Why_Athletes_Go_Broke

How and Why Professional Athletes Go Broke Michael Collins COM 156 12/07/12 Julie Taylor How and Why Professional Athletes Go Broke Newspapers across the globe have been filled with tales of popular and high-profile professional athletes going bankrupt not long after retirement. The popular perception among American citizens is professional athletes have access to unlimited funds and will never run out of money. Though many professional athletes make millions of dollars every year, many professional athletes end up bankrupt soon after retiring, if not before. The mere thought of professional athletes spending millions of dollars until they go broke is completely unfathomable to the majority of people in this country that live paycheck to paycheck. However, some athletes lack the necessary maturity and financial literacy to properly save and invest their funds. Bankruptcy among professional athletes is becoming more and more common. Professional athletes are going broke at a rapid rate due to immaturity, lack of financial know-how, and being taken advantage of by family and friends. There is a popular perception among American citizens that professional athletes have unlimited funds and financial resources and are financially set for life. That is certainly true for a good amount of professional athletes, but there is a sizeable contingent of professional athletes who have gone completely bankrupt and whose lives are either in complete ruin or are well on their way there. It has been said that by the time they have been retired for two years, 78% of former National Football League (NFL) players have gone bankrupt or are under financial stress because of joblessness or divorce. (Torre, 2009) It has also been said that within five years, 60% of National Basketball Association (NBA) players are broke. (Torre, 2009) Those statistics are utterly shocking to many people who like to think of professional athletes of being made of money. A professional athlete going bankrupt is absolutely not something that happens overnight. A combination of factors contributes to the afore mentioned statistics, such as the athletes having a lack of financial know-how, living beyond their means, immaturity, upbringing, and how the athletes are constantly being taken advantage of by family, friends, financial advisors, and agents. Many professional athletes do not take into consideration that someday the huge paychecks they earn, whether it is the salary they receive from the sports team or the checks they receive for being a spokesman or endorsing a product, will stop getting deposited into their bank account. These athletes do not think of their retirement or future beyond their athletic career. These athletes are more concerned with the here and now and whether or not they can live the lavish lifestyle that they have always dreamed about. They do not consider the fact that sooner or they will not be able to perform at the level they once did and will have to retire from their chosen sport; it is inevitable after all. However, many of these professional athletes lack a plan, degree, or business acumen to fall back on once they retire or even worse, are forced to retire early due to serious injury. Professional athletes, by and large have been working towards their athletic goals since childhood. Many athletes have spent many days and nights of their youth dreaming about reaching the professional league of their chosen sport, becoming a superstar, and accumulating the wealth that comes along with that stardom. Usually, they enter college as a means to further their athletic career; they do not use college as a way to earn a degree that will provide them with insurance in case they do not make the big leagues or get hurt once they do. These athletes can’t even fathom the thought of them not making it to the professional leagues or getting injured once they do make it. Professional athletes should always be thinking ahead to the time when they will no longer be receiving huge weekly paychecks and focus more on their life after sports. Lack of financial know-how is one of the biggest reasons, if not the biggest, why professional athletes go broke. Jordan Woy, a highly-respected sports agent from the sports marketing/management firm Schlegel Sports has represented numerous high-profile athletes. Woy states: I think there are several reasons why so many athletes “go broke”. First, whether it is a lottery winner, an athlete or a star entertainer, if they are not equipped with the knowledge on how to make and save money they are in trouble. When they didn’t earn it through disciplined business practices and they don’t have those skills they usually go through it quickly. (Cuban, 2008, p. 13) Professional athletes often come from broken families and poverty. Stories of drug abuse, violence, and neglect are very common for professional athletes. They used their athletic talent to get themselves out of poverty and into the professional leagues that are so known to the world. However, these athletes had never had access to so much money and fame. Going from broke to richer than a child’s wildest imagination is an extremely tough challenge for many athletes. Money management, a 401k, retirement, and checking and savings accounts were mostly foreign terms for athletes that came from poverty and broken homes. Some athletes never had to pay their own bills, save for a rainy day or retirement, buy a home, or even open a bank account. Most first-round draft picks of the NFL and NBA receive multimillion dollar contracts that include guaranteed signing, roster, or performance bonuses. One such athlete, Jamarcus Russell, was selected by the Oakland Raiders with the first pick of the very first round in the 2007 NFL draft and received a $62 million contract that included guarantees of $32 million. Today, Russell is millions of dollars in debt due to lavish spending sprees and living way beyond his means, however great they were. In order to better prepare their players, the NBA and NFL have begun implementing personal finance and behavior courses into their orientation groups. The NBA and the NBPA (National Basketball Players Association) co-host a three-day seminar on financial management for incoming rookies each summer. "It's Finance 101," says Mike Bantom, the NBA's senior vice-president of player development. (Bloomberg Businessweek, 2010) These courses teach incoming players basic finance skills as well as what to look out for, such as preying financial “experts” and even friends and family members. Another key reason professional athletes struggle so much with their finances is that they are huge targets for preying financial advisors, agents, and even friends and family members. Once professional athletes make it to their chosen league and sign lucrative contracts, people from all over line up to try to get a piece of their financial windfall. All of a sudden, “close” friends and family members that the athletes have not heard from in years are calling and knocking on their door. Pro athletes are always a big target for people trying make a buck or two illegally. Athletes are constantly proposed various business ideas that are always a “sure thing”. Usually, these business ventures are anything but a sure thing. Donald Lukens, a California financial advisor allegedly bilked dozens of professional athletes out of a combined $47 million in a massive Ponzi scheme. Lukens was arrested for investment fraud after repeatedly scamming athletes out of their funds. According to the NFL Players Association, at least 78 players lost a total of more than $42 million between 1999 and 2002 because they trusted money to financial advisers with questionable backgrounds. (Torre, 2009) Professional athletes need to do a better job of researching the professionals they trust with so much of their money. Being accountable and responsible are behaviors every athlete needs to learn if they wish to achieve financial success and security. Trusting the wrong financial advisors, being taken advantage of by friends and family, immaturity, and lack of financial know-how have proven to be a deadly combination for certain professional athletes that have gone bankrupt due to these factors. These athletes need to take it upon themselves to learn from the mistakes of others. There is an old saying, “A smart man learns from his mistakes and a wise man learns from the mistakes of others.” In this case, professional athletes need to be wise men. These professional athletes need to take it upon themselves to become financial literate, mature, and responsible enough to be able to make the proper financial decisions that will help them accumulate income and sustain their net worth. References: How (and Why) Athletes Go Broke, Author: Torre, Pablo S. Sports Illustrated. 3/23/2009, Vol. 110 Issue 12, p90-101 Why Ballers Go Bust, Author: Paul Wachter, Bloomberg Businessweek, 10/11/2010, Issue 4199, p.89-91 Why Athletes Go Broke, Author: Brian Cuban, www.briancuban.com, 2008