Cool. Not a big surprise. Take a person who is focused on playing sports, sports, sports, training, sports, and oh yea, training who also is poor, and shove money in their face the thing they will do is buy everything they could.
The problem is that most people didn't get the necessary financial education.
The bigger problem is that I doubt these people are very good at math and financial management so they probably ignored the warnings of "I need x dollars per year to sustain this life style, if I get fired tomorrow due to uncontrollable circumstances I am fucked". In the end lots of money needs investing. This is a problem for the middle class and even bigger for the upper.
Another large factor is that, often when athletes realize they need to save/invest money, they get scammed in bad investment deals. A shady businessman will hire a former athlete as a representative to sell risky investments to current athletes, who then lose tons of money even though they were just trying to invest their money for the future.
The article quotes a statement by the NBA Player's Association to that effect, but does not substantiate it. As far as can be determined by a Google search, no one ever corroborated the claim and since the Player's Association has a vested interest, I wouldn't trust the assertion.
Not a surprise at all. I have read many stories like this and the problem is that many of them come from poverty. They get money and they feel very guilty, so they give money to any friends or family that asks. This is why many have such huge entourages.
One player was paying rent for 15 of his friends. It wasn't some cheap place either, but at high rises in a big city.
He also paid for 20 cell phone bills, on top of buying house for his parents, brothers and sisters. Paying all the bills eating out with his close friends, paying for rides and flights.
I don't know about an NBA player that did that but Brazilian football player Marcelinho did that while playing in Germany. Despite having a seven-figures salary he was broke all the time and had to ask his club for loans because he financed the lives of literally dozens of his friends and family members.
"Nearly one-third of lottery winners become bankrupt.
“The CFP Board made an offer to the National Association of State and Provincial Lotteries to provide the organization's members with information to distribute to winners. The Investment News article highlighted the lack of financial guidance many winners receive from state lottery agencies; estimates show that nearly one-third of lottery winners become bankrupt.”
Source: Certified Financial Planner Board of Standards, Inc
http://www.cfp-board.org/bulletin.html
It's also worth remembering that a pro athlete if he's lucky has a career that lasts 15 years, tops. Most play significantly less. Contrast that with the average person's working life, which usually lasts 40-50 years. So sure they make a lot per year but once they're done, they're done, since they tend not have much by way of marketable skills. Saving and investment is the smart thing to do, but it's also a difficult thing to tell a 21-year-old who suddenly has more money than he's ever seen in his life.
I think "More often than not" vastly overstates it. It's much more common in baseball, with its extensive farm system, or football with the large number of position coaches, but even there it's the exception rather than the rule.
Can only speak for basketball (my brother plays in our NBL and I run hoops.com.au) but I'd say you're correct. Some go in to coaching or admin roles, but not many and, at least in Australia, many of those positions are not particularly well paid.
Also, earning $10 million over 15 years is far less tax efficient than earning that same amount over 50 years: you keep less of your income by a few marginal tax brackets.
It is much worse than that. The average NBA player's career is very short. About 4 years, last time I checked. And if you remove the stars that can last 15-20 years, you get a lot of people that play for 2 years and are dropped due to injury or just not panning out.
And after a player is dropped from the NBA you get someone that has devoted their entire life to playing in the NBA and does not have any other job training. There are other leagues in other countries but they are few, have limited spots for foreigners and usually and do not pay very well.
What exactly is the definition of "broke"? Declaring bankruptcy and having your house foreclosed doesn't mean you're broke like a homeless person is broke.
What I don't understand is why the players association doesn't do something about it.
In theory, they could do something like this: All monies paid to players go into a common fund, which is managed by the player's association. Each player gets a small stipend from this fund for entertainment and housing. The rest remains in the fund, and the player gets a statement every year showing how much they earned from playing and how much from investing. Hopefully, after a few years, the investing is making more than the playing, showing the player that investing is good.
Then upon retirement, the following happens. 2 million is set aside and put into a fund. From that fund 5% is paid every year to the player, with the rest being reinvested. Then the rest they can choose to either remove from the fund, or keep in the fund and get earnings payments, or maybe take some out and leave the rest. The hope being that they saw their statements and know that investing is good.
But even if they don't, they still get that 5%, which starts at $100K/yr and in theory goes up with inflation, which should be more than sufficient to keep them from being totally broke.
They could do the same for football players, who tend to have the same issue.
The NBA has a pension system for its players. It more or less does what you talk about. If you play for 13 years or so, I believe you get 50k a year if you retire or something to that effect. The longer you play, the higher the pension payout is.
It's not a bad idea, but the implementation will never happen. I can see the politics of the suggestion going bad very fast with accusations of racism. Not fair, but the spin would make some money so it will happen.
Incidentally, the government tried this with the Native American land profits and it has all turned bad with ongoing lawsuits and some serious settlements.
They need education most of all; there's a number of articles out there detailing the predatory businesses and people milking money off professional athletes. It's not just that they buy extravagant goods, but they pay for them with horrible loan terms, and the debt runs away on them. Here's an example:
Most NBA players are scouted from very early on (AAU), then to college for 1 year, then to NBA. They do not get a chance to learn about how to manage money (compared to a regular joe: summer job, internship, etc..).
Most of the inner city kids have a distrust of "the system" or "the man". Therefore, they would never trust their income to a players assoc.
Whats should be done is to establish a class on How to Manage Your Money 101 by the league/PA.
The NBAPA has had a Rookie Transition program which deals in large part with money management for the last 25 years. The NFLPA has a similar Rookie Symposium.
"Most NBA players are scouted from very early on (AAU), then to college for 1 year, then to NBA." This is completely untrue. Players that go to the NBA one year out of college are the exception and not the rule.
The league is still busy trying to tackle the problem of keeping players out of jail. Maybe retirement plans are next on the agenda. I'm by marriage related to a recently retired NBA player employed by the league with the job of giving retarded simple advice about keeping out trouble and paying taxes, and so forth.
Anyway, the color of this problem of stupid decisions with large pro sports salary money is black. The cause is the disintegration of the black nuclear family. If a dumb white kid makes it big in baseball or the NFL, some reasonably successful uncle or cousin will come out of the woodwork to offer good advice. The dumb black kid, with just a mom and no functional extended family, will be prey to all kinds of hucksters.
There's plenty of literature about how these athletes lose their money: they get taken by local businessmen on deals for things like car washes and restaurants. They don't know how to value a business and they don't trust national financial markets, so they get soaked by local operators who trick them into trusting.
I don't doubt that that is a better default, but I guarantee you that someone who understands money is going to offer them the same reverse annuity deal that unwinds the same protection for lottery winners. "Why get dribbled out a mere $200k for life when I'll put $2 million in your hand, cash, tomorrow? You think Jordan had to save to buy his crib? You earned that crib, dawg!"
The fault doesn't fall 100% on the athlete. Bad loans, high risk loans, were given to these people just like the rest of America but on a much larger scale. Yes I agree they spend lavishly, but all of them have over financed themselves!
I think that anyone who comes from lower to middle class backgrounds and makes a substantial amount of money quickly faces the risk of losing it. Lottery winners, people who receive large court judgments, and pro athletes have consistently shown that as with most things, large amounts of money can be easy come, easy go.BTW: The NBA player turning down a $30Million contract and then going broke is quite funny to me.
Not surprising. Many of these players come from a lower class background where financial literacy is not taught to them. They likely got through school with the minimum of effort, protected by coaches, teachers, and administrators because they "were good ball players". If they went to college, it was on a basketball scholarship where their preferential treatment would continue.
In short, they've never had to think about anything besides basketball. They go from rags to riches without anyone telling them the obvious: it won't last. Their heroes spend big money on flashy cars and houses, and when you're staring at a seven figure cheque that might seem like a good idea.
They likely grew up in a household where their parents lived paycheque to paycheque, and simply being able to provide for yourself and afford luxuries was considered being smart with your money. They probably thought of their houses and cars as investments, because thinking of them as million dollar wasteful extravagances is depressing. They wouldn't have made the connection that an investment is not something that's expensive, it's something that makes you money.
The average NBA player is raised to play basketball, and that's it. They end up being very good at basketball, and little else. If they are amongst the small cadre who think about life after basketball, then they likely won't be broke. It doesn't even take any special knowledge to be able to live well off $100M in career earnings. They just need to go to a financial adviser and have someone else look after their money. But they don't.
Maybe I'm missing it, but where is the article? All I see is a slide show about 15 athletes that have gone broke. Google didn't return anything recent. Can somebody reply with the link?
Good content, unbelievable inept slideshow implementation. Takes 5-10 seconds to load every time you click "Next". CNBC has a really shitty web development team.
A family friend of mine is Mark Madsen. After 9 NBA seasons (with 2 championships) and an average of 11 minutes per game, he entered Stanford's MBA program. That's a pretty smart way to play. Even if he wasn't a star, he's doing well for himself, with the future all the more promising.
Does this phenomenon replicate itself in the start-up world? Curious how many first time start-ups fail due to too much cash, to fast with no idea how to spend it appropriately.
10
The stupid man sows discord by his insolence, but with those who take counsel is wisdom.
11
Wealth quickly gotten dwindles away, but amassed little by little, it grows.
12
Hope deferred makes the heart sick, but a wish fulfilled is a tree of life.
49 comments
[ 10.6 ms ] story [ 96.4 ms ] threadThe problem is that most people didn't get the necessary financial education.
The bigger problem is that I doubt these people are very good at math and financial management so they probably ignored the warnings of "I need x dollars per year to sustain this life style, if I get fired tomorrow due to uncontrollable circumstances I am fucked". In the end lots of money needs investing. This is a problem for the middle class and even bigger for the upper.
One player was paying rent for 15 of his friends. It wasn't some cheap place either, but at high rises in a big city.
He also paid for 20 cell phone bills, on top of buying house for his parents, brothers and sisters. Paying all the bills eating out with his close friends, paying for rides and flights.
"Nearly one-third of lottery winners become bankrupt.
“The CFP Board made an offer to the National Association of State and Provincial Lotteries to provide the organization's members with information to distribute to winners. The Investment News article highlighted the lack of financial guidance many winners receive from state lottery agencies; estimates show that nearly one-third of lottery winners become bankrupt.” Source: Certified Financial Planner Board of Standards, Inc http://www.cfp-board.org/bulletin.html
more studies on lottery winners: http://answers.google.com/answers/main?cmd=threadview&id...
More often than not, players become coaches or bureaucrats in the corresponding sports organizations.
// Presumably you're ignoring investment even at bank base rates?
And after a player is dropped from the NBA you get someone that has devoted their entire life to playing in the NBA and does not have any other job training. There are other leagues in other countries but they are few, have limited spots for foreigners and usually and do not pay very well.
For an idea of where the money goes.
In theory, they could do something like this: All monies paid to players go into a common fund, which is managed by the player's association. Each player gets a small stipend from this fund for entertainment and housing. The rest remains in the fund, and the player gets a statement every year showing how much they earned from playing and how much from investing. Hopefully, after a few years, the investing is making more than the playing, showing the player that investing is good.
Then upon retirement, the following happens. 2 million is set aside and put into a fund. From that fund 5% is paid every year to the player, with the rest being reinvested. Then the rest they can choose to either remove from the fund, or keep in the fund and get earnings payments, or maybe take some out and leave the rest. The hope being that they saw their statements and know that investing is good.
But even if they don't, they still get that 5%, which starts at $100K/yr and in theory goes up with inflation, which should be more than sufficient to keep them from being totally broke.
They could do the same for football players, who tend to have the same issue.
But seriously, they should have some kind of program.
Incidentally, the government tried this with the Native American land profits and it has all turned bad with ongoing lawsuits and some serious settlements.
http://www.thepostgame.com/features/201104/tpg-exclusive-cas...
I wouldn't be surprised if the player's associations already sponsor financial training seminars; can't force them to learn, though.
Most of the inner city kids have a distrust of "the system" or "the man". Therefore, they would never trust their income to a players assoc.
Whats should be done is to establish a class on How to Manage Your Money 101 by the league/PA.
Here is a article from SI on 'How Athletes go Broke' http://sportsillustrated.cnn.com/vault/article/magazine/MAG1...
This years first top 10 picks:
4 Freshman 3 Internation players (ages 18, 19, 21) 1 Sophmore 1 Junior 1 Senior
If you are any good or hyped, you are draft in the first year..
Anyway, the color of this problem of stupid decisions with large pro sports salary money is black. The cause is the disintegration of the black nuclear family. If a dumb white kid makes it big in baseball or the NFL, some reasonably successful uncle or cousin will come out of the woodwork to offer good advice. The dumb black kid, with just a mom and no functional extended family, will be prey to all kinds of hucksters.
There's plenty of literature about how these athletes lose their money: they get taken by local businessmen on deals for things like car washes and restaurants. They don't know how to value a business and they don't trust national financial markets, so they get soaked by local operators who trick them into trusting.
http://www.nytimes.com/2009/12/13/sports/basketball/13pensio...
[add link] http://www.thestreet.com/story/10983698/1/even-pro-athletes-...
In short, they've never had to think about anything besides basketball. They go from rags to riches without anyone telling them the obvious: it won't last. Their heroes spend big money on flashy cars and houses, and when you're staring at a seven figure cheque that might seem like a good idea.
They likely grew up in a household where their parents lived paycheque to paycheque, and simply being able to provide for yourself and afford luxuries was considered being smart with your money. They probably thought of their houses and cars as investments, because thinking of them as million dollar wasteful extravagances is depressing. They wouldn't have made the connection that an investment is not something that's expensive, it's something that makes you money.
The average NBA player is raised to play basketball, and that's it. They end up being very good at basketball, and little else. If they are amongst the small cadre who think about life after basketball, then they likely won't be broke. It doesn't even take any special knowledge to be able to live well off $100M in career earnings. They just need to go to a financial adviser and have someone else look after their money. But they don't.
Also, completely busted on android/iphone.