From Riches To Rags

In the eyes of the average member of the workforce, professional athletes definitely seem to have it made. They make a living by playing their favorite sport every day. While this appears to be an extremely desirable path, shocking statistics about the financial struggles of famous athletes are attempting to prove otherwise. In 2009, Sports Illustrated had calculated that 60% of NBA players become broke within 5 years of retirement. NFL players have even more severe problems, as 78% of them are bankrupt within the first 2 years of hanging up their spikes.

Many of the star players in professional televised sports are making millions of dollars a year, which encourages them to live the highlife and spend it frivolously. When a given player sees another player on their team buy something new, (a car, fancy house, or other luxury item) they feel inclined to one up them and buy something even more expensive. It is partially the competitive nature of athletes that inspires them to do this.

Along with their competitive nature and susceptibility to showing off, are their poor money management skills. A large chunk of athletes that make it big go straight into professional sports out of high school, or leave college early when a sports team drafts them. Without finishing college, they are significantly worse off in terms of their skills with handling money. When they start playing, their income skyrockets from $0 in high school and college to around $500,000 as a rookie, (the minimum salary for a player on an MLB roster).

In this short amount of time they are typically unable to mentally adjust to their new income, and tend to regard most of their salary as a sort of producer surplus. They are thinking that since they would be willing to play their sport for a living for a fraction of that salary, that they really do not need the entire amount that they are making. This is the thought process that becomes dangerous. Since they were living just fine before on a small budget, they are more likely to spend most of what they initially make as a rookie.

This problem only magnifies for those who sign big contracts and become star players. Alongside the previously mentioned problems, the star players are put into an all-new income bracket. While their contract may say $1,000,000 or even $20,000,000, they are really only receiving a fraction of that due to income taxes at their ridiculously high income level. These taxes can be anywhere from 35% to 40% which turns $1,000,000 into less than $650,000 in the blink of an eye. Then, not knowing their financial situation, they tend to go out and spend money with the misconception that they are making more than they really are.

Finally, what gets big time athletes into trouble in the long run are the investments that they make. They know that they should invest their money, since in theory it will make more money for them. What they do not understand is that they have no idea how to invest their money efficiently, and that what they invest in actually matters. They tend to invest in restaurants, and other businesses that have a high tendency to fold.

In order to assist young talented athletes on their journey, and help them better manage the millions of dollars they are soon to make, the NBA has put in place a rule prohibiting players younger than 19 from being drafted. This will force those young players to play in college their freshman year at the very least, and hopefully take an economics or financial accounting course. The small amount they learn about money management when young can be the difference between a successful life and becoming broke.

Works Cited

Corben, Billy, dir. Broke. Perf. Keith McCants, Bernie Kosar, Andre Rison, and Marvin            Miller. ESPN, 2009. Netflix. Web. 21 Nov. 2014.

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3 thoughts on “From Riches To Rags

  1. This is a really interesting thing to look at within the sports world. You mentioned that in the NBA you cannot be recruited before you are 19, is this something that has been successful for the players and been beneficial to them? If it has been successful and aiding the athletes to spend their money more wisely, and even helping them athletically, will other sports take this same rule on? On a different note, professional tennis players “go pro” when they are in their early teens (some as early as 14), but I wonder what would happen to tennis if there was a minimum age to be a professional.

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  2. jamesel2014 says:

    Young talented athletes are worse when it comes to manage money skills, because it is absolutely true they do not attend an economics course or money manage workshop. Could this be true with all young athletes? It is not. I think it is only the uneducated athletes that are unintelligent at money managing skills. For instance, Raghib “Rocket” Ismael, who played in the NFL and Canadian football league, made over $18 millions alone in salary, but invested poorly because he was ill-advised about investing smart and efficiently.

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  3. I think it would be more beneficial for these athletes to get real life-coaching, more than just the year that the NBA wants them to get life experience and an education when they are 18 going on 19. It would make more sense for them to take courses or attend workshops and whatnot when they are beginning their professional athletic careers, or maybe even continue to take them/attend them throughout their careers. And I agree with jamesel2014 that it is not necessarily all athletes, but I figure it is a large majority. I also find it interesting that you factored in the pressures the athletes feel from other athletes to spend more money toward a superfluous lifestyle.

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