Lately, there have been a number of articles about professional athletes who have lost millions of dollars due to poor financial decisions. Athletes range from golfers to boxers to professional baseball players and their bad decision ranges from buying cars, women and tigers to battling gambling addictions and making bad business investments. There are also those who have been scammed by his agent, his accountant or his ex-wives. Most of these problems are due to a lack of education and some are due to a lack of maturity. Whatever the case, these issues have opened the doors for entrepreneurs who are in the business of financial and risk management.
A staggering statistic indicates that 78% of NFL players file for bankruptcy or financial problems within two years of retiring and 60% of NBA players go bankrupt within five years of retiring. The retirement. These athletes know that they have a lot of money and do not think about what will happen when they stop receiving those multimillion dollar checks. Many of them do not understand business and/or finance. Some of them may never have taken a single class of either in college. Some professional athletes may not have time to focus on their finances. The stress of having to produce on the field doesn’t leave much time to focus on things off the field, like investments or retirement plans. Raghib “Rocket” Ismail, a former professional soccer player who signed the highest salaries of his time in 1991 at $18.5 million over a four-year period, once said, “I had a meeting with JP Morgan once and it was literally like listening to Charlie The Teacher from Brown”. It’s not that he’s not a smart person, but without focusing on the details, many professional athletes find themselves left out in the rain when their money runs out.
Of the athletes who have gone bankrupt, not all have necessarily lost their money by living extravagant lifestyles. Some have tried to make investments and plan for the future but didn’t have people they could trust to manage their money or tried to manage it themselves but didn’t have the time or knowledge to do it properly. Some of them have invested in high-risk businesses that failed and some invested in businesses that had no luck at all. Once, a player invested in an invention that consisted of an inflatable raft that was attached to the bottom of a sofa so that people who lived in areas with a lot of rain could inflate the raft and float on their sofa when their area was flooded. Had this player had someone in the financial/risk management business whom he could trust and who had a good reputation, he would not have lost his money on such a foolish investment.
The financial/risk management companies that athletes should use are those that have a good reputation with all of their clients, not Uncle Joe’s accountant at the local mall. These companies should try to educate their clients about the things they don’t understand by offering consultation sessions and possibly workshops on financial management and personal finance. If they are trying to keep the athlete in the dark, then they are probably trying to get over it in some way. Every investment doesn’t have to be a “homerun.” These companies should try to keep the risk to athletes within reason.
Financial/risk management is key to everyone’s financial stability, no matter how much money they make. If every investment a person makes is going to be high risk, high reward, then they might as well go to a casino because all they’re doing is gambling anyway. As bad as it is that so many athletes are having this problem, it is opening doors for those entrepreneurs in the risk management business. Athletes must understand that even sports is business and they must see themselves as independent contractors who must run and manage their business.