Four Reasons Professional Athletes Go Broke

Posted on: February 16th, 2016 in Mindset by Pat Mesiti | No Comments

Let me ask you a question:

“What job has an average salary of $5 million per year and comes with a 60% chance of going bankrupt within 5 years after retirement?”
 

If you answered “professional NBA basketballer”.

Then give yourself a gold star.

Because that’s what Mint.com discovered in a financial survey of American professional athletes.

The names will shock you.

Scottie Pippen… Allen Iverson… Charles Barkley… Latrell Spreewell.

If you follow the NBA at all you will know these players are all legends of the game.

They each made more than $100 million through playing and endorsements during their career.

Yet each of them have somehow wound up broke.

Now for the shocking part — basketballers aren’t the nastiest offenders.

According to Mint.com, NFL players are even worse with more than 78% filing for bankruptcy within five years.

MLB Baseballers are only mildly better, filing for bankruptcy four times more than the average U.S. citizen.

You may be asking yourself, “How can that be?”

How can you earn $100 million plus in a career, yet end up in the poor house?

Well here are the top reasons based on observations and research by financial experts.

 

# 1 – Chronic Overspending

A simple rule of financial management is to spend less than you earn.

Unfortunately, the sad fact is most of us spend what we earn.

And when we earn more, we simply lift our spending.

Consider the story of former NBA guard Kenny Anderson who filed for bankruptcy in October 2005 despite earning an estimated US $60 million throughout his playing career.

During his career he bought eight cars and rang up monthly expenses of $41,000, including outlays for child support, his mother’s mortgage and his own five-bedroom house in Beverly Hills.

He also spent $10,000 a month in what he called “hanging-out money” and regularly handed out $3,000 to $5,000 to friends and relatives.

Financial advisers have come to call this “the problem of the $20,000 Rolex.”

If a 20 year-old spends $20,000 on a Rolex watch or a big night out that money is either depreciating or gone.

But if they invested in a five percent, Triple A insured, tax-free municipal bond for a period of 30 years, that $20,000 would be worth $86,000 at that tax-free rate of return.

And needless to say players buy more than one $20,000 Rolex during their careers.

 

# 2 – Poor Investment Decisions

Professional athletes tend to become a magnet for bad investment pitches.

And their lack of financial acumen means they often fall prey to them.

According to Ed Butowsky of Chapwood Capital Investment Management, this is the number one reason why athletes go broke.

“Chronic over-allocation into real estate and bad private equity is the number one problem in terms of a financial meltdown,” said Butowsky in a Sports Illustrated article.

“And I’ve never seen more people come to me about raising money for those kinds of deals than athletes.”

 

# 3 – Wrong People

So why do professional athletes fall prey to these shoddy investments?

The answer is simple.

They take advice from the wrong people – namely family and friends with no specialized financial skills or knowledge.

In his book, “Winning the Money Game: Lessons Learned From the Financial Fouls of Pro Athletes” ex-NBA player Adonal Foyle describes it like this:

“When your parents come and ask you for money, or your entourage member, you know you can say ‘no’ — but what’s the cost? Parents will say, ‘We raised you; we took care of you.’ Friends will say, ‘I always had your back.’ These people are attached to the athlete psychologically.”

And new family members and friends seem to come out of the woodwork with their hands out when you come into money.

Angels baseballer Torii Hunter tells the story of when he returned to his hometown for his grandmother’s funeral.

The service was held in the local Baptist Church and was packed to the brim with a line of cars outside stretching for blocks.

“But my grandma didn’t know anybody,” Hunter says. “She just lived at home.”

The situation become comical as soon as Hunter stepped out of Church and people began hounding him for help.

“They were throwing CDs, projects, letters… They were yelling, ’My sister’s brother went to school with you!’”

It would be a tough situation to handle, let alone a young uneducated 20 year old.

 

# 4 – Financial (Un)Education

So what is the cause behind these financial meltdowns?

How can professional athletes, many whom earned $100 million plus in their careers, hit financial ruin so soon after retirement?

The problem comes from a lack of financial education and poverty mindsets conditioned during our upbringings.

According to ex-NBA player Adonal Foyle:

“Almost none of us come from wealthy families. The vast majority of us do not even come from middle-class families. Instead, we sign multimillion-dollar contracts as 20-year-olds with little or no financial knowledge.”

Financial guru Ed Butowsky describes it best.

“There’s something in an athlete’s mentality… that drives him to swing for the fences financially, usually at his own peril.”

“The solution to the problem is, without a doubt, education.”

“Change won’t happen until grown men start wanting to learn.”

 

If you were in this scenario, would you wind up dead broke too?

While it’s easy to scoff at the millions squandered by highly paid American athletes.

Let me ask you this.

If you found yourself in this scenario, would you wind up dead broke and bankrupt too?

While you’d like to think the answer is , “No,” the fact is I believe most people find themselves in the exact same place.

Think about it.

… How many people increase their spending with a raise, instead of funnelling the extra money into an investment?

… How many small business owners squander big pay days on boats and cars instead of squirreling it away for a rainy day?

… And how many of us work on lifting our financial mindset and education, when our income lifts?

The truth is if we want to grow our wealth, then our mindset has to rise with it.

The good news is it’s easy to change your thinking with the right education and people around you.

That’s my life mission.

And that’s why I do what I do.

I look forward to our continuing journey together.

Pat

BTW – If you’ve been looking for opportunities to grow your talents, your finances, and most of all your heart…

… Make sure you register your complimentary free spot at CREATE & ACCELERATE 2016.

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ABOUT PAT MESITI

Pat Mesiti is a best-selling author, coach and educator in the area of personal development. Having built some of Australia’s largest people-driven organisations, Pat understands the power of harnessing human potential. He has shared the stage with some of the world’s great business minds and has sold over millions of copies of his books and materials.

 

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