Billionaire entrepreneur and Dallas Mavericks co-owner Mark Cuban recently sat down with Shannon Sharpe on the Club Shay Shay podcast to share his thoughts on managing wealth as a two-way NBA player. With his signature directness, Cuban outlined how he'd manage money, invest, and avoid certain financial pitfalls if he navigated the pressures and uncertainties of a two-way NBA contract.
'Live Like A Student' and Save Wisely
Cuban began by stressing the importance of modest living. He explained that if he were a two-way NBA player, he'd "live like a student" since job security is often fleeting. "You don't know how long it's going to last," Cuban said, warning that athletes often receive sudden, substantial paycheques but lack the financial education to manage them effectively. According to Cuban, this sudden influx can be overwhelming, especially for those without a background in wealth management. "People who don't grow up with money are often the ones who squander it fastest," he noted, emphasising that smart spending habits are crucial for maintaining financial stability in the long run. For athletes whose careers are vulnerable to injuries, like a "broken ankle," Cuban urged caution, encouraging players to save and plan for the unexpected.
Avoid Entrusting Friends with Finances
In a candid warning to young athletes, Cuban addressed a common mistake: relying on friends to manage finances. Many players, he said, entrust childhood friends with financial decisions, citing long-term loyalty. However, according to Cuban, trusting a friend to handle one's wealth can be risky. "If I'm making $50 million, I'm not going to hand it to my buddy," he explained, underscoring the need for a professional wealth manager with a proven track record.
Cuban advised athletes to avoid sinking money into trendy but high-risk ventures like clothing lines, liquor brands, or music labels. Reflecting on the early 2000s and 2010s, when numerous NBA players pursued entertainment ventures, Cuban observed that "barely any of those clothing brands or music labels succeeded." These industries, he said, have low barriers to entry but high failure rates. Instead, he encouraged players to channel their funds into safer investments and to pay friends to handle other non-financial responsibilities.
Building Passive Income Streams for Financial Security
Cuban recommended creating multiple income streams through low-risk investments to build long-term financial security. According to him, dividend aristocrat stocks—such as Coca-Cola and Walmart—offer reliable returns and steady income. He noted that companies that have consistently increased dividends over decades can provide regular payouts to shareholders, making them a stable investment choice. "Reinvesting dividends over the years can accelerate net worth growth," Cuban pointed out, explaining that this strategy allows wealth to accumulate even with relatively low risk.
Cuban highlighted the potential of fractional investing in stocks and real estate via real estate investment trusts (REITs) for investors with limited capital. These options allow investors to own small portions of high-value assets with as little as a few dollars. With REITs, investors can earn income from rental profits while their net worth grows through property appreciation. While he acknowledged that REITs have democratised real estate by making it accessible to the average investor, Cuban cautioned that they come with limitations, such as potential lock-in periods that make these investments less liquid.
Cuban also praised low-risk vehicles like high-yield savings accounts, which offer interest rates as high as 4.5%. He noted that these accounts provide nearly ten times the national average interest rate on deposits. This option, he suggested, is a safe way for athletes to earn passive income without the volatility associated with riskier investments.
Balancing Passion with Practicality in Investing
Cuban concluded with advice on balancing passion with financial prudence. While investing in causes or companies with potential future value can be fulfilling, he urged players to cap their exposure to high-risk assets. "It's important to invest in things you believe in," Cuban said, "but you need to keep the bulk of your money in low-risk investments." This balanced approach, he suggested, is critical for two-way players who may experience the financial highs and lows of an unpredictable sports career.
Mark Cuban's advice is a practical guide for athletes and young professionals alike. It offers insights on managing finances and investing wisely to secure their futures. With lessons from his business journey, Cuban's strategies underscore the value of cautious spending, passive income, and professional financial management.
