A headline we hear all too often… It seems like every year we hear about another professional athlete declaring bankruptcy. It is incomprehensible that a man who earns tens of millions of crowns a year can declare bankruptcy. What causes an athlete who makes more money than most people make in a lifetime to take the “broke” route?

From Mike Tyson, who earned more than $400 million during his boxing career (he filed for bankruptcy in 2003), to Terrell Owens, who earned $80 million during his 15-season NFL career (he filed for bankruptcy in 2012), the list continues to grow. It is estimated that 80% of retired NFL players go bankrupt within the first three years of their careers. Below are some of the most common reasons why athletes lose all of their earned income.

Lack of competent financial advice and blind trust

It is not uncommon for athletes to enter the world of professional sports so focused on their careers that they blindly trust the “advisors” who manage their multi-million dollar contracts. Simply put, most recent college graduates do not have the financial background, resources or interest to balance a checkbook, let alone manage several million dollars.

Between 1999 and 2002, at least 78 players lost a total of more than $500 million because they entrusted money to financial advisors with questionable backgrounds!

In some cases, investments in risky and illiquid business ventures are made haphazardly. Some professional athletes are attracted by the ‘thrill of the tangible’. While traditional investments such as stocks and bonds are a historically proven method of building wealth and financial independence, they can be boring, especially for someone who may not truly appreciate what “long-term investing” means. Conversely, restaurants, nightclubs, real estate, or start-up companies are exciting and “tangible.” More often than not, these investments fail and there is nothing to see from them.

Athletes who get big contract offers after college are essentially no different than typical college graduates who enter the workforce. The main difference is that a professional athlete is likely to earn an income within a few years that is higher than the income that most college graduates will never earn in their lifetime. Especially after they come off a full scholarship for their sport, they usually have not learned the benefits of budgeting and other basic financial principles.

 

That’s why it’s critical that athletes choose advisors who have experience and a proven track record to help them budget and develop an off-the-field financial “game plan” that will hopefully be as successful as their on-field career. It’s this foundation that will likely either set the stage for financial success for generations or deprive you of all your money.

Family support

In addition to not having sound financial advice from experienced advisors, there is the “guilt” factor that many athletes experience when it comes to helping their family and friends with their newfound wealth. Many of these young men and women who make an incredible amount of money playing sports at the professional level may feel the need to financially support those who were there for them, cheered them on, and even raised or sheltered them as they grew up. However, it is not always a good idea to take this route. People are greedy, and the more you give, the more they will also want. It is very hard to stop without feeling guilty and the vicious circle is on.

Divorce

One of the most common factors why athletes find themselves broke is the unfortunate event of divorce. Divorce is often cited as the number one financial problem for athletes and non-athletes alike, in part because of the significant property division implications and potentially ongoing alimony and child support payments.

While a prenuptial agreement is a safety valve for athletes, unfortunately, many spouses of professional athletes do not agree to one for a variety of reasons. The percentage of prenuptial agreements among athletes is noticeably lower compared to non-athletes at the same economic level.

Whether you’re a professional athlete or not, achieving financial success in life starts with setting a vision and goals, then determining what it takes to achieve those goals, and ultimately staying accountable for implementing each step of the plan. With a combination of well-researched advice and a willingness to accept guidance from independent, experienced tax, legal and financial professionals who work as fiduciaries, professional athletes can create an off-the-field financial playbook that will reduce their chances of financial ruin.