Updated: Oct 17, 2018
As the salaries for professional athletes continue to increase, the number of athletes filing for bankruptcy is also on the rise. Many cannot fathom how an athlete could face financial hardships after receiving multimillion-dollar paychecks. Although it may be tough to wrap your head around this, imagine waking up one morning and you’re suddenly a celebrity. On top of the attention that goes along with celebrity status, you’re also committed to a multi-year, multimillion-dollar contract by a professional team. This is a dream come true, right? Let’s not forget that this instant fame is happening while you’re only at the ripe young age of 20 years old.
Recommended reading: "Why Athletes Need a Strategic Marketing Manager"
According to NBER (National Bureau of Economic Research) on players drafted to NFL teams from 1996 to 2003:
The data finds "that 15.7% of NFL players have filed for bankruptcy within 12 years post career. The filings begin “very soon after retirement” (but just 1.9% of retirees have filed after two years) and “continue at a substantial rate through at least the first 12 years of retirement.”
The study also suggests that bankruptcy rates are not affected by a player’s career length. The 15.7% figure should not lead anyone to conclude that the other 84% of NFL alums are all raking in the money and living high on the hog—many more than 15.7% struggle financially after leaving the sport, and many may go broke or get close to it. (NBER only tracks statistics on bankruptcy filings)
Unlike business professionals, who have experience and the education to deal with financial affairs, most professional athletes lack the practical principals in managing large sums of money. As these athletes come into riches, they fail to receive the formal education or training necessary to effectively manage their finances. Young athletes become instantly wealthy, like lottery winners, and they desire to live the “good life”. It is not surprising why the money fails to last a lifetime.
By taking in all of the above, here are 5 small tips that will help professional athletes attain the same success in their financial lives that they do on the field:
1. Treat yourself like an Entrepreneur
Professional athletes and entrepreneurs are very similar. Athletes should have the mindset that they are their own individual company. Surround yourself with a team of professionals who will stay in their own lane of expertise. Your “off-field” team should be just as important to you as your teammates on the field. Treating yourself as a business will be a factor in keeping realistic financial goals and priorities.
2. Do Not Enable
Many athletes are very generous when it comes to helping their family and friends. Although this help comes from a very good place it can also come at a high financial cost. You must keep in mind that giving gifts such as cars and other large ticket items will create ongoing financial obligations. Athletes should always evaluate whether their generosity is fulfilling “needs” or “wants”. Some assistance is good but not when taken to excess. Giving too much to another creates dependency which ultimately hurts those you are trying to help. The best gift a person can receive is education or the means to develop skills to become self-sufficient.
3. Be Cautious
Athletes tend to spend on other opportunities with hopes to make a return on their investment. One rule I tell my clients when it comes to investment opportunities is to stay away from “get rich quick” schemes and do not invest with friends. Hire a financial advisor to help evaluate and guide you when it comes to investment opportunities. You must do your homework before hiring a friend or taking any referrals when it comes to a financial advisor. You want a financial advisor for their expertise, not for their friendship. By establishing a solid financial foundation first, there will likely be more lucrative opportunities to invest in down the road.
4. Maintain Reasonable Expectations
If you have the entrepreneurial mindset you will understand the importance of living within your means. By nature, athletes are goal-oriented and setting financial goals that are measurable is a significant way to help establish long term financial security. Be careful not to overextend through credit cards and debt and strive to retire debt-free. To help keep spending in check, establish a goal to save as much as you spend.
5. Educate Yourself
You do not have to graduate with a finance degree, but it is extremely important to develop an understanding of the basic components to financial success. Your financial advisor or team should not only execute a financial plan, but they should also educate you on financial affairs. Being educated and having an interest in your portfolio will help minimize impactful financial mistakes.
About the Author
Jennifer’s client portfolio consists of corporate organizations, professional sports teams and pro athletes. She aggressively seeks influential and lucrative opportunities for her clients to ensure that their brand not only remains relevant, but continues to grow, thrive, and influence.
Jennifer Mamajek, SportsLink Marketing
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