Understanding The “Net Signing Bonus” And Its Importance | MLB Draft #9

Taxes are one of the biggest destroyers of wealth.  

Misconceptions about taxes are everywhere, and you often hear many of them daily.  Below are a few examples we often hear:

• Getting a large tax refund is always a good thing
• My CPA did a good job if I got a bigger tax refund
• April 15th is the most important date in the tax world
• “Tax Planning” and “Tax Filing” are the same thing

Now for some truths that everyone should understand:

• You actually want to get back $0 or owe money (not penalties and interest) when you file your taxes
• December 31st of the prior year is the most important date in the tax world
• Tax Planning is done throughout the year and has a major impact on what happens when you file your taxes
• Being reactive when it comes to taxes can cost you thousands (sometimes millions) of dollars throughout your lifetime
• You should have a Family Office that throughout the year proactively integrates your Tax Planning with your Financial Plan

Residency, 1099 income, MiLB 401ks, team assignment, contract language, duty days; your situation is unique, and the complexities you face are different than most people.  Luckily, there are answers available if you start your Tax Planning now.  If you have questions about your situation or would like a free consultation, please text or call one of our Private Wealth Advisors to help you know what your next steps should be.

Travis Chick – (903) 714-7951

Josh McAlister – (505) 239-5488

Will McGuffey – (225) 326-0992

MLB teams will be interested in your gross signing bonus.

Your agent will be paid based on your gross signing bonus. 

You should be focused on your NET SIGNING BONUS.

Your net signing bonus is what you will have in your pocket after taxes.  This is the amount of money that you will be able to invest in your career, grow your wealth, and spend on the things that are important to you and your family.

To put into perspective why you should focus on your net signing bonus, you can look to a client we worked with in advance of the 2021 MLB Draft.  In the months leading up to the draft we proactively worked with the player, his family, and their agent to break down all scenarios, taxes, residency, and contract language so they were prepared and fully understood what different gross signing bonuses meant to them after taxes.

The result ----- Even though this player had a gross signing bonus of more than $1,000,000 less than the highest bonus in the Draft that year, this player ended up with the highest after-tax signing bonus of any player.

Whether the player would sign or not hinged on the language of the contract and how the player’s bonus would be taxed.  This was financial advice that they received before the draft that led to $700,000 more being put in his bank account after all taxes and agent fees were paid.  The family was educated and prepared for draft day and knew the decision they were making and why.

They won; other players who were not as prepared permanently lost money.  

Educate yourself, hire the right team of experts, and maximize your opportunity!

On this week’s episode, we’re honored to be joined by Todd Seigler, father of Anthony Seigler – a first-round draft pick with the New York Yankees. We get to hear from Todd on what the draft process was like from the perspective of family members and in working through these areas together as a family. 

As a parent going through the draft process, it can feel like everybody is painting a rosy picture about how perfect your son’s game is – it can be hard to sift through all the feedback using data to separate out sales pitch from reality. There are also challenges in setting good boundaries to maintain family bonds and help to make intentional decisions about the long-term future that don’t rely solely on emotions or chasing shiny things. 

Todd offers a lot of helpful insight into this process and throughout the episode, he covers topics such as:

• Going through the draft process from scouting during senior year season to draft day
• The potential of getting distracted by the wrong things that can seem like really good things
• How to have good family conversations to set healthy boundaries
• The importance of staying faithful and committed to your routines
• Avoiding “Draft intoxication”
• How they handled choosing the right people in their inner circle
• What was a draft day like for a family
• What the transition to pro has been like
• Looking back, what things he wishes he would have known going through the process as a parent

Do you know when to start looking to hire a financial team?  

The easy answer is:

“As soon as you are making financial decisions, and as soon as you have done the research to know who to hire.”

Easy enough right, but unfortunately most people have boiled down financial decisions into choosing investments.  It is not uncommon to think that financial advice is only about investments and that you should wait until after you have money to hire a financial team.  Unfortunately, this is the wrong approach to take.  By taking this approach you will cost yourself both money and opportunities that you will not be able to get back.

Every situation is different and comes with its own set of unique variables.  You want to plan and not be reactive.  Being reactive leads to quick emotional decisions that often end up being wrong.  Some topics that are financial advice that you need to understand well in advance of the MLB Draft include:

• Residency Planning
• Tax Planning
• Understanding MLB Draft contract language and its effects on taxes
• MLB Draft Signing Bonus structure
• Name Image & Likeness (NIL)
• Business Formation
• Insurance & Liability
• Financial Education

With the entrance of NIL into the amateur landscape, financial advice is now oftentimes needed at an earlier time than ever before.  While you might not need to hire a firm immediately, you should be proactive in educating yourself about who the experts are that understand your unique situation and can help prepare to make decisions to maximize the opportunities available.

If you have any questions about your situation, please feel free to text or call our advisors for answers to your questions or for a free consultation.

Will McGuffey: (225) 326-0992

Travis Chick: (903) 714-7951

Josh McAlister: (505) 239-5488

On this week’s episode, Erik and Travis talk with Adley Rutschman, catcher for the Baltimore Orioles. Adley was selected by the Orioles as the first overall selection in the 2019 Major League Baseball draft with the highest signing bonus ever. He joins us this week to discuss his time playing in college for Oregon State University, going into the MLB draft last year and making the transition from amateur to pro. 

Adley covers a wealth of topics in this episode including:

- How to handle the public pressures of being a highly-ranked athlete

- The important things to look at when choosing an agent

- Utilizing time in college to hone in and build up skills

- The mental development and other key contrasts that accompany going from college to pro

- Walking through what draft meetings with scouts were like including some of the most unique questions he got

- Sharing how he maintained good family dynamics despite the high-stress level that comes with the draft

- What it was like on draft day

- Mentally preparing for the back-and-forth of salary negotiations

- Advice for players and their families as they’re about to enter the draft

Going into the MLB Draft, there are a lot of questions that will be asked, but at the end of the day, the only question that matters is the question of whether or not you will sign.  

How do I make this decision?

As the owner of your career and life, you should prepare for the MLB Draft like the CEO of a company would.  

To make the right decision, CEOs prepare for and understand the questions that they are being asked.  They take emotion out of decisions and are confident because they have taken the time to understand what it is that they are trying to accomplish.

As the CEO of your career, you should write up a business plan before the draft and commit to the process that you have laid out.  You need to answer questions such as:

• Am I mature enough to handle this opportunity?
• What is my “net signing bonus” and what does that mean to me?
• Am I prepared to become a professional today?
• Do I have the right experts around me today to help me make the right decisions?
• Can I put the right team of professionals around me (trainers, dieticians, coaches, mental skills coaches, etc.) to achieve my career goal?

By doing your due diligence and defining what success means and how you will get there, you will be confident and prepared to make the right decision when you are asked the only question about the MLB Draft that matters.

What should I look for when interviewing financial teams?

The financial team you hire should be Independent, Integrated, and Individualized.  If they aren’t, you are putting your financial security at risk.

Independent –The first question to ask a financial advisor is if they must always work under a fiduciary standard.  The fiduciary standard means that they are legally obligated to always work in your best interest.  Most people who call themselves “financial advisors” fit into the following categories:

1. Registered Investment Advisor (Always a Fiduciary, Continue the interview process)

2. Broker/Broker-Dealer/Registered Representative (Not a Fiduciary, Stop the interview process)

- Do not have a legal obligation to act in your best interests

3. Dually Registered as a Broker & Registered Investment Advisor (Not always a Fiduciary, Stop the interview process)

- Have a conflict of interest and can choose whether to act in your best interest or not

- As Peter Mallouk wrote in The 5 Mistakes Every Investor Makes and How To Avoid Them, “The dually registered advisor is the ultimate wolf in sheep’s clothing.”

Integrated – You should be hiring a complete team of people that will work together for you.  The experts on your team must include:

- Chartered Financial Analyst (CFA ®) (https://www.investopedia.com/terms/c/cfa.asp)

- Certified Public Accountant (CPA ®) (https://www.investopedia.com/terms/c/cpa.asp)

- Attorney

- Certified Private Wealth Advisor (CPWA ®) (https://smartasset.com/financial-advisor/cpwa)

- Certified Financial Planner (CFP ®) (https://www.investopedia.com/terms/c/cfp.asp)

The members of your team should all work at the same firm so that there is constant real-time collaboration.  If the financial teams you are interviewing are missing any of these experts, you should stop the interview process with them.  

Financial advisors that are not part of a Family Office and do not have a CPA® on staff will often make statements like:

- We work closely with a CPA® at an outside firm (Expensive, not effective, not efficient)

- There is a conflict of interest having your CPA® and Investments handled by the same firm (False Statement)

- Having a different firm handle your taxes provides checks and balances (False Statement, you need to hire a “Forensic Accountant”, not a “Tax Accountant” to perform the audit; ask them what checks and balances are provided by having an outside Tax Accountant) 

Individualized – You are in the 1%, you have a unique career, and your situation is different. You do not fit into one of 5 or 6 “Model Portfolios” from a limited menu of firm-approved investments that are offered after filling out a Risk Tolerance Questionnaire.

Because your situation is different, you require a different solution.  You have “One Net Worth and One Effective Tax Rate” and you should be receiving tax and investment advice simultaneously to maximize your opportunity. You need a tailored financial solution based on your life, career, and circumstances.  

What should I do next?

Email every firm that you are interviewing with the following “MLB Wealth Advisory Team Questionnaire” and request that they fill it out and send it back to you IN WRITING.  If they are not willing to put their answers in writing, that is a major red flag.

If you would like to receive a copy of AWM Capital’s filled-out questionnaire, please text or call Will McGuffey at (225) 326-0992 and he will send you a written copy of our filled-out questionnaire as well as help answer any questions you might have about the questionnaire so that you can feel confident when you sit down to interview Wealth Advisory Teams.

Welcome to the MLB Draft Podcast, the proven playbook to help you navigate the Draft Process successfully. 

Our goal is to inform you, support you, and help you achieve the greatest amount of success which we define as:

1. Fulfilling your potential to become the best MLB player and;
2. Maximizing the financial opportunity that is a byproduct of achieving #1

The challenge: Winning is not guaranteed. 

History is littered with "can't miss" players who never made it and volumes of athletes experiencing financial ruin. 

The good news is the results are mainly in your control. If you follow this playbook, you will win.

What's at stake?

Scouts, agents, showcases & NIL. You are now a part of an $11 billion industry. 

Everyone you interact with is making a business decision. So are you. 

The only question is: how confident are you that you are making the right decisions?

Why Listen to Us?

We are former players who have personally walked this path and now guide the best players in the game. This is our business.

• 100+ MLB players represented by 29 different agencies
• MLB clients' earnings of $3,000,000,000+
• 58 1st-Round Draft Picks
• Multiple 1sts Overall Draft Picks

“What is your number?” is one of the most frequently asked questions to a player as the MLB draft approaches every summer. MLB teams want to know it, your agent wants to know it, the coaches at the college you are attending or committed to want to know it, but what is it and how do you calculate it?

With everyone asking what this number is, how should you and your family calculate this number and who is qualified to help you understand the true value of the opportunity that you are foregoing to begin your professional career?

In this episode, Travis and Will look at how to analyze the opportunities you have and give insight into the questions that should be asked. While your agent/baseball advisor should be uniquely qualified to help you determine your market value, you need to ask if they are also qualified to calculate your human capital and the opportunity cost involved with deciding between professional baseball and college baseball. 

Episode Highlights

• 1:20: What factors go into determining a player’s market value?
• 3:20: How a schedule can impact your market value.
• 5:00: How you can maximize your exposure during the draft year.
• 7:45: Looking at how your personal value and market value line up against each other and if you are “signable.”
• 12:15: Information flow from MLB teams and when your market takes shape and defines itself.
• 13:30: Beginning to understand a personal value calculation and the variables and numbers that should be included.
• 17:20: Adding value: Finding a CFP who works with athletes like you to help you define and calculate your personal value.
• 20:00: Advance preparation helping remove emotion and mistakes in the MLB Draft.
• 21:35:  Continued development and investing in yourself and how this can pay dividends in your professional baseball career.
• 28:50:  Why parents should be as involved as they can be in helping their child determine their personal value.

It’s April and the MLB Draft is starting to change from a possibility to a reality. What are some of the most common questions that prospects and their families start asking their financial teams at this point in the year as they prepare to make their big draft decision? What are some nuances that most people are missing heading into July?

From the realities and importance of a mock draft in March, to discussing spending habits and purchasing your first car, to what the value of the College Education Plan really is, Travis Chick and Will McGuffey break down a number of interesting topics in this week’s podcast. 

These topics are coming from current and former MLB Draft families and prospects, as well as Travis and Will’s real world experiences in walking through the draft process numerous times. They share inside information that is important to know heading into the MLB Draft to make sure all angles are covered when making the decision whether to go to college or become a professional baseball player.

Deciding whether to become a professional baseball player or whether to enroll in college is a lifechanging decision, and properly educating yourself well in advance is the best way to prepare for the business decision that you will make in the next couple of months. 

If you have any questions or topics that you would like addressed in future segments, please feel free to reach out to Travis (Travis@AWMCap.com) or (Will WMcGuffey@AWMCap.com).

Episode Highlights

• 00:30 – What do the newest Mock Drafts mean?
• 2:00 – How should I think about changing my residency?
• 6:00 – Should I buy a new car immediately after the draft, and how should I look at the purchase and use of a new vehicle?
• 9:35 – What is credit, how do I establish it, and why is it important?
• 12:40 – What is the College Scholarship Plan and how much should I be asking for from MLB teams?
• 20:40 – What does my signing bonus mean to me, and how should I start investing, and what does it mean to invest in my career?
• 27:00 – What is investing in a private market?
• 32:00 – The importance of your 18-year-old self taking care of and looking after your 60 year old self when making financial decisions.