By Charles Upchurch
Far too often, young athletes find themselves starting their professional careers needing to borrow money to keep themselves afloat until proceeds from their contracts roll in. But for some players, a limited credit history can make the lending market treacherous territory to navigate.
Leon C. McKenzie, CEO of a leading lender to professional athletes, created his company, Sure Sports Lending, to solve this problem.
He began his career as a financial analyst in commercial real estate. He then had the opportunity to work for a bank that was doing large-scale commercial real estate loans. It was there that McKenzie learned about the credit side. He also learned that the nine-to-five banking world was not for him.
Shortly after moving to South Florida, he was approached by a professional athlete who needed a loan. But McKenzie’s first venture into athlete lending revealed a problem. Banks were hesitant to work with players. The only loan financing he could deliver came at brutally high interest rates. “It didn’t feel right,” he said. “I knew the banks would eventually want these professional athletes as clients, they just needed a way to mitigate the risk.”
McKenzie was eventually able to put together an extremely sound loan structure to offer banks. After about three months of work, he landed a $2 million loan for his athlete client based on his innovative deal structure. McKenzie realized there was need for a lending specialist who could underwrite unsecured loans for professional athletes that would be guaranteed by their contracts and structured so that payments are automatically drafted from their paychecks. Knowing that the athlete lending industry was severely underserviced, he shared his idea with as many bankers as he could, and began formulating a solution.
McKenzie worked tirelessly to build a bank network, while also utilizing private investors. He would call on three to five different banks in every city with a professional sports franchise. The banks typically had 3-10 branches per bank – small enough so McKenzie was able to meet with the bank president and the credit officer. He found that the relationships he was able to foster between lender and borrower were good for the bank, good for the athlete, and good for the community as a whole.
In 2009, McKenzie founded Sure Sports Lending. Today, with a network of over 150 community and regional banks nationwide competing for his clients’ business, SSL arranges, underwrites and funds approximately $100 million in financing each year for more than 700 rookies and players with contracts extending past their rookie deals. Players can borrow up to 30 percent of a guaranteed contract, or 10 percent of any non-guaranteed portion of their contract, at an average APR of 6 percent and sometimes lower. Banks that would otherwise balk at the risk are working with SSL to serve these athletes and build relationships.
“What we like about working with Sure Sports lending is the personal relationships we have with Leon and his team,” said Pete Dunbar, vice president, senior relationship manager at Key Private Bank in Indianapolis. “They know who we are, what we’re looking for, the type of customer we’re looking for and that we’re interested in establishing long-term relationships that benefit everyone involved, including our local community.”
Depending on the loan request and how quickly the player needs the loan, the entire process can reach completion in as little as 72 hours through private investors. For prospects yet to sign a contract, pre-draft financing is funded internally at 1 percent per month, then refinanced by a bank at a lower rate once a contract is signed. Secured by the player’s team contract — typically a four-year deal worth $4 million to $5 million — the average pre-draft loan is around $100,000. For non-rookies, the average is $1 million or above. Payments are made over the course of the team contract with installments on auto-draft as paychecks are issued, and never in the off-season. By contrast, it’s not unusual to see draft prospects borrowing from other sources at 18 percent to 34 percent.
McKenzie never encourages an athlete to borrow. He continues to be motivated by the underserved need for safe, reliable sources of financing for professional athletes that do not prey on their impatience or lack of financial sophistication.
“There are those athletes who, for better or worse, are going to borrow money,” McKenzie said. “We’re able to put them into a position where banks are in competition with each other to earn their business, and we’re delivering terms that go beyond simply what the client will accept – it’s actually the best deal available in the marketplace.”
The competition for top athletes is so fierce that agents are having to do more for less, such as absorbing costs for pre-draft training and travel that were once charged back to the athlete. In addition, the NFLPA has reduced the default commission rate for agents on the league’s Standard Representation Agreement from 3 percent to 1.5 percent, effective Nov. 1, 2016. Agents must get players to agree in writing to any rate above 1.5 percent, up to the 3 percent maximum.
For agents, the reality of diminished returns — as much as 50 percent — means fewer are willing to cover up-front expenses for potential draftees unless they are projected as an early-round pick. Some prospects may need to cover these costs on their own in order to train and be draft-ready. To help these athletes, McKenzie dropped his minimum loan amount from $75,000 to $25,000 for those looking to cover pre-draft training and travel. SSL typically loans to players projected in the Top 100 of the NFL Draft and the Top 30 of the NBA Draft.
Some agents have become aware of the SSL model and are bringing their players to McKenzie as a safe and affordable source of pre-draft financing. Pre-draft financing can also help eliminate the need for players to take a marketing advance from an agent or advisor against future endorsement deals. Such advances are common and often come with a high finance charge. Most feedback from agents indicates that they welcome the SSL approach, which focuses first on the financial security of the player instead of the profit margin.
McKenzie emphasizes that SSL goes beyond helping athletes with short-term needs. The bank network he has created is a resource that can help athletes build a financial foundation for life. Those with little or no credit history can establish a financial identity and grow their relationship with the lending institution. SSL has even created a path to home ownership specifically designed for professional athletes, known as the “McKenzie Mortgage,” enabling players to meet national mortgage requirements.
SSL seeks deals that enable the banks to establish rapport, familiarity and trust with a player who may emerge as a community leader, entrepreneur, investor and philanthropist. “Three years after the initial loan, the player has his loan paid off, $2 million in the bank, and knows everybody in that bank,” McKenzie said. “That’s exactly how these partnerships are supposed to work.”
In seven years, SSL has become a leading underwriter of financing for professional athletes in the United States, serving players in the NFL, NBA, MLB, NHL and MLS. Since underwriting its first loan in 2009, every facility that has been structured according to SSL requirements has been paid as agreed.
For McKenzie, another rewarding aspect of his business is working with international players, many of whom are MLB prospects from the Caribbean and Latin America, and forging relationships with their agents and advisors. As these players relocate to the States, SSL provides critical assistance by having the patience, knowledge and ability to work with both the player representative and the lender to file the various waivers required to enable foreign players to borrow from an American bank.
While McKenzie acknowledges that there are athletes who borrow simply because they are ready to enjoy a certain lifestyle that their professional contracts will soon afford them, there are others who seek loans to help family members escape impoverished or dangerous living conditions, and do so as quickly as possible.
“We had a major league baseball prospect recently move his mother out of a rough part of South L.A. into a new house in Florida,” said McKenzie. “When you see the difference it can make in a family’s life, you realize how important what we are doing can be.”