Pro athletes often come under fire for making too much money. Yet many are far from the top of their game when it comes to managing their wealth.
Sports Illustrated once estimated that 78% of NFL players file for bankruptcy or are broke only two years after retiring, and after five years of retirement, 60% of NBA players suffer the same fate. Close to 16% of NFL players filed for bankruptcy within just 12 years of retirement, according to a 2015 study by the National Bureau of Economic Research.
Why have so many pro athletes, who were once wealthy, later found themselves broke? More importantly, what can we learn from their falls from financial grace?
- Despite the fortunes that top pro athletes earn, many of them end up going broke not long after they retire and sometimes before.
- Pro athletes have a short earnings window, which they must stretch out over a lifetime.
- Spending extravagantly as well as a lack of financial knowledge and planning is how some of the most iconic athletes have ended up broke.
Famous Athletes That Went Broke
Some of the richest and more high profile pro athletes who have gone broke include:
Former heavyweight boxing champion Mike Tyson, who was once worth up to about $400 million, declared bankruptcy even before he retired in 2003. Tyson has said he squandered much of his fortune on extravagant purchases including jewelry, cars, and Siberian tigers. After spending time in jail following a rape conviction, and dealing with a wealth of other problems, Tyson has slowly recovered. But he is still worth a fraction of what he once was.
After earning over $200 million in the NBA, and even more through sponsorship deals, Allen Iverson went broke. In 2012 a judge ordered Iverson to pay a jeweler $860,000 but once he revealed that he couldn't pay, the judge ordered his bank account to be seized. Now he is waiting to cash in on a $30 million rainy day trust fund sponsored by Reebok, as part of a previous deal he made with the brand. He can't access the trust fund until 2030.
Other athletes that have gone broke over time include:
- Terrell Owens, former NFL wide receiver
- Dennis Rodman, former NBA player notably on the Chicago Bulls
- Diego Maradona, Argentinian soccer player once named FIFA's 2000 "Player of the 20th Century"
These pro athletes all have a few things in common in regards to how they lost their fortunes.
Small Earnings Window
Athletes have a unique problem that many other professions don't: the earnings window is small. While the more traditional careers may allow a person to work 30 to 50 years, a professional athlete will work only a fraction of that time. This leaves the retired athlete with the job of managing what they have to last for the rest of their life.
Although most people don't have a small earnings window, the lesson to learn here is that our income is never guaranteed. Living within your means while putting money away for the unknowns of tomorrow is a necessity not matter how much you earn.
Lack of Financial Knowledge
According to Sports Illustrated, most athletes lack the financial knowledge to manage the large sums of money they're earning. Tyson and Iverson are among many athletes who lived a lifestyle based on their peak earnings, yet failed to think about the money they would need later in life.
Regardless of your net worth, you have to play an active role in the management of your financial affairs. Even the best money manager won't care about your money as much as you do, and for that reason, you have to be the final and most important decision-maker and those decisions have to be made based on your financial knowledge. If you know very little about managing money, it's not too late to change that.
In June 2021, the U.S. Supreme Court ruled that the National Collegiate Athletic Association (NCAA) can’t limit education-related benefits, such as paid internships and postgraduate scholarships, for athlete recruits. There has been a long-standing controversy over the sizeable revenue generated by college sports. The players, who actually create the income, see none at all. The NCAA maintains not compensating athletes preserves amateurism in college sports.
Warren Buffett may be one of the richest men in the world, but you may not know it by looking at his modest home and relatively simple lifestyle. He chooses a modest lifestyle because he knows that the accumulation of "stuff" is contrary to good, long-term money management. Many of the athletes who find themselves broke overspent on extravagance, only to find their possessions nearly worthless later in life.
Regardless of your level of income, live a lifestyle that doesn't stretch your budget. Not only will it set you up for financial freedom, but it's far easier to sleep at night when you're not worried about the next paycheck.
The Bottom Line
Take a cue from the many athletes who have found themselves broke later in life. Spending, rather than saving, is a losing proposition regardless of how much money you have. If you don't consider yourself a good money manager, ask for help.