14 February 2018
Living the life of an athlete is a dream of many young and old. They are seen as role models for young athletes and their lavish lifestyles are what many aim for in life. Though, living like an athlete is not as beautiful as it seems. According to a Sports Illustrated study, 78 percent of National Football League players, just two years after they retire, are either bankrupt or under financial burden because of divorce or joblessness. Another Sports Illustrated study suggested that within 5 years about 60 percent of former National Basketball League players are “broke”. Most athletes do go broke. They go broke for a multitude of things such as financial mismanagement by their agent and player, Lack of agent qualification, and increase in salary for athletes across the 4 major American Sport (MLB,NBA,NFL,NHL).
Athletic financial problems were not a big issue until the early 1990s. Revenue for sports grew exponentially. Professional sports charged more for television rights, fans were spending more on merchandise and in turn the salaries increased extremely. In the MLB alone the average salary in the 1960’s was 19,000 dollars, in 2012 the average salary was 3.2 million. This increase in salary for 21-22 year olds was shocking. Most athletes coming from middle to lower class backgrounds have immediate buys with their first check whether it is a house for their parents and a sports car for themselves or 50,000 dollars’ worth of jewelry. It is a brand new world for them and with expendable cash they get whatever they want.
In the National Football League it is common that an athlete mismanages his money one way or another and is soon selling valuables on eBay or craigslist. Many players see that their careers are ending and that need their money to last them the rest of their lives. This is where the get-rich quick schemes and the terrible investments become crippling to athletes. A more famous scheme was of a company called Country Crossing. Fred Taylor, Vernon Davis, Terrell Owens, and Ray Lewis among others were sucked in to an investment by their financial advisor Jeff Rubin. The investment was an electronic bingo company in Alabama. Rubin promised riches after the NFL. Though there was turmoil in gambling in Alabama. The current governor was on a mission to stop gambling in Alabama. Two weeks after the Country Crossing opened 135 state troopers showed up at 4 am and shut down the business. 43 million dollars were lost including tens of millions from NFL stars. Allegedly Drew Rosenhaus, who was the basis of fictional character Jerry Maguire and is one of the most famous agents in the world, was promoting this investment to his players. Vernon Davis a tight end for the San Francisco Forty-Niners lost most of his rookie contract to this scheme.
Michael Vick is an example of a special athlete who rose to stardom out of the poorest of the poor. He was making millions but made terrible money decisions. He had sponsorships and was even on the cover of Madden NFL 2004. He got caught up in his neighborhood after he rose to fame. He had a compound for his friends and family to live and would come back to his old neighborhood every week. He was caught as being part of a dog fighting ring and went to jail. During jail he filed for bankruptcy protection and his creditors restructure his debt of 18 million dollars. He made 110 million during that time period.
Also agents do not help the cause of players in the NFL being in financial duress. Many fans and even players of the NFL believe that agents backed by the National Football League Player Association have and can be entrusted with fiduciary duties. However, the qualifications are very little to be an NFL agent. All you need to do is pass a test, 2,500 dollars and have some sort of master’s degree. Even the master’s degree comes into question the NFLPA also allows agents without a degree from an accredited college to become an agent if you have seven years of experience in negotiating. This practically means that the people that NFL players are the duty of managing their money don’t even have the credentials to be doing so. This leads many problems such as tax fraud because the agent doesn’t pay your taxes or money lost because your agent lost your money while investing it for you. There were laws passed by congress between 2000 and 2004 to protect collegiate athletes but none that protected post collegiate athletes. The regulations fall to the player’s union or players association in their respected sports. In the NFL Players Association outside of negotiation contracts, other duties of the agents are based on the integrity of the advisor. This leaves the players with absolutely no protection from fraud or negligence on the agent’s part. After the negotiation of contracts the money that doesn’t go to the player is put into investments. The problem is that the player nor the agent is trained in finance which lead to poor investments and money lost.
The influx in money is only adding to the problem. The highest paid NFL player Jimmy Garoppolo is making 137 million dollars over a 5 year contract. This is an absurd amount of money for just one player. The base contract for a drafted rookie in the NFL is 465,000 dollars in the first year of playing. Being a professional athlete in the 4 major American sports is very lucrative and this makes them targets because they make money and their contracts are publicly announced and documented. Everyone comes looking for a piece of the money, especially when most of the players come from low income backgrounds. For example, Bernie Kosar, who was a former quarterback for the Cleveland Browns, entrusted his parents to take care of his finances. Kosar felt that he could trust his parents to do his fiduciary work because they are family. His family turned out to be paying of their mortgage and car as well as other things with his signing bonus on top of the million dollars that the Cleveland Browns gave the family. There were also certain times where he was taking care of 25 to 50 families during his career who lives in Youngstown, his hometown because he felt a sense of responsibility to pay his friends and family back for helping him along the way to his NFL career. Not only do friends and family look for their cut of the money but Uncle Sam does as well. Athletes are put in the 50% bracket tax wise, which means they only walk home with half of what the contract says.
The National Basketball Association is no different when it comes to money mismanagement. Scottie Pippen, an NBA legend, was trying to make some money as he career was coming to a close. His agent and team suggested a financial person to invest with. His name is Robert Lunn and Pippen entrusted 20 million dollars to invest. Pippen was alerted by his accountant that Lunn had committed bank fraud. Pippen later found out that Lunn forged Pippen’s signature and took out a loan of 1.4 million dollars to pay off personal debt.
Allen Iverson is another high profile athlete that mismanaged his money. Iverson didn’t get caught in schemes but spent his money irresponsibly. His monthly expenses included 10,000 for clothes, 10,000 for groceries and household items, 10,000 for entertainment and restaurants and 1,000 for dry cleaning. And at the time Iverson was only earning 750,000 dollars a year. Many would say that he should have has a money manager, but only 50% of players used league approved advisors. Though Iverson does have 30 million set aside by Reebok but he cannot touch the money until 2030.