What do baseball’s Curt Schilling, boxing’s Mike Tyson, football’s Bernie Kosar and basketball’s Allen Iverson have in common? In addition to being former professional athletes who were stars in their respective sports, they all made and lost personal fortunes.
What is very telling is that they are far from alone. It is all too common for successful athletes to earn millions and millions of dollars from their contracts and merchandising opportunities only to have their wealth vanish. Moreover, once their fortunes vanish it is usually quite difficult—and in many cases impossible—for them to financially recoup their wealth.
There are three key reasons why they can quickly go from top earners to flat broke: overspending; bad or deceptive financial advice; or an insidious combination of the two.
A closer evaluation is in order:
Overspending: What at first can seem like a never-ending supply of money, coupled with pride in personal accomplishment and a desire to enjoy life to the fullest, can lead to successfully athletes economically overextending themselves. Many of them are inclined to spend freely on cars, jewelry, houses and other visible and coveted symbols of wealth. In many respects, it is a reward or justification of their accomplishments.
Overspending by itself, however, is seldom the main reason why professional athletes can sometimes lose significant wealth.
Bad or deceptive financial advice: “Poor financial advice is often the major cause of many of the financial problems that plague high-earning athletes. Sometimes the subpar financial advice is unintentional. There are a plethora of professionals that, though they intend to do a good job, are simply not up to the task,” said Evan Jehle, partner in FFO Business Management & Family Office. “There are also quite a few professionals who exploit the naiveté and unsophistication of successful athletes. In these scenarios, the advice that has been given was done to benefit the advisor rather than the athlete.”
Life insurance, for example, is one area where many successful athletes are sometimes exploited. While life insurance can play an important role in creating a secure financial future for an athlete and his or her family, the type and structure of the policies must match the needs and situation. The complication is that it is not uncommon for athletes to be sold amounts of life insurance they do not need, but which provide substantial commissions to advisors.
The third cause of successful athletes losing fortunes is unbridled expenditures in combination with unsound financial advice. Huge personal entourages and greedy advisors, for example, can put a serious dent in an athlete’s wealth. Many times it can eradicate a personal fortune.
Russ Alan Prince, president of R.A. Prince & Associates, is a consultant to family offices, the ultra-wealthy and select professionals.
