The average pro athlete makes more money in one season than the average worker does in a lifetime.
Yet, the stories of pro athletes making millions of dollars and ending up broke are plentiful.
Ones like these …
Six-time pro bowler Terrell Owens amassed more than $80 million during his 15-year NFL career. However, two years after playing his last regular season game for the Cincinnati Bengals, he filed for bankruptcy in 2012.
Antoine Walker won an NBA championship with the Miami Heat in 2006. He was also a three-time All-Star. Walker earned over $108 million during his 12-year NBA career. But, he filed for bankruptcy in 2010 (two years after retirement).
Lenny Dykstra was a three-time All-Star, a Silver Slugger Award winner and a World Series champion during his 12-year run in the MLB. His estimated net worth in 2008 was $58 million. The following year (2009) Dykstra filed for bankruptcy with $50,000 in assets and over $31 million in debts.
The list goes on, too. Here are some other famous, former millionaire professional athletes who filed for bankruptcy …
- Mark Brunell, Warren Sapp and Lawrence Taylor (Football)
- Kenny Anderson, Derrick Coleman and Rick Mahorn (Basketball)
- Bill Buckner, Tony Gwynn and Gaylord Perry (Baseball)
- Riddick Bowe, Evander Holyfield and Mike Tyson (Boxing)
- Jack Johnson, Darren McCarty and Bryan Trottier (Hockey)
- Keith Gillespie, David James and Richard Rufus (Soccer)
- Dorothy Hamill, Marion Jones and Sheryl Swoopes (female pro athletes from Figure Skating, Sprinting and Basketball, respectively)
And it doesn’t end there. Dozens of others have declared bankruptcy. And hundreds, if not thousands, are struggling financially.
According to Sports Illustrated, 78% of NFL athletes and an estimated 60% of NBA players go bankrupt or are under financial stress in just two years and five years, respectively, after their retirement.
It’s such an epidemic that ESPN did a two-hour “30 for 30” documentary titled “Broke” in 2012 …
Available on YouTube here.
Why does this happen? Financial irresponsibility.
Defined in more detail: bad – or no – financial planning … risky investments that blow up … failed business opportunities … expensive hobbies … child support payments … supporting family members and friends … tax evasion … gambling debts … and other wrongdoings.
The NFL is trying to help its league members avoid ruinous financial decisions in a couple different ways.
It offers a rookie transition program for incoming players to provide them with resources and practices for success on and off the field. Teams address social responsibility, respect at work, mental health, character and values and player engagement resources.
The NFL also holds a personal finance camp. This classroom-style minicamp teaches veteran players how to make their money last past their short careers. Financial coaches focus on controlling what you can: where you live, what you spend, what goods and services you purchase and the difference between needs and wants.
Another helping hand is the NFL retirement program(s). The NFL offers a pension plan (only 7% of U.S. companies still offer traditional pension benefits), the Second Career Savings Plan (a lush 401(k) plan with 2-for-1 employer matching) and a Player Annuity Program ($80,000 annuity program contribution for players with four or more credited seasons).
Believe it or not … one player who could serve as a financial role model for other pro athletes is Rob Gronkowski.
Image Credit: The Boston Globe
I know what you’re thinking. Surely, “Gronk” knows more about partying than finances. He has a private party bus … a private party boat (Gronk Party Ship) … and dance moves du jour found at end zones, concerts, pro wrestling events and late-night talk shows.
Generally, the New England Patriots’ star tight end is perceived as somewhat of a goof-off. But in his 2015 book “It’s Good to Be Gronk,” he reveals he’s not goofing off when it comes to his finances:
To this day, I still haven’t touched one dime of my signing bonus or NFL contract money. I live off my marketing money and haven’t blown it on any big-money expensive cars, expensive jewelry or tattoos and still wear my favorite pair of jeans from high school …
I don’t hurt anyone, I don’t do drugs, I don’t drive drunk, I don’t break the law… I’m a 23-year-old guy just looking to have a fun time.
What can we as individual investors learn from the NFL, pro athletes and Gronk?
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Here are some simple takeaways that may give you a better chance at hitting your retirement goals:
- Save. The sooner you start saving, the more time your money has to grow. Saving for retirement should be a priority. Set goals, create a plan and stick to it.
- Don’t spend what you don’t have. This one is easier said than done. If you need to use a credit card, just be smart about it. Use a low-interest-rate or reward card. And have a strategy for how and when you’ll pay off the balance.
- Watch fees. What fee does your financial advisor charge you? What do you pay in trading commissions? What are the expense ratios of your mutual funds and ETFs?
- Open an IRA. You can contribute to a traditional IRA with pre-tax dollars. Plus, you don’t pay taxes on interest, dividends or capital gains within an IRA. Compound your wealth tax-free. Or forgo the tax break now and open a Roth IRA. Your qualified withdrawals will be tax-free.
- If you get a match in your company’s 401(k) plan, take advantage of it. It’s free money. While not of the NFL variety, it’s still significant. For example, many companies offer a 50% match up to a certain percentage. Hard to find an instant 50% return (even more including the tax effect) on your money anywhere else. Plus, you get the benefits of dollar-cost averaging.
- Do your homework before choosing investments in your 401(k). Consult a financial advisor. Or use Morningstar’s free website to analyze mutual funds in your plan. Type the ticker into the quote search box at the top of the page. From there, you can see key fund details: ratings, past performance, management tenure, costs, holdings and much more.
Most of us will never see a fraction of the money that professional athletes earn. But we can learn from their successes and failures.
Best,
Grant Wasylik
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