The average professional athlete in the U.S. will make more in one season than most of us earn in our entire lives….[yet,] despite those staggering salaries, 78% of NFL players, 60% of NBA players and a very large percentage of MLB players (4x that of the average U.S. citizen) file bankruptcy within five years of retirement. [Let's take a look at] 5 possible reasons why the average athlete is destined to go (quickly) from fame to shame.
So writes Jason Cimpl (www.wyattresearch.com) in edited excerpts from his original article* entitled Five Reasons Professional Athletes Go Broke.
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Cimpl goes on to say in further edited excerpts:
If data from Mint.com is accurate, the average athlete is destined to go (quickly) from fame to shame. Here are five possible reasons why:
1 – Overspending
Scott Bercu, a financial accountant for professional athletes, believes this group spends like mad, and blows their savings too rapidly. He said, “They see their salaries as infinite, like it doesn’t end, like they can’t spend it all but if you get $5 million a year, by the time you get done paying your agent and taxes, you have $2 million left to spend.”
2 – Career duration
The average career span in the NBA, MLB and NFL is 4.8, 5.6 and 3.5 years, respectively.
The “shelf life” of athletes is tiny. Professionals in this industry have a small window to make their millions, and if they don’t they cannot survive on their savings for very long (even if they saved responsibly).
3 – A lack of finance knowledge
Ed Butowsky of Chapwood Capital Investment Management believes athletes don’t understand finances. He says the leagues try to help educate them, but the system doesn’t work well enough.
Athletes see prominent people spending money, and they believe that their spending pattern should be the same. However, athletes fail to take into account that those prominent members have spent a lifetime learning about financial responsibility and budget strategies.
4 – Poor investment decisions
Also, according to Butowsky, athletes are targets for poor investment pitches. He said, “Chronic over-allocation into real estate and bad private equity is the number one problem in terms of a financial meltdown. I’ve never seen more people come to me about raising money for those kinds of deals than athletes.”
5 – Hangin’ with a bad crowd
Athletes often do try to be responsible with their savings. However, they pick the wrong financial advisors. The NFL Players Association claimed that 78 players lost a total of $42 million between 1999 and 2002 as a result of bad financial advisors. In fact, Bob Young – managing director for APEX Wealth Management – says athletes often don’t know who manages their savings. He said that he frequently asks players how they’re doing (financially), and they’ll often respond, “I have no idea. All the bills are paid by someone else.”
A few quick thoughts of my own[It is very disconcerting] if the NFL and NBA data is correct. That’s a high rate of bankruptcy, and the leagues should provide better guidance for its atheletes….[Unfortunately,] professional athletes are easy targets. They are highly visible, have lots of money and limited experience.
Though I find it hard to imagine losing millions of dollars in savings in such a short span of time, I also have a solid financial background, applicable work experience and a family that educated me on personal finance issues. Before pointing the finger at athletes, it may be wise to step into their shoes (cleats) for a minute … maybe their financial woes aren’t entirely their fault or a result of reckless spending.
My colleague Ian Wyatt recently launched a new website aimed at helping young adults (and older ones, too) learn more about financial basics. His site, Investor Bistro, is a great resource for those just getting started – or who need a quick refresher – in their journey of saving toward retirement. Maybe an athlete or two should check it out as well.
*http://www.wyattresearch.com/article/five-reasons-professional-athletes-go-broke/29606; ©2013 Wyatt Investment Research & Business Financial Publishing LLC (If you would like to learn how you can bank steady gains with well-timed investments in stocks that are ready to run… then consider taking a free, 30-day trial to our growth stock service, Top Stock Insights. You’ll discover exactly how we’re earning exceptional returns and get instant access to every special report and investment recommendation. Click here to try Top Stock Insights, free.)
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