by Jack Waymire
20 year-old athletes have a unique set of physical skills that set them apart from everyone else. If they put in the work, they will use these skills to make millions of dollars per year in salary, bonuses, and endorsements. This describes the term ‘sudden wealth’.
That’s the good news. The bad news is their skills will erode over relatively short time periods and they are faced with retirement-type decisions in their late 20’s and 30’s. Or, their careers are over in the blink of an eye if they suffer a catastrophic injury.
Take note, if you are a Silicon Valley millennial millionaire. Pro-athletes are extreme examples of what can happen if you experience sudden wealth and you are not prepared to take on that responsibility. You will not experience a catastrophic injury, but you can experience a rapid decline in the value of your stock options.
Risk & Reward
You might think the rewards of big contracts and the risks of career-ending injuries would cause these athletes to make relatively conservative financial decisions.
Unfortunately, that is rarely the case. Very few athletes come from families and cultures that provide any type of financial knowledge. They are not prepared for the responsibilities that come with sudden wealth.
Long List of Failures
In his new book, “Winning the Money Game: Lessons Learned From the Financial Fouls of Pro Athletes” former NBA player Adonal Foyle says hundreds of athletes end-up broke by the time they are in their 40’s. The main culprit is a series of bad lifestyle and financial decisions because they are not prepared to be stewards of large sums of money. For example:
- Mike Tyson went through $300 million before filing for bankruptcy in 2003
- Curt Schilling made $115 million, but was destitute by 2013
- Evander Holyfield, with three ex-wives and 11 children, went through $230 million
- Jose Canseco earned $45 million and filed for bankruptcy in 2012
- Warren Sapp earned $82 million and filed for bankruptcy in 2012
Foyle also said: “Very few pro-athletes come from wealthy families. In fact, the vast majority does not even come from middle-class families. They come out of poverty that motivates them to excel in sports. The problem starts when 20 year-olds sign multi-million dollar contracts with little or no financial knowledge.”
Who Can They Trust?
Kareem Abdul-Jabbar describes the problem that impacts hundreds of athletes when he said: “I chose my financial manager, who I later discovered had no financial training, because a number of other athletes I knew were using him. Consequently, I neglected to investigate his background or what qualified him to be a financial manager.”
How many pro-athletes have the knowledge to vet the qualifications of financial advisors? The answer is none. They do what Abdul-Jabbar did. They rely on referrals from people they like and trust. Unfortunately, those people may know even less than they do.
Every major sport association knows this is a problem. They try to fight it with education. But, they are fighting a losing battle, when they try to educate athletes who put little or no value on financial knowledge. They won’t listen because they are having too much fun living in the moment. Besides, that is why they have advisors – so they don’t have to spend time acquiring financial knowledge.
It is much easier to surround themselves with entourages that tell them how great they are. They trust people they know and like, even when those people are taking advantage of them for they own financial gain.
No Easy Solution
There is no easy solution for athletes or anyone else who experiences sudden wealth. They need advice and services from real financial experts who have a fiduciary responsibility to put their financial interests first.
However, there is nothing glamorous about financial disciplines that include budgets, savings rates, and investment. But, they are the essential elements for comfortable, secure lifestyles after the glory days are over.
Other posts from Jack Waymire
Paladin Registry recommends a 5-step process to finding the best financial advisor, and the last step may be...
How do you find the best financial advisors; someone who won’t take advantage of you, has ethical business...
When you initially think “financial planner,” you may think you have to be wealthy, you’re close to retirement...