In Part 1 we discussed the first 5 themes I have found in looking at why professional athletes end up broke. I will continue that discussion here with the next 5 themes.
6. Guilt and the family
I know this is not very popular but it is all too common with folks that come into sudden wealth, like pro contract, lottery winnings, or other wealth generating event. They are approached by all of their friends and family about helping them with their financial situation. The desire to help your family is only natural, but there is a right way to help and a wrong way to help. I tell clients that if they have a goal of helping their parents with purchasing a home or a car it should be in the context of their overall financial plans. If you are a professional athlete the pressure from family is immense and for many they don’t know how to say No to them. That’s where a good team of advisors can help and be a buffer when it comes to financial matters.
7. Going Through The Big D.
As the popular song by Mark Chestnut says going through the big D is not Dallas. Divorce is a difficult and costly situation for normal people. For professional athletes the situation is even worse. In many states 50% of their net worth is instantly gone regardless of who is at fault. There is also on going alimony payments in a many states. Marriage is difficult enough but when you add the travel schedules and high profile lifestyles of many athletes and it is hard to total of the true cost of divorce for them.
8. Keeping Up With The Vets!
It could be a reality show on E! but it’s not. I tell all new professional athletes that your peers are not the 29 year old guy in the locker room that is just starting his third contract. Far too often athletes try to outspend each other in the locker room. Whether it be cars, watches, or clothes I tell new clients to beware of the trap. A new player in a professional league is usually around a 20 year old kid. Their real peers are 20-22 year old kids starting their first jobs after graduating college. If they take that point of view and live like that they will be better prepared financially when their career is over.
9. Making 300K and spending 400K.
When I worked in banking it was very easy to extend credit to high income individuals. It was also a dangerous situation. Just because someone had the income to afford the million dollar house payment didn’t mean we should have made the loan. Unfortunately banks are very quick to extend more credit than athletes are equipped to handle. Spending more than you make for an extended period of time will get anyone into financial difficulty whether they are a professional athlete or not.
10. When is the end?
Players always think they can play longer than they do. That is why it is important for professional athletes to develop a plan for what they are going to do when the whistle finally blows for the final time and they have to hang up their jersey. For many that day comes far too quickly and that is why it is important to develop a plan from the very beginning. The beautiful thing about planning is that plans can and do change as the circumstances change.
In the final installment of this series I will look at what athletes (and non-athletes) can do to help prepare themselves for the financial responsibilities and lives they are getting ready to embark upon.
A Thought From the Factory on Main
Peter Huminski AWMA
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
The examples of individuals represented is not indicative of all client experiences. Each client has unique circumstances. Examples presented here should not be interpreted as a guarantee of future performance or success.