Most of us have seen the stories in the news of professional athletes who have earned millions of dollars over the course of their careers, and who are reduced to bankruptcy and squalor once they “retire”.
Why and how does this happen?
A recent story by ESPN writer Duff McKagan dives into the root causes for this type of seemingly juvenile behavior.
[box]Now, to be sure, we all dream that one day a whole windfall of cash just comes cascading in. Like winning a lottery. Like finding a whole suitcase bulging with dollars. Or, getting a pro athlete-size signing bonus and contract.
But here are some factors that are not often discussed:
• A lion’s share of athletes don’t come from upper-crust families where money in large doses is status quo. Heck, a lion’s share of everyone doesn’t come from that background
• Investment, risk, reward and money retention are thus foreign terms.
• Taxman takes half.
• Agent takes 10 percent or 15 percent.
• Lawyer takes 5 percent.
So at this point, instead of $10 million, the athlete may be looking at something more like $2.5 million. Still not a bad payday, eh? But put yourself in that situation. You’ve got some of your boys you wanna take care of, right? Maybe put some of your buddies on a payroll? And you gotta take care of your family, and especially your mom, right? OK, So buy her a house. And what about a car and house for yourself? You might as well get that Mercedes AMG for $200K. The house on the water on the good side of town will work … and you need a condo in the city that you are playing in, too.
All of a sudden, that $10 million is gone, and you are signing playing cards at a convention just to pay down that car that is now six years old, dented and worth about 30 grand. And now maybe the real estate market has taken a nose dive. But everyone expects you to be rich and flush with cash, and so, to stave off embarrassment for a while, you still try to look like you are living like a king. Until you are in debt and filing a Chapter 11 for relief[/box]
I completely understand.
No, I don’t agree with it or condone it, but I see how this is an easy trap to fall into. Pro athletes, and famous individuals in general, have very high standards that they need to live up to. They have to live at these incredibly high standards just to be accepted and maintain their high income status.
Professional athletes fall into the “keeping up with the joneses” trap much easier than the average citizen (and we fall into it really easily!)
If you give in to lifestyle inflation you will find yourself spending more money than you earn, and you will very quickly wind up in debt.
“The bigger they are the harder they fall”, applies here.
Professional athletes may exhibit athletic prowess in their sport of choice but they far too often fail miserably at managing their financial lives.
I would vote that all professional sports require athletes to hire a fee-only financial advisor, and to complete continuing education credits on personal finance and money management every year.
This would be a big step in helping pro-athletes avoid the seemingly inevitable financial collapse that winds up on the front page of the National Enquirer.
What do you think?
Do you have a solution for the money woes of pro athletes?