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| SOURCE: http://www.forbes.com |
It is a well know fact than many pro athletes go broke after retiring from their respective sports. In fact, according to the Sports Illustrated, “Four of five NFL players are bankrupt or under financial crisis. In the NBA nearly two of three players are broke within five years.” The numbers are alarming. How can athletes who make so much money, fail financially so quickly after retirement? The answer is evident even before the player starts his first practice in the big leagues. Barry Ritholtz of The Washington Post believes that the moment collegiate athletes get selected in the draft, they are setup to fail. In his article "Congratulations, You Were Drafted! Prepare To Go Broke.", Ritholtz states that inexperience, career length, and frivolous spending are the main contributors to the future financial failures for rookies that lie hidden beyond their huge contracts.
Newly graduated college students will see low salaries as their are first hired onto their job. With advancements in their careers and success in the workplace, these workers will see their salary increase over time. “By the time they are making the big bucks, age and experience has taught them how to manage their finances.” Athletes, on the other hand, are often thrusted into a multi-million dollar contract right from the start. They never had a smaller salary because college athletes go unpaid. They never practiced how to budget their wealth like the new workers who received low income. So athletes often do not have the experience that is required to know how to properly manage their money. It certainly doesn't help that there is a standard of living that the media has created around athletes. By praising the life of luxury of players who have endorsement deals and huge contracts, the new rookies believe that they too can strive for this lifestyle despite their difference in income.
So they spend their money. A lot of it. “Everyone takes home much less than they realize”. Just like how the average citizen’s income is docked by various taxes and required payments, an athlete's income is distributed to professional managers, agents, lawyers, trainers, nutritionists, and various travel expenses. And often times athletes are required to have many of these people by their side to "correctly guide them through their career". By buy including so many of these professionals into their paycheck, before even spending their first dollar, “a $5 million athlete is already down about 70 percent of the gross to $1.5 million.” Yet the athletes still have the $5 million budget in their heads. By not taking into account all of these extra costs, the athlete is spending over his budget. This is a surefire way to get behind ones own financial situation very quickly. If the athlete suddenly finds himself in a financial hole early on, there is no guarantee that they can climb their way out because their time is limited.
An athlete’s career is much smaller than the average worker’s career. A ten year career can be considered a long time in the sports world, but the average citizen works around 40 years. As if their careers weren’t short enough, “injuries, trades, and sheer competitiveness of talent” can cut an athlete's career length. The financial hole that rookies will often stumble into is quite a daunting trap to escape from when they are given only a handful of years. But not only does it cut short the athlete’s time to get out of trouble, but it also cuts short the time where the athlete can learn how to properly manage their increasing income. They have “less time to amass their wealth, and less time to figure out how to manage it.”
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