Mike Tyson, world famous boxing champion, earned more than $300 million. Allen Iverson, NBA star, made over $200 million between salary and endorsements. Chicago Bulls legend Scottie Pippen’s career salary totalled $120 million. What do all of these athletes have in common? They all went broke. Yes, you read that right. Out of control spending, poor investment choices, large child support payments, and the list of reasons and athletes goes on.
Imagine being 19 years old and signing a contract for a few millions dollars. What do you do first? Buy a car, a house, maybe one for your parents, some jewellery? The options are endless, and at the moment the funds are as well. A season into the new-found wealth, and you’re now paying $2500 a month for multiple cell phones, thousands in rent for “friends,” and partying 4-5 nights a week with an entourage you now support. A couple seasons later, a few bad business decisions and a knee injury have taken their toll. Instead of planning your retirement, you’re meeting with bankruptcy lawyers. NFL legend Lawrence Taylor squandered career earnings of $50,000,000 on partying, a cocaine addiction, and child support payments. Former NFL receiver Andre Rison estimates he spent over $1,000,000 in jewellery and paid for a crew of 40 friends. He now struggles to pay court ordered child support of $2300 a month.
The statistics are staggering. Approximately 78% of NFL athletes are under financial hardship within two years of retirement. 60% of retired NBA players find it hard to makes end meet after just five years. Bankruptcies in leagues like the NHL and MLB aren’t as prevalent, but do exist. What can athletes of today and tomorrow learn from these mistakes to avoid ending up in a similar situation? While this advice is catered towards the sports professional, the lessons apply to just about everyone.
#1 – Live Within Your Means
This one is as straightforward as it gets: don’t spend more than you earn. The NFL has the lowest average salary ($1.9 Million) of the major four sports as well as the shortest average career (just over three years when every player is accounted for). While $1.9 million a year is a lot of money, players usually end up clearing around 50% of their income after taxes and other fees. Add in the pressure to live a certain lifestyle, and it’s easy to see why so many players end up in financial trouble. Living within your financial boundaries is one of the most important steps to financially security.
#2 – Keep the Ball in Your Court
Athletes devote their entire lives to their sport. They weren’t thinking about investments or contract negotiation while they were training, so it’s no surprise why many of them make poor financial choices. Fortunately, there are great professionals around to help ensure financial stability once days on the field come to an end. Don’t mistake these professional services as an excuse not to deal with your finances though. Signing off on a power of attorney and giving other people control of your money is a recipe for a disaster. NFL quarterback Vince Young lost an estimated $26 million by allowing others to make financial decisions for him. Build a great team you can trust that is able to provide expertise where necessary and always have the final say.
#3 – Retirement Planning
Compared to most individuals, professional athletes have a short career. They also live with the uncertainty that their careers can be cut short at any time. By establishing a plan early with a financial advisor, reviewing it often, and keeping spending in check, players can set themselves up so that they won’t have a major reduction in their standard of living once their athletic career is finished. The earlier you start planning for retirement, the greater chance you have to achieve your financial goals.
#4 – Invest With Extreme Caution
Athlete salaries are posted just about everywhere, so it’s no surprise that they become targets of financial fraud and poor business opportunities. New York Mets pitcher Mike Pelfry had 99% of his assets frozen when word broke of an alleged financial scam that he had invested in. Countless athletes have lost money in failed business ventures ranging from vending machines to inflatable furniture bases. All potential investments should be reviewed by a team of professionals not involved in the transaction. While everyone wants to launch the next successful business, the reality is that many more businesses fail than succeed. If money is managed property, athletes shouldn’t have to take large risks to make it last. Rather, their focus should be to preserve their capital with stable, conservative, and consistent investments.
#5 – Educate Yourself
Most athletes are smart individuals that have worked extremely hard to get to where they are. Spending time to learn the basics of investments and money management will help out for years beyond a player’s career. Some leagues offer programs to active and retired athletes, universities offer courses, and even a good financial planner can help show you the fundamentals. You don’t need to become an accountant, but having a basic understanding is one way to ensure that your hard-earned money won’t be squandered away on poor financial decisions.
Despite the large number of athletes that have lost everything they made, there are stories of players that have become more successful off the court (or field) than on it. Magic Johnson has earned more than $500 million through different business ventures. Boxing legend George Foreman has sold over 60 million grills earning him a net worth of approximately $250 million. Athletes and their finances are something that won’t disappear from the headlines anytime soon, but by ensuring that future stars have the necessary tools and networks around them, hopefully leagues can help lower the statistic and gain an upper hand when it comes to bankruptcy in sport.
Article by MP Private Capital Founder Mitch Parker