Economics of Sports
Why do so many professional athletes go broke after retirement?
After watching ESPN’s 30 for 30, Broke, my mind starting pondering this question of why and how so many professional athletes are blowing through the millions they make while playing their specific sport? It is amazing that someone can spend that much money so quickly. What are they buying and who are they buying things for? Where are they spending it? Where do they go wrong? When did this trend start and will it continue in the future? What are the league officials doing in order to prevent this tragedy from happening? These are some of the questions I will try to answer throughout this paper.
In March of 2009 Pablo S. Torre wrote an article for Sports Illustrated titled, “How (and Why) Athletes Go Broke”. He explains how many athletes, especially minority ones, come from very humble beginnings often times growing up in poverty. Some of whom are the only ones in their family to reach college. Then some of them even start earning money while still in college through “illicit payments from agents” (Torre). Once these players hit the big leagues and start earning millions, much of it is invested blindly by people who appear to be trying to help but often times do not. Their fortune seemingly evaporates right before their eyes. If and when these athletes look at their bank accounts their reactions are usually similar, “What the …?”(Torre).
The most common leagues that players go broke are the three most popular in the country, NFL, NBA, and MLB. Torre reported that “By the time they [the athletes] have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.” (Torre). That is an astounding number of players looking at overdue credit card bills, child support payments and much more. Athletes who do get married and then eventually divorced, in many cases, do not sign prenuptial agreements therefore losing at least half of what they worked so hard for. Another astonishing figure reported by Torre was that 60% of former NBA players are broke within five years of retirement. They typically run into many of the same problems as NFL players. The MLB is no different. High profile Major League Baseball players like Johnny Damon and Jacoby Ellsbury reported that some of their money is tied up in an $8 billion fraud scandal due to a shady financier named Robert Allen Stanford. It is hard to believe that someone of that celebrity status could be drained of their money but it’s true. Mike Pelfrey of the New York Mets was forced to ask the team for a salary advancement of $2 million after he admitted he was broke because 99 percent of his fortune is frozen in the same scandal (Torre). These athletes not only gave much of their wealth to Stanford, but also all of their trust and he essentially took their money and ran with it. Uneducated athletes or ‘dumb jocks’ are an easy target for fraud because they may not read the fine print or even care to read it. Also they may not understand the investment fully and get taken for all that they are worth. The financial crisis of 2008 had a huge impact on many players’ wealth as their trusted financial advisors lost billions in the stock market crash. Money manager Michael Seymour, founder of the company UNI Private Wealth Strategies, was quoted saying, “Athletes have a different set of challenges from, say, entertainers. There’s a far shorter peak earnings period [in sports] than in any other profession, and in many cases they lack the time and desire to understand and monitor their investments.” (Torre). Many athletes don’t have time or the education to know where their money is going and who is handling it. A grueling 162 game baseball season doesn’t leave much time for a ball player to sit down with his financial advisor and talk numbers. Many players will say...