Why Athletes Go Bankrupt

The “Real Deal” is broken.

Former heavyweight champion Evander Holyfield is playing the real life game of Deal Or No Deal. His $ 10 million property in suburban Atlanta was reported to be in foreclosure, the mother of one of his children was suing for unpaid child support, although it appears that he has paid off that debt. A Utah consulting firm has gone to court claiming the boxer paid no more than half a million dollars for landscaping. Just one more high profile athlete who has to reduce his lifestyle to the level I am used to. Why are athletes who seem to have it all so often completely unable to control anything related to finances?

We all played our violins to death when we learned of Latrell Sprewell’s financial troubles. On Halloween 2004, Sprewell, who was in the final season of a $ 62 million five-year contract with the New York Knicks, said he was insulted by Minnesota Timberwolve’s offer of a contract extension that was supposedly worth between $ 27 million and $ 30 million for three seasons. Sprewell said, “I have to feed my family.” That quote became a national nickname for the public perception of athletes as greedy and disconnected individuals. Apparently, Sprewell still can’t feed his family. His yacht was recently repossessed and his multi-million dollar mansion is about to be repossessed.

While there is certainly the stereotype of the financially irresponsible NBA athlete, no professional sport is immune.

Let’s take a look at some financial stories of high-profile athletes over the years:

1. No one my age can forget Jack “The Ripper” Clark, a star player for the Boston Red Sox who filed for bankruptcy in 1992 midway through his second year of a three-year, $ 8.7 million contract. with Boston; listed $ 6.7 million in debt. Jack was a master of prudent asset acquisition and financial planning. His bankruptcy petition listed assets such as 18 cars, including a 1990 Ferrari that cost $ 717,000 and three 1992 Mercedes Benz cars that cost between $ 103,000 and $ 143,000. He owed money on 17 of the cars and was required to pay about $ 400,000 in federal and state taxes. He had also lost around $ 1 million on an drag racing adventure. It seems like Jack would have felt more at home in the NBA. You can read about it here Mike Tyson ‘s Bentley

2. Johnny Unitas, the Baltimore Colts Hall of Fame quarterback, filed for bankruptcy in 1991, citing numerous failed deals in his petition. These failed fragments included bowling alleys, land deals, and restaurants. He filed for Chapter 11 bankruptcy in 1991.

3. Mike Tyson The name speaks for itself. Mike’s bankruptcy was highly publicized. Despite making hundreds of millions during his boxing career, Mike kept it simple. His bankruptcy petition simply said, “I can’t pay my bills.” According to federal court records, his liabilities amounted to about $ 27 million. You can read that story here.

4. Dorothy Hamill, the gold medalist in women’s figure skating at the 1976 Winter Games, filed for bankruptcy after a series of financial setbacks. Hamill said he has experienced financial setbacks as a result of poor financial investment management and advice.

These are just a few of the pain stories of many athletes. It’s not a phenomenon limited to professional sports, just ask MC Hammer. Before filing for bankruptcy, it was made public that his daily living expenses far exceeded his income of $ 33 million. If I am going to drift towards celebrities, I certainly must mention Kim Basinger and Michael Jackson.

When the Toronto Star published an article alleging that a shocking 60 percent of NBA athletes “went broke” five years after retiring, didn’t we all bring out that tiny violin we had reserved for such occasions? The NBA players’ union and the NBA have disputed that claim. The article goes on to talk about all the people who take advantage and “scam” these athletes. While I have no doubt this is true, I can also understand how such a generalization would make the NBA uncomfortable. It leaves you with the impression that 60 percent of NBA players are not only financially inept, but generally idiots as well. This is simply not true. While good business sense is often lacking, I consider many of his mistakes to be more mistakes of trust, credibility, and lack of life experience than anything else. Smart, busy people who can afford it hire people with specific expertise to help them. This allows them to focus on their experience. Sometimes mistakes are made and bad judgment is used about who we hire and who we hang out with. That is not unique to the NBA or professional sports. This happens to everyone. That’s life. Happens all the time. It just doesn’t appear on the cover when we mess up. If there is any question about how badly we were wrong as the general public, look at personal bankruptcy filing statistics.

To get an insider’s perspective, I contacted Jordan Woy, a highly respected sports agent and director of the sports marketing and management company Schlegel Sports. Jordan has represented numerous high profile athletes

This is what Jordon said:

I think there are several reasons why so many athletes “go broke.” First, whether you are a lottery winner, athlete, or star performer, if you are not equipped with the knowledge on how to win and save money, you are in trouble. When they didn’t earn it through disciplined business practices and don’t have those skills, they usually get over it quickly. Most athletes or lottery winners win a large amount of money in a short period of time. They start spending it on things that only lose value (cars, jewelry, parties, entourage, etc.) and they start to evaporate the money they have. They can carry this on until they stop making a lot of money. This is when the problem starts. It’s hard to believe that MC Hammer, Mike Tyson, Evander Holyfield, and now Ed McMahon are broke. These are people who made hundreds of millions over time and disappeared. Generous spending and entourages were probably the downfall of the top three for sure.

Most athletes play for four to ten years if they are lucky. After paying taxes (can be 40% to 50%) and agent fees and buying their first houses, cars, outfits, jewelry (plus cars, clothes and jewelry for friends and family), they are left with very little . When they first “get rich”, all their lifelong friends and family are waiting for help. Most athletes feel compelled to help everyone at first and then they figure it out. They also want to keep up with their teammates. If someone buys a Bentley, they have to buy one; if someone buys a $ 75,000 watch, they have to buy one to maintain the look. Then of course, when the race is over and they still live in a multi-million dollar home, drive 3 expensive cars (and insurance), ride private jets, and take limousines on their way out to town, reality sets in. Money runs out very quickly.

However, if athletes educate themselves, learn money management skills, and make smart and safe investments along the way, they are generally in great shape. After representing athletes for over 20 years, we call it our “life plan.” We take clients on off-season business vacations to places like Las Vegas, Cancun, and on a cruise to the Bahamas to learn how to network. We have people from industries like real estate, oil and gas, financial planning, credit repair, asset protection / estate planning, etc. who come to educate the players and their wives so they can learn about these businesses and also determine if they are interested in any of these industries for life after sports. One of the financial planners that comes always says that most people die going down Mount Everest and not going up. The goal is for these athletes to get to Mount Everest AND come down safely.

So what do you think? Are the financial mistakes athletes make different than yours or mine? They are certainly mistakes made with a bigger negative side. When we hear these stories, are we simply unable to understand that someone could have so much money and spend it all? Can we learn lessons on how to live our lives from your much publicized financial mistakes? Do we care at all?

With all due respect to Latrell Sprewell, we have our own families to feed …