If you’ve ever watched ESPN or read some sports news, you know about the ridiculous salaries that professional athletes are pulling in these days. Dak Prescott’s contract is worth over $100 million, LeBron James signed for a little over $95 million, and our boy Lewis Hamilton has a contract worth over $80 million. And if you want to know what kind of cars an $80 million contract will get you, check out our Ideal Cars video about Lew Ham’s collection.
Anyway, you might have also heard about how a lot of these superstar athletes go totally broke just a few years after retirement. And that may sound completely unbelievable. I mean, how could Mike Tyson possibly blow through the $300 million that he made from boxing and then end up bankrupt? It makes no sense, right?
And Mike Tyson certainly isn’t the only one. Allen Iverson ended up broke and in debt to his jewelers and 3-time gold medalist Marion Jones filed bankruptcy and had to serve hard time for tax fraud. Unfortunately, all of these athletes are case studies in money management and how when you don’t put your wealth in the right places, you can end up going broke no matter how much money you made during your career.
In this article, I’m going to go through how exactly these pro athletes end up going broke and, hopefully, we can all learn a thing or two about money management from their mistakes. This is why pro athletes always go broke. Let’s go!
Lack of Financial Knowledge – What Your Coach Didn’t Teach You
One of the main things to think about when it comes to pro athletes and how they earn their living is that they’ve never really needed to think about how finances work. They’re athletes. They train their bodies and minds to be at the tops of their sport, which often leaves no time to work on their financial literacy, which is why so many athletes lack the financial knowledge they need to manage their money properly.
According to a scary article from Sports Illustrated, about 78% of NFL players go bankrupt within 2 years of their careers being over and about 60% of NBA players end up going bankrupt within 5 years. So, what’s going on here? Why are the extravagant amounts of money that these athletes are earning just disappearing?
Well, the first reason is that these athletes often have no idea how to manage large sums of money. They’ve spent their whole lives dedicating themselves to a sport, which basically leaves no time to learn about how personal finances work. But if there are any pro athletes out there watching our Ideal Money videos, good for you!
Money management is just as important to your financial well-being as earning a big salary. You need to learn how to protect that money that you’re earning. And even beyond that, you need to learn how to plan for your future and help your money grow.
With any of these athletes that have gone broke, if they had just sat down with a financial planner and made sure that they’d contributed a certain amount of money to an emergency fund and then piled up some savings, and put those savings into an interest-earning account that could keep earning them money for the rest of their lives, they’d probably still be living very well right now. But, because these athletes have never been given the opportunity to learn about financial planning, they don’t understand the concepts of saving for the future, budgeting, and earning interest.
And then there are people out there that might try to take advantage of that lack of financial knowledge. For instance, Tim Duncan won in court in 2018 against his ex-financial advisor who he accused of defrauding him out of $20 million, which just goes to show how cutthroat people can be in the financial world if they sense you don’t know what you’re talking about.
So, you’ve got to know your stuff and most of these athletes unfortunately don’t. But it’s not really their fault. The vast majority of people don’t understand how personal finances work because they aren’t taught in schools. Instead, we learn about high-level calculus and ancient history that most of us will never use in our careers. What’s the reason for this? Your guess is as good as mine. But pro athletes, like a lot of other people, end up with a costly lack of financial knowledge as a result of it.
There is another factor, though, that sets pro athletes apart from people in other careers and that’s the actual length of their career, or their earning window.
Short Earning Window – The Clock Is Ticking
Unlike computer programmers or attorneys or YouTubers like myself, the career of an athlete has a very short window. I can keep making YouTube videos until I’m old and grey and sitting in a nursing home. Would people still want to watch them? I don’t know, you tell me! But when Zion Williamson or Saquon Barkley turns 45, they’re probably going to be too old to compete with the new generation of superstars in their sports, and then their careers pretty much just end and they stop earning money. That’s just how it goes in sports.
People in other jobs work for something like 30 to 50 years and keep earning money that whole time. So, athletes have this unique problem where they’re earning a ton of money for a very small window, but they have to spread those earnings over the rest of their lives after they retire. Of course, you have some athletes like Michael Jordan who’s earning a ton of money off of his shoes and all those athletes that become sportscasters. But a lot of athletes have their incomes reduced to effectively zero after they retire, and so they have to make the money they earned during their careers last for the rest of their lives.
That can be very difficult, especially when no athlete really knows how long their career will last, especially with the potential for a career-ending injury, which makes it really hard to come up with a savings plan. And, unfortunately, many athletes just don’t think about the fact that their career window is so short and they end up spending their money like they’re going to be making that $50 million a year for the rest of their life, which is just not the case.
Extravagant Spending – Balling Too Hard
Alright, so we all love to hear about big-time athletes ballin’ out and spending ridiculous amounts of money on huge mansions, like the house that Tom Brady sold to Dr. Dre that was basically a medieval castle. Or maybe it’s expensive cars, like the collection that LeBron’s amassed over his career worth around $3 million, which we also have an Ideal Cars video about. But is this extravagant spending really what these athletes should be doing with their money? The evidence in a lot of cases suggests probably not.
Allen Iverson was apparently spending around $10,000 a month on clothes and another $1,000 a month on just dry cleaning those clothes, and we’re not even going to get into his other wild expenses. And guess what? He went totally broke! Why is that?
Well, a lot of these athletes get used to living the lifestyle that they can afford during the peak of their careers. They get used to extravagant spending, helping their friends and family out with expenses, and always having the latest and greatest stuff. But, once your career ends and the money stops coming in, you can’t keep up that level of spending forever. Eventually, you’re going to have to dial it back and start living kind of like us normal folks again, and that can be really hard for these high-profile athletes to get used to.
There’s no problem with buying yourself a new Rolex watch when you get that massive signing bonus. Celebrate a little! But athletes need to understand that they can’t be blowing through their entire salaries by balling out on big houses and fancy cars all the time. As I said before, their careers are short. And once they’re over, they’re going to wish they’d saved that money in an interest-earning account instead of blowing it on a Maserati that’s depreciated 80% since they bought it.
At the end of the day, it’s all about living below your means. And when athletes with limited financial knowledge are earning a ton of money at the top of their careers, they can mistakenly think that their means are a whole lot higher than they actually are. And they just keep ballin’ out and ballin’ out until they’re dead broke. And that’s a bummer.