Pro athletes face the challenge of a very short career. Though more traditional careers may allow a person to work for 30 to 50 years, a professional athlete will work only a fraction of that time—often fewer than five years.4 This leaves the retired athlete with the job of managing what they have earned to last for the rest of their life.
Two of the authors of a 2015 National Bureau of Economic Research study on the topic, Annamaria Lusardi and Colin Camerer, suggest that ideally, there should be a compensation system that offers players the option of a series of payments over a long period of time, providing a stable standard of living.
Some players wisely set up their own systems to manage their earnings spike over the long term. Take Detroit Lions player Glover Quin, who earned some $33 million over his 10-year NFL career. He decided early on that he and his family would live on 30% of his take-home pay, saving and investing the remaining 70%, mainly in well-known publicly traded companies.
Many of the athletes who find themselves broke are big spenders. They make the mistake of matching their spending level to what their peak earnings allow (or beyond). When those earnings end, the payments due on houses, cars, and a lavish lifestyle continue—and the athletes fall off a financial cliff.
As mentioned It's very easy for players to become cash machines for family and friends who need support or have great ideas for success.
According to a working paper from the National Bureau of Economic Research, 15.7% of NFL players have filed for bankruptcy within within twelve years of retiring. (16% of retired NFL players go bankruptcy, according Fortune.com) and a Sports Illustrated article reports that 78% of NFL players and 60% of NBA players face serious financial hardships after retirement.
So why do so many athletes wind up bankrupt?
Many athletes trust the wrong financial advisor. They stick to the athlete like parasite to a new host. The athlete has to realize he or she is the host or the BIG TICKET with the abilities!
When you earn as much as athletes, you become a natural target for smooth talking con-men in a nice suit. When you do not have a business/finance background, it can be easy to get conned into investing in what seems like a grand plan that will return huge profits. Stepping into an athlete’s mindset is important to understand why they would trust these people.
First, an athlete is conditioned to listen to people with superior knowledge, like coaches and professionals who seem like savvy investors. Second, an athlete’s mind-set is focused on big rewards (think: championships) with almost anything less as a failure. Almost subconsciously, their goal is to hit a “home-run”(pun intended) with an investment. Therefore, they may trust the wrong people and invest in seemingly glamorous, but unsound investments which, in the end, result in financial ruin.
For example, the Great, fascinating Vince young is alleged to have earned around $26 million in six seasons playing professional football. Young allegedly trusted the wrong financial planner who reportedly misappropriated $5.5 million of his money. Because of this and poor spending habits, Young was forced to file bankruptcy.
Overspending
Many of the athletes who find themselves broke are big spenders. They make the mistake of matching their spending level to what their peak earnings allow (or beyond). When those earnings end, the payments due on houses, cars, and a lavish lifestyle continue—and the athletes fall off a financial cliff.
Good, long-term money management is contrary to the accumulation of "stuff." NFL player Glover Quin drove the same SUV for years.6 "I never had a Bentley. I never had a Maserati," he told NBC Sports. "My wife and I lived well. We just didn’t live extravagantly."
Athletes' spending isn't all on material luxuries, of course. It's also easy for players to become cash machines for family and friends who need support or are hopeful entrepreneurs. Then there's pressure that comes with being the so-called African-American or so-called black success story. Keep in mind, if you have made it out of your neighborhood and now have access to a lot more money, you are your community's pride and joy and that community in a way is protected you. Many who make it out feel as though they owe the area and community they sprung up from. In a way they do owe them. That community has given you free haircuts when you couldn't afford it. That community has sponsored your football teams, your basketball team, acting classes, studio time in some instances, etc. However they must use proper management and guidance to really help their communities.
How can Professional Athletes Avoid From Going Broke
Financial literacy education and knowing their true status before any contracts or agreements are signed. In addition ongoing money management training beyond rookie camp workshops, and compensation structures that pay out over time would be helpful. The key for young pros is to manage a short spike of high income so that it can last a lifetime.
Lack of Financial Knowledge
Young athletes who are drafted onto a pro team are suddenly wealthy at a very young age. It's a rare 20-something who's prepared for that. They often lack the financial knowledge to manage the large sums of money they're earning, Sports Illustrated noted.1
And they're mostly focused on getting on the field and scoring points. Contrast that with someone who builds a career or their own business over decades. They have time to learn about managing that money and often a network of long-standing, trusted, and knowledgeable connections to help them.
Keep in mind the Great "Iron" Mike Tyson and the incredible "Answer" Allen Iverson are among many athletes who didn't plan ahead and with the proper guidance budget for the funds and money they would need later in life but instead lived a luxurious lifestyle from their success and enormous paychecks from their contracts and endorsements. It is alleged that Allen Iverson at least thought ahead as he is now waiting to cash in on a $32 million rainy-day trust fund that was sponsored by Reebok as part of a previous deal he made with the major shoe and apparel brand. It is also alleged he can't actually access the trust fund until 2030. If someone was monetizing this trust fund strategically, how much do you think that Iverson's 32 million could possibly grow into on the world market by 2030, when Iverson allegedly finally has access to his trust fund?
This is why Comprehensive Money Management training programs for players could offer them information that goes beyond simple recommendations for investments or rookie camp workshops, according to Lusardi and Camerer. Their suggestions for players—figuring out how far into the future their money can last and how to build a budget that allows them to achieve their objectives—are good advice for anyone, though.
Regardless of your net worth, you have to play an active role in the management of your financial affairs. Even the best money manager won't care about your money as much as you do and, for that reason, you have to be the final and most important decision maker. And those decisions have to be grounded in financial knowledge.
If you know very little about managing money, it's never too late to change that. Financial literacy and money management education can help you understand everything from the rewards of compound interest to how financial markets work and develop healthy financial habits.
Attractive and Flashy Investments
Many athletes are attracted to the flashy investments. Whether it’s a new technology that was introduced to them or a club or restaurant idea with their name on it, many will invest in ideas that do not have great long-term business models or benefits.
Lets look at the Pittsburgh young man name,, Dan Marino. Marino earned millions as a NFL quarterback and as a studio analyst during the CBS pre-game show, “The NFL Today”. However, he lost millions by investing over 1.5 million shares in a company called, Digital Domain. Digital Domain is widely known for producing the hologram of Tupac Shakur at the Coachella Music and Art Festival. Digital Domain went bankrupt shortly after, and Marino was out nearly $14 million.
How about Curt Schilling the Major League Baseball right-handed pitcher.
He saw a future in video games and spent $50 million in creating his own company, 38 Studios. Fast forward a couple years. 38 Studios filed bankruptcy, and Schilling was out of his $50 million investment.
An athlete’s personality traits and world view are almost unique. On the field, a pro is aggressive, demonstrates raw emotion, and uses his inhibitions. While these traits can make a winning athlete, they can make a poor businessman. Also, athletes be conscious and have a good focus on what is going on in commerce today and the very near future. Just think about how a football player always talks about the next game and not the game five weeks from now. In financial planning and investing, it is typically better to have a long-term plan and approach.
This is why we at American National Common Law Group is here to protect you brand, your name, your intellectual property (Tangible and intangible), so you will have valuables assets and your property in your possession and most importantly in your control.
