$325,000,000. That is the largest contract in the history of American sports. It was signed by Giancarlo Stanton of the Miami Marlins in 2015. He will earn $25,000,000 per year or $480,000 per week. Compare this to the $1,400,000 that many Americans will earn total in their lifetime, we don’t have much sympathy for broke athletes.
ESPN 30 for 30 films, short films about phenomenons in professional sports produced Broke, which illuminated how many athletes lose all their wealth after their playing days are over. The situation it outlined was incredibly disheartening. In 2009 a Sports Illustrated article revealed that 60% of NBA players are broke within 5 years of retirement and a staggering 78% of ALL former NFL players are broke just 2 years after they hang up their cleats. Surprisingly it isn’t just players you haven’t heard of, some of the athletes they highlighted are:
- Curt Schilling, former MLB Pitcher and world series champion.
- Mike Tyson, who earned over $400 million in his boxing career.
- Bernie Kosar, former Cleveland Browns hall of fame quarterback.
- Allen Iverson NBA point guard who earned over $200 million as a player.
Our tendency when we see these stories is to say “I don’t feel sorry for them, look at all the money they earned.” Yet if we take a step back and embrace compassion we remember that these people just like ourselves are human and make poor decisions. There are a whole lot of reasons why these stories happen and there is much we can learn from them. Here are the 3 main reasons why most pro athletes go broke.
Spending Beyond Their Means
This is the classic financial mistake, when you spend beyond your means. For athletes the money is flowing so they spend it freely. Luxury cars, mansions, clubbing, jets, more cars, jewelry, all the trappings of wealth. Many (not all) athletes adopt a lifestyle that reflects their earnings, just as we tend to buy more stuff when we get a raise or a promotion. The issue is what happens when the money stops flowing? The average professional career for an NFL player is just over 3 years, and then they are supposed to live off their earnings for the next 50 years.
How many of us could live off of 3 years of our current salary? Even with our best planning we couldn’t accomplish that. It is the natural tendency of humans to ramp up their spending as their income increases, and it is just as true in professional sports. The lesson for us is to always live a modest lifestyle, reflective of how we chose to live when we first started to make money. Keep it simple and spend well below what you make, this is the key to financial success no matter how much or little you make.
Trusting the Wrong People
When it comes to seeking financial advice, who you talk to is incredibly important. If you don’t know how to, or don’t want to learn how to manage your own money you must surround yourself with people who will give you solid financial advice. Countless athletes have been taken for millions of dollars by people who targeted them for awful “investment opportunities.” When you have money, unsavory people will be drawn to you with ideas on how you can best use your wealth. Here’s a short list of athletes who have lost big money to bad investments:
- MLB star Torii Hunter invested $70,000 in a company that made inflatable rafts for furniture, as flood protection.
- Hall of fame Quarterback John Elway lost $15 million in a ponzi scheme hedge fund.
- NBA hall of fame player Scottie Pippen lost $27 million in bad real estate investments.
These are just a few examples of trusting the wrong people. Whenever someone comes to you with an investment idea you must ask them “do you have my best interests in mind.” Do you trust their integrity and honesty? Do you actually understand what you are being invited to invest in? If you have any hesitation, bail!
Refusing to say “No”
When you strike it rich, you find that your phone rings much more often. Suddenly your distant cousin who you haven’t spoken to in years is calling “just to talk.” This phenomenon is often experienced by athletes, their family and close friends view them as their veritable piggy bank. Many athletes feel a sense of responsibility to their family and thus give them money when they ask. They give and give and when the money runs out, they are left to deal with the fallout. A key financial skill is being able to say no, to yourself and to those around you. If you are financially successful your family and friends will notice. Make sure you’ve built up your resilience and can say no when you need to.
What do you think? Do athletes deserve to have our sympathy for their financial mistakes? What can we learn from their story?