60% of all NBA players end up poor
cnbc.com
cnbc.com
In short, they've never had to think about anything besides basketball. They go from rags to riches without anyone telling them the obvious: it won't last. Their heroes spend big money on flashy cars and houses, and when you're staring at a seven figure cheque that might seem like a good idea.
They likely grew up in a household where their parents lived paycheque to paycheque, and simply being able to provide for yourself and afford luxuries was considered being smart with your money. They probably thought of their houses and cars as investments, because thinking of them as million dollar wasteful extravagances is depressing. They wouldn't have made the connection that an investment is not something that's expensive, it's something that makes you money.
The average NBA player is raised to play basketball, and that's it. They end up being very good at basketball, and little else. If they are amongst the small cadre who think about life after basketball, then they likely won't be broke. It doesn't even take any special knowledge to be able to live well off $100M in career earnings. They just need to go to a financial adviser and have someone else look after their money. But they don't.
One player was paying rent for 15 of his friends. It wasn't some cheap place either, but at high rises in a big city.
He also paid for 20 cell phone bills, on top of buying house for his parents, brothers and sisters. Paying all the bills eating out with his close friends, paying for rides and flights.
In theory, they could do something like this: All monies paid to players go into a common fund, which is managed by the player's association. Each player gets a small stipend from this fund for entertainment and housing. The rest remains in the fund, and the player gets a statement every year showing how much they earned from playing and how much from investing. Hopefully, after a few years, the investing is making more than the playing, showing the player that investing is good.
Then upon retirement, the following happens. 2 million is set aside and put into a fund. From that fund 5% is paid every year to the player, with the rest being reinvested. Then the rest they can choose to either remove from the fund, or keep in the fund and get earnings payments, or maybe take some out and leave the rest. The hope being that they saw their statements and know that investing is good.
But even if they don't, they still get that 5%, which starts at $100K/yr and in theory goes up with inflation, which should be more than sufficient to keep them from being totally broke.
They could do the same for football players, who tend to have the same issue.
But seriously, they should have some kind of program.
Incidentally, the government tried this with the Native American land profits and it has all turned bad with ongoing lawsuits and some serious settlements.
http://www.thepostgame.com/features/201104/tpg-exclusive-cas...
I wouldn't be surprised if the player's associations already sponsor financial training seminars; can't force them to learn, though.
Most of the inner city kids have a distrust of "the system" or "the man". Therefore, they would never trust their income to a players assoc.
Whats should be done is to establish a class on How to Manage Your Money 101 by the league/PA.
Here is a article from SI on 'How Athletes go Broke' http://sportsillustrated.cnn.com/vault/article/magazine/MAG1...
This years first top 10 picks:
4 Freshman 3 Internation players (ages 18, 19, 21) 1 Sophmore 1 Junior 1 Senior
If you are any good or hyped, you are draft in the first year..
Anyway, the color of this problem of stupid decisions with large pro sports salary money is black. The cause is the disintegration of the black nuclear family. If a dumb white kid makes it big in baseball or the NFL, some reasonably successful uncle or cousin will come out of the woodwork to offer good advice. The dumb black kid, with just a mom and no functional extended family, will be prey to all kinds of hucksters.
There's plenty of literature about how these athletes lose their money: they get taken by local businessmen on deals for things like car washes and restaurants. They don't know how to value a business and they don't trust national financial markets, so they get soaked by local operators who trick them into trusting.
http://www.nytimes.com/2009/12/13/sports/basketball/13pensio...
More often than not, players become coaches or bureaucrats in the corresponding sports organizations.
// Presumably you're ignoring investment even at bank base rates?
And after a player is dropped from the NBA you get someone that has devoted their entire life to playing in the NBA and does not have any other job training. There are other leagues in other countries but they are few, have limited spots for foreigners and usually and do not pay very well.
"Nearly one-third of lottery winners become bankrupt.
“The CFP Board made an offer to the National Association of State and Provincial Lotteries to provide the organization's members with information to distribute to winners. The Investment News article highlighted the lack of financial guidance many winners receive from state lottery agencies; estimates show that nearly one-third of lottery winners become bankrupt.” Source: Certified Financial Planner Board of Standards, Inc http://www.cfp-board.org/bulletin.html
more studies on lottery winners: http://answers.google.com/answers/main?cmd=threadview&id...
The problem is that most people didn't get the necessary financial education.
The bigger problem is that I doubt these people are very good at math and financial management so they probably ignored the warnings of "I need x dollars per year to sustain this life style, if I get fired tomorrow due to uncontrollable circumstances I am fucked". In the end lots of money needs investing. This is a problem for the middle class and even bigger for the upper.
Also, completely busted on android/iphone.
For an idea of where the money goes.
[add link] http://www.thestreet.com/story/10983698/1/even-pro-athletes-...