The Cash Conundrum: How to Help Athletes Save More and Spend Less

With Super Bowl 50 generating an estimated 620 million in revenue, the NFL and other major sports leagues financially have never been healthier.  However, while these leagues are prospering more than ever, an interesting dichotomy continues to exist between owners and athletes; while owners continue to line their pockets with cash, many athletes are going broke and/or declaring bankruptcy at an alarming rate once they retire.

There are a number of factors that are causing these athletes to lose everything, from bad investments, to extravagant spending, to taking care of family and friends.  ESPN’s acclaimed “30 for 30” film Broke explores many of these factors in great detail.

The following will briefly summarize some of the factors discussed in Broke and search for ways, some realistic and others probably not, to help reduce this disturbing trend in the future.
The most startling facts from Broke are the statistics it cites from a 2009 Sports Illustrated article. “By the time they have been retired for two years, 78 percent of former NFL players have gone bankrupt or are under financial stress; within five years of retirement, an estimated 60 percent of former NBA players are broke.”  The film interviews a number of former athletes as well as some experts in finance and sports, who, for the most part, agree that the root of the problem is that athletes, who join professional leagues at age 22 or younger, do not have the maturity or experience to handle their own finances.  These athletes spend extravagantly on cars, houses, jewelry, gambling, etc. and generally do not have the skills or foresight to save and plan for their future after their careers end.  Former NBA All-Star Jamaal Mashburn recalls during the film that some players do not even own or know how to open a checking account when they receive their first paycheck.

“By the time they have been retired for two years, 78 percent of former NFL players have gone bankrupt or are under financial stress; within five years of retirement, an estimated 60 percent of former NBA players are broke.”  The film interviews a number of former athletes as well as some experts in finance and sports, who, for the most part, agree that the root of the problem is that athletes, who join professional leagues at age 22 or younger, do not have the maturity or experience to handle their own finances.  These athletes spend extravagantly on cars, houses, jewelry, gambling, etc. and generally do not have the skills or foresight to save and plan for their future after their careers end.  Former NBA All-Star Jamaal Mashburn recalls during the film that some players do not even own or know how to open a checking account when they receive their first paycheck.

The film interviews a number of former athletes as well as some experts in finance and sports, who, for the most part, agree that the root of the problem is that athletes, who join professional leagues at age 22 or younger, do not have the maturity or experience to handle their own finances.  These athletes spend extravagantly on cars, houses, jewelry, gambling, etc. and generally do not have the skills or foresight to save and plan for their future after their careers end.  Former NBA All-Star Jamaal Mashburn recalls during the film that some players do not even own or know how to open a checking account when they receive their first paycheck.

All Star Jamal Mashburn, agreed that many athletes are unaware of how to run their personal finances.
All Star Jamal Mashburn, agreed that many athletes are unaware of how to run their personal finances.

Failed investments are also a common theme of the film; restaurants and car washes are mentioned the most, while the most ridiculous investment may have been made by Tori Hunter, who invested in inflatable rafts that float underneath people’s furniture and protect it during a flood.  Needless to say, a financial expert in the film explains that only one in thirty or forty of these investments actually works out.
The film mentions how athletes are surrounded by people who take their money; they buy houses for their mom, lend and give money to friends and family, and take advice from crooked financial advisers trying to take advantage of them. Retired NFL quarterback Bernie Kosar recalls in the film that at one point he was financially taking care of twenty five to fifty families.
Finally, the film explains that when these athletes retire they still have a number of financial obligations such as mortgages, families, child support payments, taxes they still owe, and healthcare for permanent injuries they suffered while playing the sport that they must continue to pay even though they no longer have a steady stream of income.
While every athlete’s situation is different, and no change would prevent all athletes from having some form of financial distress, changes can be made to help prepare athletes financially for life after they retire.

1.- Briefly discussed in Broke, universities could take more responsibility in helping athletes become more financially literate. Universities could require all athletes to take a class focusing on personal finances that includes concepts such as budgeting, smart spending, credit card interest, investing in safe investments such as mutual funds, etc.  While many universities do currently offer finance courses, these courses are not required for athletes.  Additionally, many of these courses focus on business finance, which is different than personal finance.  The universities that do not currently offer a personal finance course could subsidize the course from some of the revenue they generate from their major sports programs.  The NCAA, a billion dollar association, could also offer and fund these classes with some of its revenue.  The potential benefit of having the NCAA run these classes would be uniformity of information across all universities.
2.- Once an athlete joins a professional league such as the NBA or NFL a certain percentage of his income could be required to be invested in “safe” investments such as mutual funds or trusts managed by responsible corporate trustees.  Since athlete’s salaries vary greatly, there would be a maximum amount that would be required to be invested each year.  For example, athletes could be required to invest 5% of their salary up to a maximum of $100,000.  These investments would be run by the league and withdrawals could only be taken once an athlete retires.  This requirement would force athletes to put some of their money into investments focused on wealth preservation as opposed to other riskier options.
3.- Each professional team could have a financial adviser approved by the front office that worked with the players and their finances.  This adviser would be employed by the team and theoretically, would have to be approved by the owner, usually a business savvy person.  By offering their unbiased opinions the advisers would not only help athletes manage their money but also help them avoid some of the illegitimate advisers that take advantage and/or steal from them.
4.- An athlete’s contract could stipulate that his salary be paid out over a longer period of time.  Currently, most contracts pay athletes only for the years they actively play for the team, and only during the time that they are actually playing (about six months out of the year).  If contracts deferred some of an athlete’s salary until he retired, and paid him evenly during the entire year, it would force him to save some of his money and continue to pay him in retirement when he would be more mature and could hopefully make better financial decisions.
In conclusion, while many professional athletes are lucky enough to earn very high salaries at a young age, as a result of myriad factors many also end up suffering from financial problems in retirement.  While there is no one elixir to remedy these problems, if some of the potential solutions discussed in this article were put into effect we would be taking a big step towards helping these athletes prepare financially for life after their athletic careers are over.

CEO of Sports 1 Marketing: Dave Meltzer

31301b3With finals underway, I had the pleasure of sharing Dave Meltzer, CEO of Sports 1 Marketing (S1M), and author of Connected to Goodness, with the class to close out our last week of classes. S1M was my very first internship in sports, and I am glad that it was. If it was not for the energy, environment, and wealth of knowledge at S1M, I probably would not be pursuing my career in sports, let alone a part of the SMBA program.

Before, I would hear how difficult it was to get into sports but a few minutes with Meltzer and he will change your perception.  I learned a lot from Meltzer during my time at S1M, so I knew that the class would be able to learn something from his as well, even given an hour.

dave2It was different than many of the speakers that we have had speak, but that did not matter. He had something he was passionate about and was willing to share. Living by his mantra: “make a lot of money, help a lot of people, and have a lot of fun,” he shared the principles and successes of balancing and manifesting our desires in life and our career.

Revealing the principles and practices came at the right time, as the class prepares to take on our final months of the program with an internship and a thesis. By the end, many of students in the cohort had changed their perspectives and ideas of the difficulty of getting into sports. I think I can speak for the rest of the cohort that having the opportunity for Meltzer to share his story with us was very influencing and energizing.

As much as I would love to share these principles and practices with everyone, I will allow the author himself share them with you in his book. To learn how you can manifest your desires, check out Meltzer’s book, Connected to Goodness, and his speaking engagements here.

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This Person in Sports: Sebastian Coe

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On the day there was only one man, and on the day Seb Coe was that man” – Steve Cram 1984

After winning two Olympic 1500 meter titles, and two silver medals in the 800 (all four medals coming from Moscow-1980 and LA-1984), and setting virtually every possible middle-distance world record Sebastian Coe certainly could have rested on his laurels. He could have followed his fellow Briton and main rival Steve Ovett into athletics commentating or he could have gone down the pathway of so many sports stars into coaching.

Instead he chose to go into politics in 1992 at 30 years old, just two years after hanging up the spikes. In 1997, after a failed bid at reelection he was appointed as a secretary to the head of the Conservative party William Hague. He became a Baron at the turn of the century.

In 2004 he took charge of the movement to bring the Olympics to London. This became official in 2005 when he became Chair of LOCOG or London Organizing Committee of the Olympic Games.

‘If anything, my enjoyment has hardened. In my mind, the 220px-Lord_Coe_-_World_Economic_Forum_Annual_Meeting_2012_croppedimportance of this project is this big…These Games are a vehicle to address so much that is wrong; sport is a catalyst for social change. I’m delighted that the project can be used to clean up the capital’s rivers and to leave a sustainable new community behind, of course I am, but this is about sport. It’s still about sport. It was sport that I went to Singapore to canvass on our behalf for. I’ve never been bashful about that.”  –Sebastian Coe 2012

By all measures London put on a spectacular show last August. The Olympics changed the landscape of London forever and Lord Coe was the man behind it all. He was rewarded with BBC’s Lifetime Achievement Award. This award was well deserved but at 56 years old, Seb might just be hitting his stride.

Where to find Sebastian:

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This Person in Sports: Kevin Plank

Kevin Plank Kevin Plank is the founder and CEO of Under Armour, a company that offers sports clothing, equipment, and accessories. Plank’s journey to creating one of the most successful sports apparel companies in the world began when he was a walk-on Special Teams player on the University of Maryland football team. Plank, constantly troubled by his sweat soaked cotton tee shirts, found himself changing clothes multiple times during practices. Noticing other players with the same problem, Plank set out to find a solution. Continue reading “This Person in Sports: Kevin Plank”