The Main Reasons Why Professional Athletes Become Bankrupt
Honestly, this is a hard piece for me to write as I really can’t understand it. I can enumerate the reasons, I can even understand how each of them can happen, but for the life of me, I cannot understand how somebody can blow a fortune worth millions and never have that alcoholic-like “moment of clarity” which says “Whoa, this is waaaaaaaaay out of control.”
It all comes back to one of my dearly-held rules of life which states poor people usually are poor for a reason. Most young athletes have not been properly exposed to nor educated about money when the suddenly find themselves awash in it. Much like a guy who has been working on the assembly line for 25 years, and is suddenly a multi-millioniare, neither of them are really prepared for the legal, social, personal, let alone financial implications of sudden wealth.
After all, everybody has that “if I won the lottery” fantasy. The reason why you do that is because there comes a time in every working person’s life when they would love to chuck it all, leave their job, and simply escape it all if only it weren’t for the money. I’m no different; I’ve never made a salary of millions per year. Maybe that’s why I simply don’t get how somebody could blow a situation where one could be set to retire in their 30s with a complete blanket of financial security. It all comes back to having financial prowess and/or discipline; a shockingly high number of professional athletes are flat broke less than 10 years after they retire.
As I went through how this could happen, it all came down to a simple dictate; you can’t keep what you don’t appreciate.
Bad Investments
This is the classic “wrong execution of the right idea.” Investing is usually a solid financial strategy, so long as one is prudent about where they stick their money. Rather than follow the more conservative path, allocating small percentages to things like private equity and real estate, or quality stocks and mutual funds, too many do the complete opposite by sinking money into “sexy” or “get richer quicker” ventures like restaurants, car dealerships, and clothing lines, all of which go belly up, all of which are slim-margin businesses.
Frivolous Spending
Now this one is easy to understand. When you spend more than you make, you are headed for a catastrophe. Too many big league jocks spend like Democrats on a drinking binge. This is especially true for rookies who feel the pressure to maintain the same lifestyle as a veteran. Like those Democrats, they fail to realize that once the income stops, the monthly payments don’t.
Misplaced Trust
A nice concise term for this is “ripped off.” Ask anybody who has come into sudden money; as suddenly they are surrounded by vultures in the disguise of investors, financial advisors, and even friends and family all of whom are full of “friendly” advice. All to often this involves some sort of scam artist, fraudulent investments, or some sort of exorbitantly-priced “personal service.”
Divorce
Here’s one that kills even regular guys. Trust me, if you see a professional guy living with a good income living in a one-bedroom apartment and his “fine china” consist of collectible stadium beer cups, that guy has been divorced. How do I know? I’ve been that guy. One of my favorite statistics is that half of all marriages end in divorce; the other half end in death…you could be one of the lucky ones. It gets better for athletes, between 60-80% of their marriages end with lawyers involved. Anything that involves a wife looking to add an ex with a divorce lawyer means somebody is about to hemorrhage money.
There might not be a better guy to ask about that than Michael Jordan. His divorce cost him over $168 million. Luckily Jordan didn’t piss his money away other than this, so this settlement didn’t cripple him. Too many other can’t say the same thing; as with Jordan’s split, most athlete divorces come after they have retired, so not only do they lose over half of what’s left, there’s no more incoming checks, often making the damage financially fatal.
Children
The only thing more expensive than a wife are children. This is another thing that kills most regular guys; the damage goes up exponentially with a big income and/or multiple children, especially if they are from multiple women.
Entourage
Nobody wins the lottery with all of their buddies. But it is those same buddies who will still be around while you got rich and they didn’t. This is how the exceptional mistake of hiring your pals to personal-service jobs like accountants, lawyers, and realtors because you just want to spread the weatlh. The problem, much like with “Misplaced Trust” is that your pals from grade school usually aren’t qualified to handle million dollar accounts or high profile real estate deals. Mistakes cost millions, and that isn’t coming out your buddies accounts.
Don’t forget about the legion of general “hangers-on.” They all have their hands out somehow, from low-level parasitism to the “business loan” because they know a guy who can make them all a little richer (again, see “Misplaced Trust”). Like roaches, they start coming out of the woodwork, next thing you know they are literally nickel-and-diming you to death.
Criminal Activity
Let’s be clear. This means being a perpetrator of crime, not a victim. The most famous case here would be O.J. Simpson; while he skated on the criminal murder charges he faced, the wrongful death suit cost him over $30 million, then there’s that whole armed robbery conviction he got in Nevada. However, a less famous case, yet one more important in terms in this conversation might be the recent conviction of former Michigan hoopster Rumeal Robinson. For those of you not paying attention to sports in 1989, Robinson led the Michigan Wolverines to the NCAA Basketball Championship that year, but a few weeks ago he was found guilty on 11 federal financial fraud charges.
Apparently, Robinson bought some big house time for borrowing more than $700,000 for a sham business deal and then spending the money on a condominium, expensive furniture, and cars.A jury found Robinson guilty of 11 counts, including bank bribery, wire fraud, conspiracy to commit bank fraud, and making a false statement to a financial institution. He faces up to 30 years in prison and a $1 million fine on each count. Among a lengthy list of accusations by prosecutors was one accusing Robinson of scheming to sell his mother’s home without her knowledge.
Federal prosecutors say Robinson schemed between 2004 and 2005 to borrow $700,000 from the Community State Bank in Ankeny, Iowa. He had the help of Brian Williams, a loan officer at the bank who pleaded guilty to conspiracy to commit bank fraud before Robinson’s trial began. Prosecutors said Williams signed off on an initial $377,000 loan to Robinson for his business, Megaladon Development Inc., which was supposedly pursuing a development deal in Jamaica. Instead, Robinson bought a condo, plasma TVs, and designer furniture.Robinson put the condo in the name of his girlfriend, listing her as his company’s marketing director though she actually worked in a strip club. Williams later approved an $80,000 loan for Robinson, which was supposed to be used for business but again was spent on personal items, including cars, clothes, and more furniture.When Williams’ lending authority at the bank ran out, he and Robinson circumvented the $500,000 limit by having the mother-in-law of Robinson’s business partner sign documents for a $150,000 loan that was wired directly to Robinson’s company. Prosecutors said the woman was told she was signing the documents to invest in Robinson’s company, but he spent $44,000 to buy or lease 10 vehicles, including three Mercedes, two BMWs and five motorcycles. He also spent $3,000 at strip clubs, bought a dog for $1,000 and spent $28,000 on house-related payments. Robinson later obtained three more loans from the Ankeny bank totaling more than $111,000.
When it became obvious the Jamaica deal would fail, Robinson and Williams became involved in an energy project with a company called Fairway Energy. Williams loaned $495,000 to the company in exchange for a promise of a payment of that same amount to Williams. Another $101,000 loan was made by Williams in connection with the energy company. Prosecutors also said Robinson arranged for the sale of his mother’s house; his business partner became the owner of the house in 2004 because Robinson persuaded his mother to use equity in the house for the Jamaica project, and the sale of the house occurred in 2006 without her knowledge.
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