a breakdown, by percentage, of his portfolio. The biggest portion—33 percent—is in fixed

income, largely municipal bonds. Eleven percent is invested in managed

real estate—apartment buildings and student housing that provide Foster

with monthly income and tax breaks without the headache of personally

overseeing properties and tenants. Eight percent is allotted to private

equity; 7 percent is in private investments that aren’t supervised by True

Capital Management.

Foster keeps 28 percent of his savings in cash. He says he normally has

5 percent to 10 percent of his portfolio in cash, “but I’m scared of the

market now, though I think at some point there’s going to be an

opportunity to invest and get a great return.” Foster and many other

players turned down the NBA’s offer to spread out players’ salaries over the

course of the lockout. “It’s better to have that money earn interest for you,”





Raetz says, adding that the NBA’s offer makes more sense for younger

players who haven’t saved much.

Unlike many NBA players, who may have various children, parents, cousins,

and friends to support, Foster has only his immediate family to worry about.

“Most of our clients are the only real earning source for their extended

families,” Raetz says. It isn’t just family expenses that can get athletes in

trouble. Former Chicago Bulls All-Star Scottie Pippen’s purchase of a

private jet resulted in years of financial hardship and legal battles. Las

Vegas casinos accused Antoine Walker of amassing more than $800,000 in

gambling debts, while the sports blog Deadspin reported that during Metta World Peace’s (né Ron Artest’s) stint as a member of the Indiana Pacers, he

would pay for his house to be recarpeted each month rather than clean up

the dog crap that accumulated. (He now plays for the Los Angeles Lakers.)

“The stereotype about the spending habits of athletes is largely true,” Raetz

says.

After Foster signed his first contract in 1999, he bought a “modest $175,000

cookie-cutter house,” as he puts it, in downtown Indianapolis. Unless

you’re a top-five pick, “it’s really not feasible to spend [$100,000] on a car,”Foster says, explaining why his taste isn’t more lavish. He paid for his

wedding to his wife, Jamie, whom he met in college. In 2004, two years

after he signed his biggest contract, he upgraded to a four-bedroom, seven-

bathroom lake house in Noblesville, Ind. (He’s now trying to sell it for

$2.6 million.) Foster sends his five-year-old twin daughters to a private

school that emphasizes multilingual education. Annual tuition is about

$13,500 per student.

“My biggest luxury expense is that I like to travel,” Foster says. “Given my

size, when first class is affordable, I buy it. But we just flew coach back and

forth to Texas with the kids, and I just put up the armrests and lay across

the seats.”





The lockout has created new issues for NBA players, particularly rookies

who have yet to see their first paycheck and aren’t playing overseas. “Whenthey walk into a bank to try and get a loan, they’re unemployed,” Raetz of

True Capital says. “They haven’t signed their NBA contract yet.” In several

cases, Raetz and his business partner, Heather Goodman, have found

private sources to secure loans for such clients. They’ve also signed up their

NBA players for COBRA extensions on their health insurance, which the

league no longer provides to any players.

Foster counts himself among the lucky ones. With the regular season on

hold, he is happy to spend time with his family. As a free agent, he wouldlike to sign again with the Pacers and continue to work for the organization

when he retires, but his financial well- being doesn’t depend on another

contract, he says. When he signed his $30 million, six-year deal in 2002, he

told himself: “No matter what else happens, this is enough money to set

myself and my family up for life.”

Still, he’s looking to cut costs. After Foster signed his latest contract

extension in 2008—two years for $12.73 million—he did indulge in one

extravagance, buying himself a $100,000 Porsche. “I wanted to treat myself, because I knew it could be my last big contract,” he says. But then, with the

lockout on his mind, he sold it at a $3,000 loss. Now he drives an Infiniti

SUV.

jeff foster, the buffett of basketball

Documents