After watching the Niners game this weekend, I got to thinking about athletes. I remembered hearing from somewhere ages ago that athletes have a higher tendency than average to end up bankrupt. I decided to look further into the numbers.
According to a 2009 Sports Illustrated article, 78% of NFL players are either bankrupt or in financial trouble within two years of retirement and an estimated 60% of NBA players go bankrupt within five years of retirement.
Although it may seem puzzling to relatively low-income law students (and law professors) that so many millionaires and multi-millionaires end up bankrupt, there are a myriad of reasons for their financial meltdowns.
- Overspending
- Athletes tend to blow through their salaries too rapidly. Living the high life can be an addicting adrenaline rush.
- Career Duration
- The average career span in the NBA, MLB, and NFL, is 4.8, 5.6, and 3.5 years, respectively.
- A Lack of Financial Knowledge
- Most professional athletes are new to wealth. Unlike wise students who take a bankruptcy course in school, they are unprepared to handle their assets.
- Poor Investment Decisions
- Large amounts of income + lack of financial knowledge = poor investment decisions. That swampland in Florida is not a wise real estate investment.
- Bad Financial Advisors
- The NFL Players Association claims that 78 players lost a total of $42 million between 1999 and 2002 as a result of bad financial advisors. Putting your trust in an unwise choice can be a costly lesson.
I never wish ill will to anyone. But with this knowledge in mind now, I can at least rest easier each time I see Richard Sherman's face on TV.
Sources:
http://sportsillustrated.cnn.com/vault/article/magazine/MAG1153364/1/index.htm
http://www.npr.org/2011/05/19/136445218/for-some-athletes-a-short-lived-financial-success
http://www.munknee.com/78-of-nfl-players-go-bankrupt-within-5-years/
Alex and class,
ReplyDeleteI'm on the same boat as you, having no back ground in bankruptcy I have ventured into this class hoping to make sense of such an important area of the law. Having said that, when reading your post, you raised very interesting issues. Why is it that people go bankrupt when they have millions and millions of dollars? It's fascinating what money can do to someone and how one minute you can have it all and the next, have nothing.
The reasons you stated, are quite frankly, right on point. Most athletes who become millionaires do not have the necessary financial knowledge to be able to manage such big lumps of money. I also think the fact that prior to becoming big time athletes, they most likely didn’t have much money, which is why the over spending happens. Also, since their careers are short, they must invest to have a more secure future. The pressure of having enough money to retire at a high standard of living, could lead to disastrous investment decisions, resulting in big losses of money.
One can also see the same type of problem/issue arising with lottery winners. There are many who win hefty sums of money, over $100 million in some instances, and are now bankrupt, homeless, and are left worst off than what they were before winning the lottery. I think the reasons you provided in your post, could potentially explain why this phenomenon takes place.
At the end of the day, it is a curse and a blessing to have so much money.
Here’s the link to the article about the lottery winners: http://www.businessinsider.com/10-lottery-winners-who-lost-it-all-2010-5?op=1
Hi guys.
ReplyDeleteThis popped up when I was looking at TMZ-- I know, embarrassing. But it fits into this discussion very well. Some of you may be familiar with Drake Bell. He was a "child actor" who started acting in major motion pictures and TV shows at 10 years old--- Home Improvement, Jerry Maguire, Seinfield and The Drew Carey Show just to name a few. He really came to fame when he joined the Nickelodeon Network at 13. He had a starring role on the "Amanda Show". Then he was able to secure his own show at 17 called the "Drake & Josh". The show was on Nickelodeon for 3 years, and a fairly wide success. It lead to movies and fame in the "teen world". Not only did he have his own show on Nickelodeon, but he voiced many animated characters. But now at 26, he is filing bankruptcy. In 2012, he was doing just fine making $400K a year. In 2013, he hit bottom. He made an annual earning of $14K. He states that his monthly expenses are roughly 18K! Which means that his yearly income in 2013, couldn't even pay a MONTH of his expenses! What could one possibly be spending 18K a month on?!? His 1.5 million dollar home, currently has a mortgage on it that makes it worth less than the house. It is kinda shocking/astounding to hear that this boy who has been making money since he was 10 has lost it all. Not only has he lost it all, but he currently has over $500,000 debt. What are these people spending there money on? Where are his parents? Are there no financial advisers?
http://www.nydailynews.com/entertainment/gossip/drake-bell-nickelodeon-star-files-bankruptcy-report-article-1.1611404