The perks of being a popular athlete obviously include fame, lucrative contracts, endorsements and a luxurious lifestyle. The downside? Handling all that bling is not as easy as you think.
According to a study published by Sports Illustrated, 78% of NFL players filed for bankruptcy or were in a financial crunch within 2 years of retirement. Moreover, 60% of NBA players also went broke within 5 years of retirement. These examples prove that good financial planning for athletes is essential.
Here are major reasons why many athletes go broke after retirement:
A Small Earning Window
As an athlete, you may not realize that your financial spike is bound to be short-lived. You have probably trained for years to become a world-class athlete, but it is likely that at the end of your career, you still have around 40 years more to live.
The sports industry is a physically demanding one and the capacity of a human body to perform is limited. While people in traditional careers can work for 30-50 years, athletes are only active for about 10 years.
As an athlete, you have to manage the money you have earned during that window for the rest of your life. Financial planning for athletes is essential as you not only have to spend your life earnings, but also save up an amount for old age.
Lack of Financial Planning
Most athletes are not familiar with the details of budgeting, taxes and long-term financial planning. As an athlete, you are likely to be too engrossed in training and practice to pay attention to any other area of expertise.
Allen Iverson, a former American basketball player, earned more than a staggering $200 million during his NBA career, but unfortunately went broke later in life. Another player, Raghib Ismail, trusted the wrong kind of attorneys and advisors, who lured him into risky investments that left him bankrupt.
No matter how high your net worth is or how carefully you pick your money managers, you must have sound knowledge of your financial affairs to make informed decisions for yourself.
Extravagance and Unwise Investments
Even though buying a lavish mansion on the hills or a shiny Lamborghini may look like an attractive prospect, it is important to learn the difference between a necessity and a luxury.
Most athletes have rags to riches history, where they were once fresh college graduates living off refund/housing checks and then end up jumping straight to hundreds of dollars in the bank from their first signing bonus. Do remember that your money will not last forever.
Another blunder athletes tend to make is getting lured into flashy financial investments. You may be enticed into investing in a new technological gadget or a restaurant with your name on it. However, not all of these ideas will turn out to be good long-term business ventures.
Dan Marino, an American football quarterback, invested over 1.5 million shares in a company called Digital Domain. However, the business went bankrupt and Marino ended up losing $14 million.
Financial planning for athletes is of the utmost importance so they can manage their money long after retiring from sports. The Lab is a company run by former athletes with a focus on helping fellow athletes manage their finances. Click here to explore some of our insurance packages.