LINK: http://allfinancialmatters.com/2008/04/09/60-of-nba-players-go-broke-within-5-years-of-retirement/
By JLP | April 9, 2008
Notice that the title is a question, not a statement.
AFM reader, Billy, sent me a link to a post from Le Basketball titled 60% of NBA Players Broke After 5 Years… The post is dated January 31, but this is the first time I have seen it.
The article states that the 60% stat is a rule-of-thumb so there’s no way of knowing just how accurate it really is. It seems rather sensational to me to use such a big number. But, even if the actual percentage was half that, it would still be too many in my opinion.
So, why do you think NBA players (maybe all sports figures for all I know) have such poor financial skills? I think it’s because they know how to play basketball but know very little about money. I think it’s also due to the fact that lots of kids get handed fat contracts before they are mature enough to handle themselves.
I found this paragraph from the article interesting:
Shaquille O’Neal of the Miami Heat was in the news recently with a court document representing his annual income as well as his annual and monthly spending. The “Diesel” pays $156,000 a month just in rent and mortgages on the various properties he owns or leases and another $1500 just for his cable TV bills! Of course Shaq is on another level than most other NBA players with the simple fact that he pulls in $20 million a year in salary but this still shows you a great example of the kind of money players are capable of spending.
I think it boils down to the fact that you can ALWAYS spend whatever you earn! I know as our family’s income has increased our lifestyle has increased along with it. The key is to keep the living standard increase BELOW the income increases.
My advice to NBA players:
1. Don’t buy ANYTHING until you have financial plan.
2. Consider your career, your business and hire people to run your business. LeBron James is a great example of this.
3. Save AS MUCH money as you can while the money is flowing in. Sure, it’s okay to have a nice car, but do you really need 5 nice cars? It’s okay to have a nice house but do you really need 5 houses?
4. Understand that eventually your career is going to end. You’re lucky if you get to play until you’re 40. If you retire then, chances are pretty good that you’ll be in retirement 40 - 50 years. Of course, you could always change careers at 40, which many sports figures do.
5. PROTECT yourself from scam artists. Wherever there’s a lot of money, there’s lots of crooks just waiting to take it from you. Resist the temptation to invest all your money in a hedge fund.
Thanks, Billy, for the interesting blog material.
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9 Responses to “60% of NBA Players Go Broke Within 5 Years of Retirement?”
Foobarista Says:
April 9th, 2008 at 4:05 pm
The thing that kills so many of these guys is simple: entourages. All superstars have and to some extent need some sort of entourage, but guys like LeBron James and Tiger Woods are actually realizing value from their entourages.
For other people, their entourages are full of parasites who blow money on partying and general stupidity.
AndyS Says:
April 9th, 2008 at 4:08 pm
Easy come, easy go. However I think the NBA and all professional sports are getting better with financial planning and player education. There is nothing as sad as seeing a great past sports player struggling for money and having to resort to degrading ads or working in a “footlocker” ( I have seen this!)
JLP Says:
April 9th, 2008 at 4:23 pm
Foobarista,
That’s a good point.
SavetotheFuture Says:
April 9th, 2008 at 4:37 pm
It’s hard to put ourselves in their shoes. No pun intended. Many of our sports stars do not come from wealthy families. They suddenly aquire this tremendeous amount of wealth, and they are not necessarily surrounded by people giving them the best financial advice. So they do the one thing anybody can do best, which is spend money.
I can just imagine what I would that do with that type of cash flow : )
Cindy Says:
April 9th, 2008 at 5:09 pm
I saw a news story about the NFL offering financial classes for their players. They showed them how to handle the money, what to watch out for, and how to invest. Sadly, I can’t find any information about it online…
I also read something where hotshot players pre-draft will go get loans, then end up in huge debt if they don’t get drafted or get injured right away.
No Debt Plan Says:
April 10th, 2008 at 9:01 am
I honestly wish I could be a financial adviser to the sports elite, and not just because I think it would be fun to go all of the games. If anyone has any serious ideas on how to do this, I’m game.
I think you should take Shaq’s numbers with a grain of salt. He was going through divorce proceedings. I would imagine he would pump the numbers up to try and make sure the ex-wife gets as little as possible. Not that I believe he isn’t blowing money left and right, that’s pretty much a guarantee…
Ben Says:
April 10th, 2008 at 10:17 am
Here’s an article regarding the NFL players:
http://www.news.harvard.edu/gazette/2007/03.08/09-nfl.html
Miguel Says:
April 10th, 2008 at 10:18 am
These issues are true of just about any profession where income is extremely lumpy (i.e. pay for performance) and job risk is extremely high (i.e. you’re only as good as your last game, movie, book, script, deal, show, exibition, etc. or an injury could take you out tomorrow). I know many folks in these kinds of professions. Some handle it very maturely, some don’t. Unfortunately, these professions usually require an extraordinary level of career focus, as well as the expenditure of significant sums to go with the lifestyle. Celebs need a certain amount of isolation and that costs a lot. Flying private costs, gated homes cost, limos cost, hotel suites cost, etc. Also, in show biz, things like personal trainers, fashion consultants, tips & tucks, etc. aren’t just luxuries. Just ask any 3rd tier celeb who is famous enough to have fans stalking them, but not rich enough to afford the celeb perks. A certain % of fans can take things too far and become pretty scary(seriously, I’ve witnessed this a few times).
So it really helps to have somebody, like a wife, mom, sibling, or trusted agent, who can act as manager and gate-keeper of the finances, and keep the entourage at bay. Like any close relationship, if you choose wrong, it will add up to a costly disaster.
Phil A. Says:
April 18th, 2008 at 10:15 pm
It is pretty sad when there are sensible hard working people out there making under $20,000 a year with more savings to their name than some of these foolish and unwise basketball players.
By JLP | April 9, 2008
Notice that the title is a question, not a statement.
AFM reader, Billy, sent me a link to a post from Le Basketball titled 60% of NBA Players Broke After 5 Years… The post is dated January 31, but this is the first time I have seen it.
The article states that the 60% stat is a rule-of-thumb so there’s no way of knowing just how accurate it really is. It seems rather sensational to me to use such a big number. But, even if the actual percentage was half that, it would still be too many in my opinion.
So, why do you think NBA players (maybe all sports figures for all I know) have such poor financial skills? I think it’s because they know how to play basketball but know very little about money. I think it’s also due to the fact that lots of kids get handed fat contracts before they are mature enough to handle themselves.
I found this paragraph from the article interesting:
Shaquille O’Neal of the Miami Heat was in the news recently with a court document representing his annual income as well as his annual and monthly spending. The “Diesel” pays $156,000 a month just in rent and mortgages on the various properties he owns or leases and another $1500 just for his cable TV bills! Of course Shaq is on another level than most other NBA players with the simple fact that he pulls in $20 million a year in salary but this still shows you a great example of the kind of money players are capable of spending.
I think it boils down to the fact that you can ALWAYS spend whatever you earn! I know as our family’s income has increased our lifestyle has increased along with it. The key is to keep the living standard increase BELOW the income increases.
My advice to NBA players:
1. Don’t buy ANYTHING until you have financial plan.
2. Consider your career, your business and hire people to run your business. LeBron James is a great example of this.
3. Save AS MUCH money as you can while the money is flowing in. Sure, it’s okay to have a nice car, but do you really need 5 nice cars? It’s okay to have a nice house but do you really need 5 houses?
4. Understand that eventually your career is going to end. You’re lucky if you get to play until you’re 40. If you retire then, chances are pretty good that you’ll be in retirement 40 - 50 years. Of course, you could always change careers at 40, which many sports figures do.
5. PROTECT yourself from scam artists. Wherever there’s a lot of money, there’s lots of crooks just waiting to take it from you. Resist the temptation to invest all your money in a hedge fund.
Thanks, Billy, for the interesting blog material.
---------------------------------------------------------
9 Responses to “60% of NBA Players Go Broke Within 5 Years of Retirement?”
Foobarista Says:
April 9th, 2008 at 4:05 pm
The thing that kills so many of these guys is simple: entourages. All superstars have and to some extent need some sort of entourage, but guys like LeBron James and Tiger Woods are actually realizing value from their entourages.
For other people, their entourages are full of parasites who blow money on partying and general stupidity.
AndyS Says:
April 9th, 2008 at 4:08 pm
Easy come, easy go. However I think the NBA and all professional sports are getting better with financial planning and player education. There is nothing as sad as seeing a great past sports player struggling for money and having to resort to degrading ads or working in a “footlocker” ( I have seen this!)
JLP Says:
April 9th, 2008 at 4:23 pm
Foobarista,
That’s a good point.
SavetotheFuture Says:
April 9th, 2008 at 4:37 pm
It’s hard to put ourselves in their shoes. No pun intended. Many of our sports stars do not come from wealthy families. They suddenly aquire this tremendeous amount of wealth, and they are not necessarily surrounded by people giving them the best financial advice. So they do the one thing anybody can do best, which is spend money.
I can just imagine what I would that do with that type of cash flow : )
Cindy Says:
April 9th, 2008 at 5:09 pm
I saw a news story about the NFL offering financial classes for their players. They showed them how to handle the money, what to watch out for, and how to invest. Sadly, I can’t find any information about it online…
I also read something where hotshot players pre-draft will go get loans, then end up in huge debt if they don’t get drafted or get injured right away.
No Debt Plan Says:
April 10th, 2008 at 9:01 am
I honestly wish I could be a financial adviser to the sports elite, and not just because I think it would be fun to go all of the games. If anyone has any serious ideas on how to do this, I’m game.
I think you should take Shaq’s numbers with a grain of salt. He was going through divorce proceedings. I would imagine he would pump the numbers up to try and make sure the ex-wife gets as little as possible. Not that I believe he isn’t blowing money left and right, that’s pretty much a guarantee…
Ben Says:
April 10th, 2008 at 10:17 am
Here’s an article regarding the NFL players:
http://www.news.harvard.edu/gazette/2007/03.08/09-nfl.html
Miguel Says:
April 10th, 2008 at 10:18 am
These issues are true of just about any profession where income is extremely lumpy (i.e. pay for performance) and job risk is extremely high (i.e. you’re only as good as your last game, movie, book, script, deal, show, exibition, etc. or an injury could take you out tomorrow). I know many folks in these kinds of professions. Some handle it very maturely, some don’t. Unfortunately, these professions usually require an extraordinary level of career focus, as well as the expenditure of significant sums to go with the lifestyle. Celebs need a certain amount of isolation and that costs a lot. Flying private costs, gated homes cost, limos cost, hotel suites cost, etc. Also, in show biz, things like personal trainers, fashion consultants, tips & tucks, etc. aren’t just luxuries. Just ask any 3rd tier celeb who is famous enough to have fans stalking them, but not rich enough to afford the celeb perks. A certain % of fans can take things too far and become pretty scary(seriously, I’ve witnessed this a few times).
So it really helps to have somebody, like a wife, mom, sibling, or trusted agent, who can act as manager and gate-keeper of the finances, and keep the entourage at bay. Like any close relationship, if you choose wrong, it will add up to a costly disaster.
Phil A. Says:
April 18th, 2008 at 10:15 pm
It is pretty sad when there are sensible hard working people out there making under $20,000 a year with more savings to their name than some of these foolish and unwise basketball players.
