As the San Francisco Giants and the Kansas City Royals prepare to square off in the World Series, it’s worth mentioning that both team’s players are already winners—at least when it comes to their bank accounts.
The teams’ combined payrolls are a whopping $238 million. That means many of the players have the kind of financial security that most Americans can only dream of. As I look on, I can only hope that their financial success continues. But I know that for many, it won’t.
The truth is, professional athletes are often as bad at handling money as they are good at sports. They spend too much. They make bad investment decisions. They fall prey to fraud. Too often, they end up in worse shape than if they had pursued a more ordinary career.
Baseball players, for instance, are four times more likely to declare bankruptcy than the average American. And athletes in other sports are even worse off. Sports Illustrated estimated a few years ago that 78% of NFL players wind up in serious financial trouble within two years of retiring. Meanwhile 60% of NBA players go bust within five years after leaving the game, according to the magazine.
Stories of star athletes gone broke are legion—from Terrell Owens to Pete Rose to Latrell Sprewell. Why do successful pro athletes so often fail to make the cut when it comes to preserving their wealth? The reasons are many.
Near the top of the list is the fact that a significant percentage of pro athletes come from poverty. While sports role models abound for poor kids, financial role models are nowhere to be found. As a result, those disadvantaged young athletes are unprepared to manage wealth when it arrives.
Another reason athletes fail financially is the brevity of their careers. Having a pro sports career as long as Derek Jeter or Peyton Manning is extremely rare. The typical NFL player lasts less than three years in the league, and athletes in other sports have only slightly longer careers on average. Yet many athletes spend as though their income will continue forever.
Combine these factors with the typical cocky, self-assured attitude that enables athletes to succeed on the field. That attitude often leads to risk-taking financial behavior off the field. A sense of invulnerability, combined with a lack of financial sophistication, makes professional athletes prime targets for unscrupulous advisers and swindlers. Owens, for example, invested in a botched casino project that led to more than $40 million in losses, according to Investment News.
A number of baseball stars, including Johnny Damon and Jacoby Ellsbury, were taken in by a Ponzi scheme run by financier Robert Allen Stanford. Hall of Fame running back Eric Dickerson was scammed by a two-time felon posing as an Italian count.
The stories are endless, unfortunately. And they underline how critical it is for athletes to receive objective financial advice. Just as athletes have agents to negotiate contracts for them, they need trusted financial advisors to help navigate the risks and rewards of sudden wealth.
Bijan Golkar is a Certified Financial Planner™ and licensed tax preparer with FPC Investment Advisory, Inc., in the San Francisco Bay Area. He provides wealth management services for high-net-worth individuals and families.