Learning From Broke Athletes
Professional athletes make millions of dollars a year, but every year many of them unfortunately run into major financial problems. In the NFL, the average salary is $1.9 million, but 78 percent of former players are in bankruptcy within five years of retirement! In the NBA, that figure is 60 percent, even though the average salary is $5.5 million. Despite the high pay, money mistakes made by athletes are very common. The biggest difference is that athletes make most of their money at a young age and before they learn basic financial skills.
Whether you make $50,000 or $5 million, here are some money lessons we can learn from athletes and how we can avoid them.
1) Overspending. Mike Tyson, the former heavyweight boxing champion, reportedly made $400 million in career earnings but declared bankruptcy in 2003. Tyson liked to live large and spent millions on mansions, cars, jewelry, his entourage – and he even paid $140,000 for two Bengal tigers that cost more than $125,000 a year just to maintain! Former NFL quarterback Vince Young blew through $26 million in just six years. He would buy 120 tickets on a single Southwest Airlines flight just so he could fly alone. Even though we may not be able to spend like them, many people spend more than they bring in. To avoid overspending, set up a budget (see artofthinkingsmart.com for more information) and investment plan. Use automatic transfers to ensure regular investment and savings.
2) Lack of tax planning. Evander Holyfield, another former heavyweight boxing champion, earned more than $250 million in his career. However, he recently lost his 54,000-square-foot mansion to foreclosure partly because of his $200,000 IRS debt. Lawrence Taylor, a famous football linebacker, failed to report $48,000 in income and was sentenced to three months of house arrest. In 2012, the IRS sent out approximately 708,000 notices of liens on taxpayers’ properties. It is important to claim the correct amount of deductions and report all your income. Work with a tax professional, if needed.
3) Lack of diversification. Putting all of your eggs in one basket is very risky. Miami Heat basketball star Antoine Walker declared bankruptcy after losing a huge chunk of his $110 million career earnings in commercial real estate that went bad in the 2008 financial crisis. Famous baseball pitcher Curt Schilling said he lost all $50 million he saved on a failed video game venture. It’s important to spread your investments over different types of assets in order minimize your risk. See a financial professional or visit artofthinkingsmart.com for more information.
4) Overestimating your career. The average professional athlete’s career is over by age 33, with the average career span in the NFL at three-and-a half years, the NBA less than five years, MLB less than six years and the NHL five-and-a-half years. NFL wide receiver Terrell Owens sustained a knee injury in 2010 and told ESPN he would be back in a few months to play. Unfortunately, he wasn’t able to, and had two of his Dallas condos go through foreclosure. The average American worker today changes jobs every three to four years. It is important to start saving early and consistently. Injuries, health issues and a bad economy can hurt job prospects.
