The Financial Struggles for Retired Professional Athletes

It is reasonable to look at professional athletes salaries and become outraged by how much money they are making for simply playing a game. This past November, Giancarlo Stanton, an outfielder for the Florida Marlins signed the biggest contract in the history of Major League Baseball for a whopping $325 million over the course of 13 years. That is $31.14 million per season. If he were to average 539 plate appearances (2014 total) for the length of his contract, he would be getting paid $57,773.65 every time he stepped up to the plate. Whether he struck out on three pitches or hit a grandslam, he would still get $57,773.65 each time. Not all professional athletes make this much money, but they still have exorbitant  salaries. The average salaries for professional athletes are displayed in the diagram below. The immediate question is how can athletes get paid so much money to swing a bat, shoot a ball or even make a tackle? Athlete’s salaries are not going to decrease as long there is such a competitive market for their services. For teams in big markets such as the Red Sox or the Yankees, it makes sense to sign the best players and put together winning teams because they will produce more revenue from TV deals and higher ticket prices. The increased revenue will outweigh the excessively large player contracts.

pro athlete salary diagram

While we may be jealous or even disgusted by the size of professional athlete’s contracts, we should be confused how so many of them become financially insecure shortly after they retire. According to a 2009 Sports Illustrated article, 78% of NFL players are broke or under financial stress within two years of retirement. This same article estimates that 60% of NBA players are broke within five years of retirement. These statistics are hard to fathom considering the average career earnings in the diagram above. How do these individuals blow so much money in such a short period of time?

Boston Celtics v Indiana Pacers

Just ask Antoine Walker. He is one of the saddest examples of an athlete losing all of his career earnings. I was a big fan of Antoine during his days with the Celtics and I sensed from his post-game interviews that he was caught up in the celebrity lifestyle, but I can’t believe what that actually turned out to mean. Over the course of his NBA career, Antoine made $110 million in player salary, which does not include endorsements. However, in 2010, he filed for bankruptcy. Antoine’s present economic struggles are the result of years of not being able to say “No.” Antoine made countless poor investments in houses, cars, watches, and suits on top of being an avid gambler. During the 2002 NBA Playoffs, Antoine had a new custom made suit for each postgame news conference. Throughout his NBA career, Antoine would support his extremely large entourage, which included over seventy friends and family members. He was such a nice guy that he wanted those closest to him to also live the celebrity lifestyle. By being so willing to spend money on himself and on others, it was only a matter of time until Antoine’s money ran out.

While Antoine is a great example of how to blow over $110 million, there are a variety of factors that explain why so many retired athletes face similar situations. The most significant factor is that many athletes were poor growing up and they are not equipped with money management skills when they get paychecks with six zeroes. The combination of not knowing how to handle money and not thinking to hire qualified accountants proves to be costly for far too many professional athletes. On top of that, most athletes have huge egos, which makes them believe they can make sound financial decisions without guidance.  Yes, they may be extremely talented on the court or field but that doesn’t mean they also know everything about finance. Another issue is that far too many professional athletes delegate full management of their finances to the wrong people. These people are sometimes so-called friends or friends of friends and athletes let them manage their money as a favor not because they are experienced investors. These unqualified investors get all the bills sent to them and gain complete control of the athlete’s finances. They typically make risky investments and sometimes even take extra money for themselves. In addition, research has shown that athletes are more focused on the present and less focused on the future than their non-athlete counterparts. This is why they have so much trouble saving money and avoid making safer, long term investments. In order to avoid becoming the next Antoine Walker, young professional athletes should hire experienced accountants to create long term financial plans. With the right investments and refraining from excessively lavish behavior, there is no reason professional athletes can’t live comfortably for the rest of their lives.

Sources:

http://www.bloomberg.com/news/articles/2014-10-23/basketball-star-who-went-bankrupt-wishes-he-d-gotten-an-mba

http://www.si.com/vault/2009/03/23/105789480/how-and-why-athletes-go-broke

http://www.cbsnews.com/news/why-athletes-go-broke-the-myth-of-the-dumb-jock/

http://ftw.usatoday.com/2013/10/average-career-earnings-nfl-nba-mlb-nhl-mls

http://espn.go.com/mlb/story/_/id/11897600/giancarlo-stanton-325m-miami-marlins-heavily-backloaded

http://www.boston.com/sports/basketball/celtics/articles/2009/10/25/former_celtics_star_antoine_walker_pursued_by_creditors_as_wealth_vanishes/?page=2

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