It has been estimated that approximately 15% of NFL players have filed a bankruptcy petition within twelve years of retiring. It has been reported that 78% of NFL players and 60% of NBA players encounter serious financial hardships after retirement. We can’t help but wonder why that is the case.
Athletes typically reach a peak in their earning capacity within a few years of finishing school. For most athletes, their career is over at a young age, and their peak earning period is extremely short. The typical American reaches their earnings peak decades after graduating from school and has had the opportunity to accumulate some knowledge about how to handle their finances. Many athletes don’t make a “retirement plan,” and young athletes are often not wise in how they spend their money. Others may rely on the wrong financial advisor, i.e., their coaches. Some may also invest in glamorous-sounding investments which result in financial ruin. For example, Vince Young earned about $26 million during his six seasons playing professional football. Young trusted the wrong financial planner who reportedly misappropriated $5.5 million. This loss coupled with his poor spending habits forced him to file for bankruptcy.
Many athletes are attracted to flashy investments which end up not being great long-term business ventures Dan Marino earned millions as an NFL quarterback and studio analyst. However, he lost millions by investing in over 1.5 million shares in a company called Digital Domain. Digital Domain is the company that produced the hologram of Tupac Shakur at the Coachella Music Festival. Digital Domain went bankrupt shortly after that, and Mr. Marino lost nearly $14 million as a result.
Major League Baseball player Curt Schilling saw a future in video games and spent $50 million forming his own company, 38 Studios. His company filed bankruptcy and Mr. Schilling lost his entire investment.
Many athletes expect to live a glamorous, exciting lifestyle. Their money is spent in nightclubs, on mansions, sports cars, and parties. They often help their family members and friends by buying them a house, or fancy cars, or perhaps investing in a not-so-solid business venture. There are lessons from these stories that can apply to those of us earning more modest incomes. First, create a budget, and stick to it in order to manage debt. Avoid impulsive purchases, and limit the purchase of luxury items. When consulting a financial advisor, work with one who has references or works at a trusted investment company. Do your due diligence before making large investments. And lastly, plan for the long term. You don’t need to get everything you want all at once. By keeping these things in mind, you can avoid finding yourself in the financial situations that some professional athletes have found themselves in.
The American Bankruptcy Institute was the source of information used in the post. A link to the article is provided for viewing. https://www.abi.org/feed-item/how-athletes-go-bankrupt-at-an-alarming-rate
Categorized in: General
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