Professional athletes face unique hurdles managing their wealth. Unlike other high earners, the professional athlete's income peaks at an early age and tapers off dramatically. A professional athlete’s career can, and often does, end years before anticipated.
According to a survey conducted by Sports Illustrated, 78% of National Football League players encounter some form of financial stress, or go bankrupt in just two years after retirement. In addition, the same survey revealed that 60% of National Basketball Association players share a similar financial fate in just five years after retirement.
Professional athletes face a variety of challenges managing their wealth, which can range from lack of financial literacy to being targets of frivolous lawsuits, and risky investment opportunities. Athletes require financial life guidance beyond the average investor. While the typical investor saves for an average retirement of about 18 years. The vast majority of professional athletes will need to save for a retirement twice that long with just a fraction of the time horizon for growth before beginning to take distributions.
If you think of the average person's earnings as a hill, which starts modestly and gradually climbs as they earn more and edge closer to retirement. The typical professional athlete experiences the opposite, they start at what will likely be their peak earnings, or far above the what the average 20-something makes, and taper down over time. The professional athlete's earnings hill can become steeper if they neglect to plan for a second career following or if they suffer a career ending injury. A strategic advantage to the athlete's inverted earnings cycle is that if the athlete saves and invests a portion of their earnings they have a significant time line to allow compound interest to potentially work for them.
It’s not uncommon for a rookie contract to be the most money an athlete has seen in their entire life. However, athletes are wise to resist the urge to succumb to lifestyle inflation as they earn their first paycheck.
Terrell Owens is an excellent, albeit dramatic, example of how an athlete can squander wealth. A decorated and robust playing career signified by his electric, and at times, polarizing personality. How could the almost certainly soon-to-be Hall of Famer go broke? Owens, a player in high demand for the fifteen seasons he spent in the NFL, amassed career stats that leave him second only to the great Jerry Rice in total career receiving yards and career earnings to boot. Owens made at least $80 million. However, despite that, the former pro bowl wide receiver filed for bankruptcy in 2012.
Owens demonstrates several - if not all - of the common pitfalls that athletes should avoid if they want to sustain a healthy, wealthy financial life. His lavish lifestyle, punctuated with unchecked spending is characteristic of a complete lack of a coherent long-term financial plan.
Here are some of the most common fact patterns behind athletes losing their wealth:
So, with all this said, how should a professional athlete avoid the same outcome? We suggest following a few basic steps to keep your financial life on the right track for the long run. We like to offer our professional athlete clients a few rules of thumb. While these tips do not completely address every aspect of the unique nature of financial planning for the professional athlete, they will begin the thought process required to create their One Best Financial Life ®.
In the end, athletes should recognize that their earnings are finite. Statistically it's highly unlikely that they will sustain peak earnings for more than seven years. With that in mind, athletes should plan for the future utilizing the resources they have available to them today. We can give advice until we are blue in the face, but it is ultimately up to the athlete to take the advice and utilize it.
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