Even high earners, such as professional footballers, can fail to manage their money and save when income is high. Lack of financial education is sometimes believed to be the reason but more often than not, the situation is complex. Sports Illustrated estimated in 2009 that 78% of NFL players are bankrupt or are facing serious financial stress after two years of their American football careers and that 60% of NBA players are broke within five years of retiring from professional basketball.
A unique earning path
Part of the reason might be that when others are studying, future sport heroes put in endless hours practising hard on the pitch. Most footballers leave school very early, do nothing but play football for the next several years and are paid a fortune for it. In money management terms, a pro-athlete can be like a twenty-something lottery winner who has not learnt the basics of budgeting or keeping receipts.
According to the Professional Football Association (PFA), Premier League footballers typically earn £25,000-£35,000 per week, Championship players can expect £4,000-£5,000, League One players £1,700-£2,500 and League Two players £1,300 to £1,500. However, an average footballer’s career lasts just eight years. This relatively short earning period magnifies the retirement problem. Even extravagant wealth can dissipate over the remaining decades of a footballer’s lifetime.
Financial advisors calls this the problem of the $20,000 Rolex. If a22-year-old spends $20,000 on a watch or on a big night out at a nightclub, that money is either depreciating or gone. But if they invested it in a five percent, Triple A insured, tax-free bond for a period of 30 years that $20,000 would be worth $86,000 at that tax-free rate of return. And needless to say, they could buy more than one $20,000 Rolex.
What are the reasons?
Financial ruin can have many contributing causes, but it often boils down to bad advice. It can be easy to hire the wrong advisers and then trust them far too much. Financial advisors call this "the problem of the $20,000 Rolex”. Michael Seymour, UNI Private Wealth Strategies founder, explains: “If a 22-year-old spends $20,000 on a watch or on a big night out at a nightclub, that money is either depreciating or gone. But if they invested in a five percent, Triple A insured, tax-free bond for a period of 30 years that $20,000 would be worth $86,000 at that tax-free rate of return. And needless to say, they buy more than one $20,000."
Another problem is that the tangible is more thrilling. Many people, including athletes, do not understand the stock market. Securities are not just boring but invisible too, when compared with property, nightclubs or car dealerships. Huge lifestyle changes can be more likely too when the player has retired, the peak earnings period long over. And what if there’s an expensive divorce settlement?
Richard Lapchick, director of the University of Central Florida's DeVos Sport Business Management programme, says the thorniest question for a pro athlete can be how to handle the new people suddenly emerging in their lives who expect help, money or jobs. Often ex-players haven’t learnt how to say no.
An age-old story
A few may capitalise on their athletic experience and remain in the public eye forever, like David Beckham or Gary Lineker, which often skews our perceptions but most retire without a plan and may earn very little for the rest of their lives. Others successfully switch industries. Liverpool striker Michael Owen runs a racing stable, training racehorses and breeding winners. Some become coaches, and there are plenty of real estate moguls. Tottenham Hotspur’s Swiss former centre-half now develops luxury hotels and Frank Lampard signed a book deal to produce stories for children.
Typically, however, their post-retirement roles pay nowhere near what they have been used to, and the financial pressure can become too much.Top players who have gone bankrupt include former Aston Villa midfielder Lee Hendrie, who earned £30,000 a week at the peak of his career. Hendrie was declared bankrupt in 2012 after his £10 million property portfolio collapsed. Other bankruptcies include former England goalkeeper David James, who earned an estimated £20 million during his career, and Newcastle winger Keith Gillespie, who gambled away some £7 million.
The causes of bankruptcy can be complex. However, with footballers a pattern often emerges of breath-taking over-spending, poor investment choices and a failure to keep the taxman happy – mistakes to which many non-athletes can relate.