Ideas & Insights

The Growing Financial Crisis Facing Professional Athletes

The Growing Financial Crisis Facing Professional Athletes

The life of a professional sports athlete seems glamorous and spectacular from the outside. The money, the meteoric rise to fame, the cars, the mansions, the clothes, endorsements and general star quality of their life look amazingly appealing to the everyday average person. These superstar players create a brand for themselves that often gives them global recognition and entrance into a world that they had always dreamed of become a part of. That’s the public face of the lives of professional athletes.

The reality of an athlete’s life is a far different thing. Finances are a dangerous operation with the levels of money these individuals have to work with, and many of them find themselves in dire straits before all is said and done. Some of the biggest and most recognizable names in sports: Mike Tyson, Allen Iverson, Lenny Dykstra, Lawrence Taylor, and John Daly are just a few who have found themselves making headlines because of their state of financial ruin.

Athletes are in one of the highest risk economic brackets for financial crisis; in pretty much any kind of field where people are thrust from a lower income into one that is light-years beyond anything they previously earned.

Let’s start off with some cold hard statistics. Data collected from studies involving Athletes, their managers, players’ associations, financial advisors, and agents state that 78% of NFL players have encountered financial problems or are even bankrupt in their retirement. Similarly 60% of NBA players find themselves in financial crisis within 5 years of leaving the sport.

Part of the problem stems from the fact that athletes make most of their money in a substantially truncated amount of time. Their earnings can be from a ten to fifteen year period, and in many cases even shorter than ten to fifteen years; instead of over several decades. Athletes make an amazing income, and their salary is usually fifty to one-hundred times the base amount of a middle-income family in the United States. Of course, once an athlete retires from playing this enormous wage increase stops abruptly with few athletes transitioning into other types of careers or spokesperson deals.

Also keep in mind, the money that athletes take in is not guaranteed. Sometimes contracts change or are violated, and if an athlete becomes injured they can find themselves coming up significantly shorter for the season.

Most of the professional athletic world make the bulk of their money at very young ages. The standard age for peak performing athletes is twenty-five to thirty, and then past thirty-five they experience a huge plunge in income and desirability. This is the opposite of most of the population which reaches peak income levels between thirty-nine years and fifty-five years of age.

So what are some of the life events that take place with professional athletes that cause financial peril during their time in a higher wealth bracket?

Lifestyle is one of the largest contributing factors. When athletes are playing at the top of their game, they want their lives to match that. Extravagant cars, homes, and lifestyle choices like gambling are all common contributors to the excessive spending that occurs early in players financial careers.

Divorce and child support are sadly also common among players, many of whom end up divorced more than once; with multiple children to pay child support for. Of course, once they stop playing these levels of payment set by the court might become absolutely crippling financially.

A lack of financial education and bad investment decisions are also a contributing factor for players. Most gain wealth so young, they have no idea how to plan for the future and retirement (which again would not be the case in a conventional career path). Often times, players are also given bad financial advice from family or friends instead of from and actual business manager. Of course, there are a myriad of financial predators out there as well that target young athletes who may not know better than to place their money and trust with them.

Another rising problem that is plaguing professional athletes is fraud. Between the years 2004 to 2017 professional athletes have reported no less than almost 500 million in fraud as reported in an analysis by the EY Forensic & Integrity Services practice. Athletes are targeted across the spectrum of different realms of professional sport, and there isn’t one specific kind of athlete that finds themselves exempt from these financial predators. Again from the EY Forensic & Integrity Services analysis; 41% of professional football players were victims of fraud. 22% were basketball players, 15% baseball players, and 10% hockey players. The last 5% were soccer players and boxers. Again, these forms of fraud can come from “friends” or people posing as “professional investors” or “wealth advisors” that take advantage of athletes schedules and lack of active participation in their own finances to make bad money investments, make recommendations based that involve conflicts of interest, or just plain swindling and embezzlement of funds. Another common trap for athletes is to have someone sign away their name or likeness for financial gain that never actually adds to the player’s financial well-being.

Finally there is the emotional aspect of having new excessive wealth. There is a certain stigma in a lot of cultures that demonizes great wealth and players coming from a lower income bracket might have trouble making the adjustment to think of wealth as a good and positive thing; rather than a destructive force in their lives that needs to be spent quickly and gotten rid of. There’s a certain level of financial emotional maturity that these athletes just haven’t had the time to grow into when dealing with their money.

Athletes attempt to live their vision for what they perceive their personal brand to be and the kind of life they feel they absolutely should be living to really be part of that bracket of high-earning sports professionals. Sadly, this vision is limited and they aren’t living a financial truth that would allow them to live comfortably and still lay groundwork for their future beyond their days on the field or court. It takes a team of professional business management, much like the saying of taking a village, to truly make the most out of one’s lifestyle in a high paying professional field and still ensure there is something to move onto once retirement has arrived.

This is just the first in a series of editorials that will examine different areas of entertainment, including sports, music, film and television in an effort to find the commonality between each of these high-profile professions and the financial predicaments that top earners find themselves in. Check back next week for an examination on the lives of film and television professionals and what sort of pitfalls they should avoid when they achieve that elusive top 3% status in their field.

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