We may secretly enjoy it when celebrities go belly-up—but would we do any different in their shoes?

Facing bankruptcy, former Johnny Carson sidekick Ed McMahon  went public regarding the financial miscues leading to the possible foreclosure on his $4.8 million mansion.  He owed more than $600,000 on the mortgage, some $750,000 to American Express, and around $1.5 million overall.

“Being Ed McMahon was an expensive proposition,” David Fisher, the co-author of McMahon’s autobiography, told the Huffington Post. Fisher recalled watching as McMahon walked through hotel lobbies doling out money to anyone who tipped his cap. In a Larry King Live interview, McMahon’s wife Pam McMahon explained, “Because you’re a celebrity, people think you have a lot more than you have. And you always want to take great care of all of your friends and your family and everybody, and you do …. ”

It’s hard to sympathize. Did anyone really feel sorry for singer MC Hammer after he declared bankruptcy in 1996?  When he filed the paperwork, we learned that his living expenses far exceeded his annual income of $33 million: Hammer owned a $12 million house and reportedly had a staff of 250.  (Yes, 250.) Who wouldn’t love to see that spreadsheet?

And the list of celebrities and athletes who’ve gone bust goes on: Michael Jackson, Kim Basinger, Suge Knight, Dorothy Hamill, Burt Reynolds, Mike Tyson, Anna Nicole Smith ….

Why is it that celebrities and pro athletes who seem to have everything can’t seem to control anything related to finances?  They make millions, but they live paycheck to paycheck.  Most of them couldn’t tell you how much they have in their checking account. Many have never written a check or seen a bank statement.  From time to time, they go broke, but don’t even know it until their agent or business manager tells them.

The public perception is that these high-paid celebrities and athletes are completely out of touch with basic money management skills. Is that perception accurate?  I spoke with several professional athletes and Hollywood celebrities to find out.

“Most celebrities I know do not manage their own finances,” the actor Ed Begley Jr. told me.  Begley’s been around—best known for his role as Dr. Victor Ehrlich on the television series St. Elsewhere, he currently hosts a reality show on HGTV called Living With Ed on Planet Green—so he’s seen actors enter and exit, financially speaking. “I can count on one hand the celebrities that I know who write their own checks,” he says. “I know many who sign their own checks, but I’m talking about doing it all yourself on Quicken or QuickBooks, as I do. I actually enjoy it.”

Celebrities, Begley says, need to to do more with their money than just spend it. “At the very least, make sure that no one other than you can sign a check for over $500. That would save a lot of the heartache you hear about with folks losing all their dough to someone they blindly turned over their fortune to.”

Celebrities can be especially vulnerable, the actor Armand Assante (Gotti, American Gangster) told me, because not only do they frequently make enormous sums of money, but the perception that they handle it badly can attract greedy hangers-on.  “There’s a general perception that people in the arts and entertainment industry have little business acumen,” Assante says. “They are therefore easy prey to financial exploitation.”

I asked Assante how he handled his finances.

“I’ve always had good instincts in business,” he said.  “I have very little interest in it for its own sake, so I have chosen people I entrust important decisions with.  That’s where your instinct has to reign. Most of the people I deal with are impeccable with excellent business sense and do superbly for me because they’re trustworthy, reliable and independent in their decisions.  Sadly however, even the best-intentioned of financial advisors fall prey to others if profit is the moral motive of the moment.”

Ultimately, Armand says, “one has to assume total accountability.”

The financial landscape is no less bleak in professional sports. I’ve seen estimates projecting that 50 percent of all NBA athletes live paycheck to paycheck—this in a sport where the minimum salary is currently $442,000 for a rookie—and that over 60 percent of NBA athletes are broke within five years of retirement. There’s no reason to expect that the numbers are much different in other sports.

“It’s hard to argue with the widespread perception that athletes and celebrities are the worst managers of their money,” says Patrick Johnson, a former wide receiver for the Baltimore Ravens and the Toronto Argonauts of the Canadian Football League. Part of the problem, he says, is that they then turn to advisors whom they shouldn’t trust. “Exposure to so many unethical advisors paves the way for what eventually happens. Any advisor that is worth anything should care about what happens to his client.  Many of them do not.”

Spending too much, paying insufficient attention to their finances, trusting their money to people whom they haven’t thoroughly vetted ….

Everyone can enjoy a little schadenfreude in seeing overpaid celebrities and their money soon parted. But are their financial mistakes really so different from ours?

©2009 Brian Cuban

©2009 Brian Cuban

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** I originally wrote this article for Worth Magazine.  I am republishing it with their permission.