Rich professional athletes squandering their millions has become a sad cliché.
A Sports Illustrated article this year showed how shockingly common financial ruin is:
* By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.
* Within five years of retirement an estimated 60% of former NBA players are broke.
* Numerous retired MLB players have been similarly ruined.
If that's not bad enough, the recession has made things even worse. Too much money in real estate; investments in Ponzi schemes; and poor financial advising have been exposed with the down economy.
A sign of the times? More former stars are selling their championship rings for money than ever. "It's amazing that I heard the recession was over," says Timothy Robins, owner of Championshiprings.net, who buys bling from current and former pros and has seen a 36% increase in sales during the past year. "I'm getting more calls from players than ever. They're having a really hard time."
While just about everyone has lost money over the past year, athletes tend to make particularly bad financial decisions, and it's not just reckless spending.
While many athletes had the right idea, they made many mistakes when it came to investing their millions. Rather than follow the more conservative path, allocating small percentages to things like private equity and real estate, making clever small business grants and watching it grow. Instead of dedicating most of their attention to quality stocks and mutual funds, most athletes do the complete opposite. With little to no interest in the stock market, they invest most of their money in “sexier” ventures like restaurants, car dealerships and clothing lines, all of which go belly up. Here are some examples of investments gone horribly wrong.
Players: NFL retirees Drew Bledsoe and Rick Mirer
Venture: Pay By Touch, a technology which would replace credit cards with fingerprints.
Result: Company was sketchy to begin with, riddled with legal issues, and eventually closed down.
Player: NFL’s Muhsin Muhammad
Venture: Baylo Entertainment company
Result: Muhammad had to sell his mansion on eBay when his company was being sued for late credit card payments.
Player: MLB’s Mike Pelfrey
Venture: Texan financier Robert Allen Stanbford’s $8 billion fraud.
Result: 99% of his fortune is now frozen.
Player: NFL’s Raghib (Rocket) Ismail
Ventures: Religious movie; Rock N Roll Café; COZ Records; cosmetics; framed calligraphy-name shops.
Result: All were flops, millions of dollars up in smoke.
Player: NFL’s Michael Vic
Ventures: Car-rental dealership; real estate; wine shop
Result: Never took off, placing Vic $6 million in the h***, forcing him to file for Chapter 11 bankruptcy and to put his mansion on the market. Of course going to prison for illegal dog fighting pretty much took care of any endorsement deals he had.
Player: Torii Hunter
Venture: A new inflatable raft invention that you can place under your furniture, where in the case of a flood, everything floats.
Results: Project sank. $70,000 gone. Hunter was nearly swindled into another $500,000, but he sought financial advice and was steered away from rubber dingys. Hopefully he’ll be wiser with his $90 million dollar contract.
Athletes in the big leagues spend like they’re in the gargantuan leagues. This is especially true for rookies who feel the pressure to maintain the same lifestyle as a veteran. Mansions, cars, jewelery and clothes are bought at an absurd level during a pro athlete’s peak earning period. When a 22-year old is suddenly getting pay checks in the ballpark of $500,000 every two weeks, the idea of remaining somewhat conservative while planning for the future seems ludicrous. They find themselves purchasing $10 million dollar homes, 10 cars of at least $125,000 apiece, fancy restaurants and all-night parties, not to mention the drugs, the alcohol, and the gambling that is often associated with some of these rich celebrities. They fail to realize that once the income stops, the monthly payments don’t.
As soon as these new professional athletes sign their names on the dotted line, they are surrounded by vultures in the disguise of investors, financial advisors, and even friends and family who would tell them how to “protect” and spend their fortunes. They’ll be approached by all types of services who want to “help” them out, but who will charge them up the yin yang for the privilege. Some examples are the bill-paying services who’ll manage the athletes’ monthly expenses, but who will charge their own monthly expense of $5000. Or financial managers who’ll charge them $100,000 to prepare their taxes. While the players are busy on the court or in the field, they have no clue what is happening in their own bank accounts, and most couldn’t be bothered to find out, so they hire people to take care of that stuff for them. Unfortunately these people are very often crooked. Between 1999 and 2002, $42 million dollars was lost when approximately 78 NFL players trusted crooked advisors.
Luigi DiFonzo: Former-felon-turned-adviser defrauded many players including Eric Dickerson, a Hall of Fame running back. Luigi committed suicide in 2000.
William Black: An agent whose pyramid scheme took $15 million from over a dozen football players.
Kirk Wright: The hedge fund manager managed to defraud folks from all walks of life to the tune of $150 million. $4 million came from safety Blaine Bishop, while $2.7 million came from safety Steve Atwater. After being convicted of 47 counts of fraud and money laundering, Kirk Wright would also commit suicide.
Between 60-80% of professional athlete marriages end in divorce.
No athlete in history understands the financial cost of divorce like Michael Jordan. When all was said and done the former NBA superstar handed over $168 million to his ex-wife Juanita, placing him ahead of Neil Diamond and Steven Spielberg for the most expensive celebrity divorce. Thankfully, Jordan didn’t waste all his money on things like inflatable furniture rafts and shady investment deals, so while the settlement is indeed a huge blow to the bank account, the six-time NBA champion’s endorsements and business deals will keep him out of the poor house. Not all players are so fortunate. Most professional athlete divorces occur after retirement, when the pay checks are no longer coming in. And in accordance with American divorce law, the wife is entitled to half of the husband’s assets, including everything he earned during his sports career.
Diapers for one baby are expensive. Professional athletes have a bad reputation for making many babies, with many different mothers. Monthly child support payments definitely add up.
Boxer Evander Holyfield: It is estimated that Holyfield made over $200 million during his fighting career. Now he’s being sued for missing the $3000 per month payments for only one of his 11 children. His $10 million dollar home is up for auction due to foreclosure.
NBA’s Kenny Anderson: 7 children from 5 different mothers (3 girlfriends and 2 wives). One of these women divorced Kenny, and won nearly half his assets, close to $10,000 in child support, and the license plate on her car reads “HISCASH.”
NBA’s Sean Kemp: 7 children, 6 women.
NFL’s Travis Henry: 9 women, 9 children. At roughly $3000 a pop, his monthly child support payments are equivalent to what some people earn in a year.
One problem with becoming incredibly wealthy, is that you usually do it alone. If you suddenly won the lottery, it would be perfectly normal for you to want to take all your friends on an all-inclusive trip around the world. The only problem is that they didn’t win the lottery. They still have jobs to go to and bills to pay. What ends up happening with many celebrities is they’ll “hire” their friends to perform the various jobs (accountants, lawyers, marketing managers) required to keep their s**t together while they’re playing ball. While this may seem like the right thing to do, these friends aren’t necessarily qualified to handle million dollar accounts or high profile real estate deals. Mistakes are made, millions of dollars are lost. Many athletes turn to former NBA legend Magic Johnson for business advice, and he will literally hang up on them if they’ve hired a friend or a family member to handle their affairs.
And of course, lets not forget the “friends” and “family” who come out of the woodwork as soon as these athletes sign that pro contract. All of them are probably looking for a quick business loan because they know a guy who can make them all a little richer. Suddenly your cousin’s girlfriend’s doctor’s yoga instructor went to elementary school with you, and they need your help. Sounds absurd, but any celebrity will contest that they often can’t tell they’re real friends apart from the people just looking for handouts once they became famous. Also, when someone you’ve known for your entire life starts asking for a few thousand dollars, and you’ve just received your pay check for $500,000, it becomes difficult to say no. Most athletes have known several people their entire lives.