How millionaire athletes go broke
Seven-time NFL Pro Bowler Warren Sapp recently filed for bankruptcy.
With that, he joined a group that includes Lenny Dykstra, Dorothy Hamill, Bernie Kosar, Scottie Pippen, Lawrence Taylor, Mike Tyson and hundreds of other athletes.
All of these athletes, a diverse array of sports and personalities, have seen the highs and lows of personal finance in sports. Seventy-eight percent of NFL players are under financial stress or bankrupt just two years out of retirement; within five years of retirement, 60 percent of NBA players are broke, according to Sports Illustrated.
We assume athletes to be just plain stupid or naive about their money. I’m sure that contributes to some cases. Bling, cars, gambling and huge bar tabs certainly contribute. The greater story, however, is they face a unique set of challenges:
- Taxes: They have very complicated tax situations, large lump sums of money and in the case of some athletes, like boxers, no employer to do the withholding from salary.
- Entourage: Try and scoff at this, but imagine you’re in an unfamiliar city, alone, busy, with lots of new obligations, but plenty of money, too. You need company and help getting things done. Why not pay to bring some people around with you? You’re of course picking up every bill. Also, if you had the money, how would it feel turning down legitimate friends and family who could use some help?
- Support: The athlete divorce rate has been quoted as high as 80 percent. Financial ramifications for divorce are the same for athletes as they are for the rest of us, but it’s more difficult because of their cash flow. Spousal and child support will continue long after you’re out of the league.
- Business ventures: Bad real estate deals probably are the biggest cause. There are way too many examples to list here, but here are my favorites: Michael Vick’s wine store; Lenny Dykstra’s investment advice; Drew Bledsoe and Rick Mirer trying to replace credit cards with fingerprints; MLB player Torii Hunter bankrolled a company that produced a raft that automatically inflated under your furniture, in case of a flash flood.
- Swindlers: Former Phillies reliever Scott Eyre was among several athletes who lost everything in 2009 as part of an $8 billion fraudulent investment run by Allen Stanford. Sandy Koufax lost money to Bernie Madoff.
- Injuries: Athletes with good financial advisers will purchase special disability insurance policies to protect them against the income loss. Disability insurance isn’t a bad idea for the rest of us either.
- Lack of a plan B: What happens when you’re cut? If you finished school, you have a diploma but no experience and you’re still viewed as just a jock. If you didn’t finish college, you’re probably looking at public appearances, local commercials or playing overseas at a fraction of your old income.
- Lack of experience: I really like what 13-year NFL veteran Robert Griffith had to say about this, “Most athletes are first-generational wealthy … their parents don't know what to do with the money. Maybe their uncle has some inkling. … I know guys personally that have put $4 million into a checking account. With no interest.”
Finally, remember that athletes have big targets on them. It’s like the supposed response bank robber Willie Sutton gave when asked why he robbed banks: “because that’s where the money is.”
Bill Sayer is a financial analyst in the insurance industry and holds a degree in economics. A native of Upstate New York, Bill enjoys watching college football, the NFL, NHL and Premier League soccer from his home inPalmyra. Have a suggestion, link or question?