It’s no secret that being a professional athlete is a lucrative profession. Simple economics follows that, when supply meets demand, Aqib Talib gets $57 million from the Broncos. At no other time of year is this reality more visible than during the NFL’s negotiating period. Over the first three days of free agency, teams shelled out more than $927 million on player contracts.
But what happens when you give celebrity status to a recent college grad and stuff his pockets? In far too many cases, the money slips right through his fingers. Two years after retirement, 78 percent of former NFL players are either bankrupt or under significant financial stress. Champion boxer Mike Tyson went broke despite earning over $400 million in the ring. How can such impossible amounts of wealth completely evaporate? It can’t just be the money. CEOs earning big bucks don’t often blow through their fortunes. So what is it about the culture of professional sports that encourages such financial mismanagement?
The easy answer points to extravagant lifestyles. Consuming excessively and conspicuously is a sign that a pro athlete has made it. For players from modest backgrounds, doors that have always been shut are finally opening. Pressure to spend lavishly plus seemingly boundless wealth inevitably equals temptation. For young athletes caught up in the whirlwind of living their dreams, this temptation is tough to resist. As MLB pitcher LaTroy Hawkins told Sports Illustrated in 2009, “When I was a young buck, I was trying to spend all my money. … I’ve got all this stuff from 10 years ago — jewelry, rims — that I think, ‘Why the (expletive) did I even buy this?’”
When the spotlight shines on an athlete, the phone starts ringing. “Friends” on the other line start asking for favors, and often, players just don’t know how to say no. Massive entourages can rack up quite a tab. Pressure to live beyond your means also comes from teammates. The rookie splurges on a nice car to impress veteran players. In the competitive, testosterone-filled world of professional sports, what good is wealth if it’s not flaunted?
The road to bankruptcy is generally a downward spiral, but the biggest single blow to a player’s wealth is undoubtedly divorce. Estimates peg the divorce rate for professional athletes between 60 and 80 percent. With fame and fortune comes increased attention and pursuit, and athletes don’t always choose right. Tiger Woods’ messy divorce in 2010 reportedly cost him around $100 million. Former NFL player Travis Henry has nine children with nine different women and was ultimately imprisoned for non-payment of child support. Exacerbating the issue, most of these divorces occur post-retirement when the well of steady income has run dry. Athletes often struggle to readjust their lifestyles to their now-permanently lower net worth.
Beyond these factors, many athletes lose money to poor financial management. To a twenty-something year-old kid surrounded by glitz and glamour, conservative securities investment is unintelligible, boring and invisible. Instead, athletes pour their money into tangible ventures: restaurants, nightclubs, clothing lines, etc. Everybody wants to be the next athlete-turned-business mogul, like Magic Johnson. Fueled by being the exception to the rule in one field, athletes are prime financial prey to shady businessmen.
That first big payday from that first big contract represents an enormous financial transformation. We’re talking about people who have essentially just won the lottery. As NFL agent Leigh Steinberg put it, “coming off college scholarships, they probably haven’t even learned the basics of budgeting.” Instead of turning to the world of professional financial services, many athletes hire friends and relatives to manage their wealth. They place way too much trust in these unqualified advisors, and the consequences are often disastrous.
The data is convincing, and the roots run deep. Agents, teams and leagues aren’t paying attention, because why should they? Any solution must be driven by the players’ unions. No one else has the right combination of player incentives and political clout. The NFL Players’ Association has already instituted a groundbreaking Financial Education Program that has drawn over 1,000 participants.
Rightly, players don’t want to be told what to do with their money. They earned it, and they want to spend it. In terms of budgeting and lifestyle, unions should primarily educate. For example, the NFLPA should push to include a financial education segment in the mandatory Rookie Symposium. Let athletes know that, statistically speaking, they are particularly vulnerable to financial stress down the road.
Unions should also pressure teams to impose stricter behavioral guidelines. These athletes were kids when they turned pro, and with the world at their fingertips, many of them never have to grow up. If teams can send stricter messages about what sorts of immature behavior are not tolerated (e.g. DUIs), athletes may be forced to become more responsible.
It’s tempting to advocate micromanagement for a quick fix. Theoretically, unions could compel teams to uniformly stipulate certain conditions of financial planning in player contracts. But telling players what’s best for them will create tension without actually instilling sound management principles.
Mandating action is counterproductive, but providing advice is not. Upon joining the union, each player should be assigned a professional financial adviser. These advisers should generate yearly summaries of expenditures, analyze investment opportunities and advise on allocation of wealth.
To prevent backlash, the player should still have full decision-making control. But advisers should at least show players the data. Present this service not as a mandatory condition, but as a free resource at each player’s disposal. Even if players ignore all recommendations, they should at least be forced to evaluate the relevant information. To change the culture of money mismanagement, professional financial service has to be the default, not just an option.
Nightclubs are exciting, and public securities are boring. But bankruptcy isn’t so fun, either. No million-dollar former athletes want to go broke and ask themselves, “What the hell just happened?” The cars and mansions aren’t going away. Friends won’t stop calling, and marriages won’t stop failing. The temptations will always be out there, but so will the proper advice. Someone just has to make sure it’s heard.
When Mike Firn ’16 goes pro, he’ll be a sound investor. Contact him at michael_firn@brown.edu.
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