This year, Alex Rodriguez made 30.3 million dollars. His 10 year $275 million contract with the New York Yankees makes him the highest paid baseball player in history, according to Forbes.com. Like you needed another reason to hate A-Rod, right Red Sox fans?
A-Rod’s $30 mill isn’t too impressive, however, when compared to NBA star Lebron James who made a staggering $60 million dollars this year.
2013’s highest paid athlete? Tiger Woods. $78.1 million.
We hear these numbers all the time. We are all familiar with the idea that most professional athletes will make more in one season than we will in a lifetime of working. Which is probably why we don’t have much sympathy, and maybe even get a little pleasure, out of hearing about athletes who go bankrupt. Allen Iverson, Michael Vick, Dennis Rodman, Curt Schilling . . . the list goes on and on. These days we hear about broke athletes just as often as we hear about wealthy ones.
Mint.com states that 60% of NBA players will file for bankruptcy within 5 years of retiring. Football players have even worse luck – 78% of them will file for bankruptcy within 5 years of leaving the NFL.
How do these athletes lose all this money? The easy answer (and the most entertaining) is that they aren’t good with their money. They wasted it on fancy cars, mansions, jewelry, partying, gambling, and bad investments. But it might not be that simple. ESPN’s documentary Broke explores the bankruptcy trend in pro-sports and presents some unique explanations for why this particular group of people continually mismanages their money. It turns out pro-athletes lose money for a lot of the same reasons non-athletes do. Here are 4 mistakes those athletes made and lessons the Average Joe can takeaway from them:
1. Money is Finite, Even if You Have A Lot of It. Probably the most common mistake players who end up penniless make is that they spend money they don’t have. The average NBA player makes $5 million a year, according to yahoosports.com. That sounds like a lot of money to me and I’m sure it does to most young players when they sign their first contract. But even a $5 million bank account isn’t bottomless. After deducting taxes and agent fees, that NBA player only actually takes home around $2 million. That’s still a lot of money but if you’ve been spending like you’re $78 million dollar baller Tiger Woods, your wimpy $2 million might not be enough to cover all of your expenses. For a lot of players, their salary is too large for them to think of in terms of real dollars, so they don’t; they just spend like the money won’t ever run out. And when it does, they find themselves in big trouble.
Your salary might be an easier number to wrap your mind around, but a lot of us still don’t have a clue how much we spend each month. Simply put, your expenses should always be smaller than your income. No matter how much you make, you can always spend more. Keep an eye on what you’re buying. Track spending with a mobile app like Mint or just with a good old fashioned pen and paper. Make sure you’re living within your budget.
2. Understand your finances. You’re in charge. A lot of athletes blame their financial advisors for their money problems. They claim they were tricked into a bad investment or dupped by an advisor with hefty fees who didn’t have their best interests at heart. Former tennis star Aranxta Sanchez-Vicario alleges that her parents, to whom she gave complete control of her finances, blew her $60 million fortune without her knowledge or consent. It’s a pretty lame excuse really. YOU are in charge of your money. No one else should manage it for you. If you don’t know how much you earn, where you are investing, or what your expenses are, you are begging some Wall Street piriah to take advantage of you.
Not having a budget and a strong financial plan in place that you understand and expecting to be monetarily stable is like walking out on the football field without a play and just hoping that the ball somehow ends up in the end zone. It’s just not going to happen. You might need a coach or financial expert to guide you in the right direction, but whether you’re an NFL quarterback or an electrician, you alone are responsible for your financial success.
3. You have a future, save for it. When I was a kid, I had a swim coach who told us that every practice we did was like “money in the bank.” The more we swam, the more money we’d have, and the more prepared we’d be for success in the future. It turns out he was pretty unique amongst athletes in his ability to think long-term. Research done by the Journal of Judgement & Decision Making shows that professional athletes are significantly more present-focused than non-ahtletes; athletes tend to focus more on tasks that are happening now (like hitting the ball or running down the court) than on long-term projects that occur over the course of months or years. This “live-in-the-moment” attitude might make them successful on the field, but it often means that players don’t make plans for how they will earn an income once they retire. The average NHL and MLB careers last just over 5 years. NBA? 4.8 years. NFL? Just 3.5. (Figures according to mint.com) Athletes might make millions of dollars in the few years they play, but it has to last them an entire lifetime. An NFL player typically earns $6.65 million over the course of their career, which spread out over a 50 year adult life is about $130,000 a year. Not a bad living, but how many pro-football players do you know who live like they only make 100 grand?
Planning for retirement might not be glamorous, but it might mean the difference between having a comfortable future and flipping burgers when you’re 60 to make ends meet. Financial security is a marathon, not a sprint. Pace yourself, save money, and you’ll come out on top in the end.
4. Be generous, but don’t be a pushover. One thing I never thought of before I watched Broke was how many people might depend on or ask for money from a professional athlete. Quite a few of the athletes in the documentary talked about requests for financial help from their family and friends as the biggest strain on their income. Saying no to loved ones who need financial help can be very hard, especially for athletes who come from less fortunate backgrounds. If you were lucky enough to grow up with money, you are most likely not a major source of cash for your loved ones. But many professional athletes come from economically depressed neighborhoods and have never had money to share before. They feel guilty saving money for themselves when it means saying no to friends or family in need. Cleveland Brown’s quarterback Bernie Kosar admitted that at one time he was supporting almost 50 families with his paycheck. That’s so generous, but so unrealistic. Bernie might have made much more money than any of his neighbors, but there’s no way it could stretch that far. Kosar declared bankruptcy in 2009.
As with all of your financial goals, you need to set realistic, attainable dollar limits to how much money you can donate to family, friends, or charity. It’s a wonderful thing to be able to help someone else, but it shouldn’t be to your financial detriment. Sometimes it’s ok to say no.
The big takeway from all of this money misfortune – anyone can make financial mistakes. Whether your budget is big or small, financial success comes to those who invest time, knowledge, and energy into making their money work for them. You don’t get drafted into the NFL without years of hard work. You don’t lead the league in homeruns without getting your butt kicked for years. You’ll get out of your finances what you put into them.
If you’re interested, check out this cool infographic from mint.com about pro-athletes and their finances: