I have recently come across several mainstream articles addressing the issues of why athletes can not manage their finances. I thought I would take the opportunity post an article I wrote almost a year ago along with the Fox News interview I did.
“Why Athletes Go Broke”
The “Real Deal” is broke.
Former Heavyweight champion Evander Holyfield is playing the real life game of Deal Or No Deal. It has been reported that his $10 million estate in suburban Atlanta is under foreclosure, the mother of one of his children is suing for unpaid child support, and a Utah consulting company has gone to court claiming the boxer failed to pay back more than a half million dollars for landscaping. Just one more high profile athlete having to scale back his lifestyle to the level to which you have I have been accustomed. Why is it that athletes who seem to have everything are often completely unable to control anything related to finances?
We all played our violins to death when we heard of Latrell Sprewell’s financial troubles. On Halloween 2004, Sprewell, who was in the final season of a $62-million five-year contract with the New York Knicks, said he was insulted by the Minnesota Timberwolve’s offer of a contract extension that was reportedly worth between $27 million and $30 million for three seasons. Sprewell stated, “I’ve got my family to feed.” That quote become a national moniker for the public perception of athletes as greedy, out of touch individuals. Apparently, Sprewell still can’t feed his family. His yacht was recently repossessed and his home is about to be foreclosed on.
While there is certainly the stereotype of the financially irresponsible NBA athlete, no professional sport is immune.
Let’s take a look at some high profile athlete financial sob stories over the years:
1. No one my age can forget Jack”The Ripper” Clark , star player for the Boston Red Sox who filed for bankruptcy in 1992 in the middle of his second year of a three-year, $8.7 million contract with Boston; he listed $6.7 million in debts. Jack was a master of financial planning and prudent asset acquisition. His bankruptcy petition listed assets such as 18 automobiles, including a 1990 Ferrari that cost $717,000 and three 1992 Mercedes Benz cars costing between $103,000 and $143,000. He owed money on 17 of the automobiles and was liable for about $400,000 in Federal and state taxes. He had also lost about $1 million in a drag-racing venture. Sounds like Jack would have been more at home in the NBA. You can read about it here
2. Johnny Unitas, Hall of Fame quarterback for the Baltimore Colts, filed for bankruptcy in 1991 citing numerous failed business ventures in his petition These failed bits included bowling alleys, land deals and restaurants. He filed for Chapter 11 bankruptcy in 1991.
3. Mike Tyson The name speaks for itself. Mike’s bankruptcy was highly publicized. Despite earning hundreds of millions during his boxing career, Mike kept it simple. His bankruptcy petition simply stated: ” I am unable to pay my bills”. According to federal court records, his liabilities totaled about $27 million. You can read that story here.
4. Dorothy Hamill, the women’s figure-skating gold medalist in the 1976 Winter Games, filed for bankruptcy after a series of financial setbacks. Hamill said she has experienced financial setbacks as a result of poor financial investment advice and management.
These are just a few of many athletes’ tales of woe. It is not a phenomenon limited to professional sports — just ask M.C Hammer. Prior to his declaring bankruptcy, it was made public that his day to day living expenses far exceeded his income of $33 million. If I am going to veer off to celebrities, I certainly have to mention Kim Basinger and Michael Jackson.
When the Toronto Star ran an article alleging that a shocking 60 percent of NBA athletes “go broke” five years after retiring, did we not all pull out that very tiny violin we have reserved for such occasions? The NBA players union and the NBA have both disputed that assertion. The article goes on to talk about all the people taking advantage of and “scamming” these athletes. While I have no doubt there is truth to this, I can also understand how such a generalization would make the NBA uncomfortable. It leaves you with the impression that 60 percent of NBA players are not only financially inept but also idiots in general. This is simply not true. While good business sense is often lacking, I view many of their mistakes as being more mistakes of trust, credibility and lack of life experience than anything else. Smart, busy people who can afford it, hire people with targeted expertise to help them. This allows them to focus on their expertise. Sometime mistakes are made and bad judgment is used in who we hire and hang out with. That is not unique to the NBA or professional sports. This happens to everyone. That is life. It happens all the time. It just does not make front page when we screw up. If there is any question at all as to how badly we as the general public screw up, just look at the personal bankruptcy filing statistics.
In order to get a perspective from the inside, I contacted Jordan Woy, a highly respected sports agent and a principal in the sports marketing/management firm of Schlegel Sports. Jordan has represented numerous high profile athletes
Here is what Jordon had to say:
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. Most lottery winners or athletes make a great deal of money in a short period of time. They start spending it on things that only go down in value (cars, jewelry, partying, entourage, etc) and start to evaporate the money they do have. They can carry this off until they stop earning big money. This is when the trouble starts. It is hard to believe that MC Hammer, Mike Tyson, Evander Holyfield and now Ed McMahon are broke. These are people who earned hundreds of millions over time and it disappeared. Lavish spending and entourages were probably the downfall for the first three for sure.
Most athletes play for four to ten years if they are lucky. After they pay taxes (can be 40 to 50%) and agent fees and buy their first homes, cars, outfits, jewelry (plus, cars, clothes and jewelry for friends and family), they are left with very little. When they first “strike it rich” all of their longtime friends and family expect help. Most athletes feel obligated to help everyone out at first then they wise up. They also want to keep up with their teammates. If someone buys a Bentley, they have to buy one; if someone buys a $75,000 watch, they have to buy one to keep up the appearance. Then, of course, when the career ends and they are still living in a multi million dollar house, driving 3 expensive cars (and insurance), traveling in private planes and taking Limo’s when they go out on the town, reality sets in. The money dries up very quickly.
However, if athletes educate themselves, learn money management skills and make smart, safe investments along the way, they are usually in very good shape. After representing athletes for over 20 years, we call this our “life plan”. We take out clients on working vacations in the off season to places like Las Vegas, Cancun and on a cruise to the Bahamas to learn business networking. We have people from industries such as real estate, oil and gas, financial planning, credit repair, asset protection/estate planning, etc come to educate the players and their wives so they can learn about these business and also determine if they are interested in any of these industries for life after sports. One of the financial planners who comes always says most people die coming down from Mt. Everest not going up. The goal is for these athletes to get to their Mt. Everest AND to get down safely.
So, what do you think? Are the financial mistakes that athletes make any different than your mistakes or mine? They are certainly mistakes made with a higher downside. When we hear these stories are we just unable to comprehend that someone could have that much money and spend it all? Can we learn lessons on how to live our lives from their highly publicized financial gaffes? Do we even care at all?
With all due respect to Latrell Sprewell, we have our own families to feed…
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April 17th, 2009 at 1:59 am
I think athletes by example can teach the "common man" lessons about how/how not to manage finances. In cases such as Unitas', however, salaries were nowhere near what today's professional football players receive. Unitas' situation better parallels non-athletes with his efforts to establish and sustain businesses with many fewer dollars at his disposal.
I don't think Latrell Sprewell falls in either category. Not only were his words a lightening rod for people who disliked the "greedy athletes," but his unwillingness to play for $30 million (THIRTY MILLION DOLLARS!) while he still had game was just plain stupid. His comments and actions damaged his brand as well as his finances, which doesn't bode well for his future employment, either.
April 17th, 2009 at 2:11 am
Very true insights.I think it’s a little to do with athletes competitive nature as well.I’m glad to see that there are some working vacation structure to educate the ones who have made it,so they can get focused
April 17th, 2009 at 3:25 am
My work with private clients including professional athletes always rings true to a solid foundation that is seldom ‘taught’ when approaching “large liquidity events” like a contract signing.
Business Consulting, Financial Planning, Estate and Tax Management, Legal Counsel, Risk Management and Insurance Consultation, Medical and Rehabilitation Specialists, Public Relations, Philanthropic and Civic Responsibility, Spiritual Counsel, etc. –The problem is that where ethics, attitude and “new money” come into play -there are always people waiting in line to exploit those that are easily taken advantage of. On the opposite side of the equation, there are the respectable, ethical and tenured specialists that are the gold standard in their given profession -and hold a respective track record in protecting athletes and their families.
There are plenty of choices and tenured relationship-driven specialists to be found.
And to piggy back on Woy’s term “Life Planning” -it’s something that should be incorporated at the high school and college level, driving the ‘responsibility factor’. -That one is all mine…
JMP
Jason M. Pond
HUB International
Private Client Group
Jason.pond@hubinternational.com
Insurance & Risk Management Services
April 17th, 2009 at 4:22 am
Some athletes appear to be at the other end of the spectrum. Every once in a while you hear things like athletes saving their per diems, such as some of the guys mentioned in this article:
http://www.rockymountainnews.com/drmn/nba/article…
I can remember when Vince Carter's mother came to visit him in Toronto (while he was still with the Raptors) and stayed at his condo. I am not sure that he was being fully serious, but when asked why he did not put her up somewhere else, he stated that hotels are expensive.
April 17th, 2009 at 5:08 am
I''ve thought long and hard about this. Not about all these people who screwed up royally, but what would I do, if put into the same situation. If for instance, I sold a million books and then had money to play with. What I would do or what maybe they should have done is??? set aside enough money [a certain %] to pay your bills for 10 years hypothetically at a comfortable rate. STOP Keeping up with the jones and living way beyond my means… that just seems stupid to me! I watched my parents do it [living way beyond my means] and I'm not going to follow in their footprints! Materialism at is finest, doesn't really matter. He who dies with the most toys, still dies!
April 17th, 2009 at 5:08 am
with the other portion of the money, I would invest it in my friends to start businesses of their own…or give them the $$$ for their operating costs/research and development…so on and so forth…after they showed me a proper business plan. Lastly, I would set aside another portion of it, that I couldn't touch for 10 years, that would pay my bills for 10 more years. The goal would be to tie up the money so I couldn't spend it…knowing myself! At the end of this 20 year period…if nothing had matriculated…I'd just continue being an acsetic…living the simple life. BUT, that's just me!
April 17th, 2009 at 1:21 pm
I am curious if you have even read the first paragraph of your link regarding Sprewell's "multi million dollar mansion"? If you had you would know that its worth a little over 400k and he owes a little over 200k on it. I grew up near this place and it is an unimpressive, older, ranch house that as far as I can tell he used to keep his dogs and spare cars at. Not live in. Also , there has been recent news locally that he has payed off that note at least 8 months ago. Dont get me wrong, he wastes plenty of money, but he currently lives in a pretty nice "mansion" elsewhere in Milwaukee.
April 17th, 2009 at 1:53 pm
Hey Teddy-I am curious if you have even read the first paragraph of the article. I wrote this almost a year ago. Thanks for playing though… And by the way , you are wrong. His home was foreclosed. http://www.jsonline.com/sports/statecolleges/2947…
April 17th, 2009 at 2:28 pm
Interesting piece. Athletes fall prey to many Looters and Moochers.
April 17th, 2009 at 2:53 pm
Sprewell is a scumbag who should have been in prison and fined his entire contract price. He should have been broke before his Knicks contract was even up.
April 17th, 2009 at 3:25 pm
Poor advice and think that just because you have a great contract that you can pay for anything. Reality is they live way above what their needs are. I am unemployed and would like to make what they make for 1 year. I would be set for life. Their mentality is flaunt it if you got it and not planning for their future. Most of them should take a course in money management so that even if someone else is managing their money they would be able to grasp what is happening to their assets.
April 17th, 2009 at 9:53 pm
This is really a great article. It gives you a pretty good picture of how it happens.
February 11th, 2010 at 7:44 pm
My advice: Get some savings accounts that earn interest. Put money in them.
February 11th, 2010 at 8:02 pm
Very good article. Rarely do you hear of a success story like Larry Holmes for instance, a man that invested wisely in his hometown of Easton and looks like he's comfortably living within his means. Sports teams might do well to hold 'rookie financial camps' to at least present the tools to first time big contract landers. What they do after that is up to them. Another good camp to have: Conceal/Carry Gun Laws across the States. But that's another topic.
March 3rd, 2010 at 1:40 pm
This is a great article. I can understand Mike Tysons going broke b/c Don King got involved and Mike has never been accused of being a Rhodes Scholar! I thought Evander was a little more in tune with reality than Mike, but now I see how wrong I was!
March 3rd, 2010 at 2:00 pm
Note to self…
If I hit a huge windfall, I will:
1.Remain a loner and have no hangers-on.
2.Keep 1 automobile and no more.
3.Remain sober and not party.
4.Not answer to false friends.
5.Keep it in the family and even then be leery.
6.Go to school and learn about financial management and creating a good portfolio.
7.NOT buy into a get rich scheme business with someone unscrupulous.
8.Not let anyone use my name or likeness for the purpose of being exploited.
9.Carry a condom with me wherever I go to alleviate the chance of a frivolous lawsuit.
10.Not play into the penis envy game.
11.Like Don Ameche once said, 'Live within your means.'
12.Stay busy and not trust anyone with my financial dealings.
13.Get involved in philanthropy. Rather than waste money on needless partying and that alleyway, I will pay it forward to a good cause.
14.Call my ex and laugh out loud every five minutes (joke)
15.Make monthly appearances on Maury Povich and exclaim 'I AM NOT THE FATHER!'
That's what I would do…now for that windfall…