Pacer Foster earns reputation as Buffett of basketball

Early in his National Basketball Association 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 have that 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 after they stop playing. (According to NBA Players Association 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 Wayne Gretzky’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 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 6-foot-11, 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 his first 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. “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).

“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 Warriors selected 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 20s 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 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. He’s now trying to sell it for $2.6 million. Foster sends his 5-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.

“When they 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 would like 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.