Reasons why 60 percent of ex-NBA players go bankrupt few years after retirement


basketball-courtThe average professional athlete in the U.S. will make more in one season than most people make in their entire lives, however despite those staggering salaries, about 60 percent of NBA players  file bankruptcy within five years of retirement.

The statistics were published by Jason Cimpl from Wyattresearch, in his article “Five Reasons Professional Athletes Go Broke”.

The list of NBA players who have gone broke is rather rich – it includes those, we used to cheer for, and once were on the top of their game. Until the lights went out.

Professional players who were (or are) broke include:  Allen Iverson (deeply in debts, although made some $200 million during NBA career), Shawn Kemp (finances dismantled by child support – seven children by six women), Scottie Pippen (blew away $120 million with irresponsible and lackluster financial decisions), Charles Barkley (lost around $10 million on gambling), Jason Caffey (had 10 children from 8 women, arrested in 2007 after failing to pay child support, later filed for bankruptcy), Kenny Anderson (7 children from 5 women, after NBA was left broke, without college degree), Eddy Curry (in 2008, he was loaned $580,000 at an astronomical 85 percent interest rate, lost all his money shortly after),  Derrick Coleman (ended up owing creditors $4.7 million after a series of poor real estate investments in Detroit), Antoine Walker (blow away $110 million, generosity & bad investments led to bankruptcy).

Let’s take a look at 5 possible reasons why the average athlete is destined to go (quickly) from fame to shame.

Cimpl goes on to say in further edited excerpts: If data from Mint.com is accurate, the average athlete is destined to go (quickly) from fame to shame. Here are five possible reasons why:

1 – Overspending
Scott Bercu, a financial accountant for professional athletes, believes this group spends like mad, and blows their savings too rapidly. He said, “They see their salaries as infinite, like it doesn’t end, like they can’t spend it all but if you get $5 million a year, by the time you get done paying your agent and taxes, you have $2 million left to spend.”

2 – Career duration
The average career span in the NBA, MLB and NFL is 4.8, 5.6 and 3.5 years, respectively. The “shelf life” of athletes is tiny. Professionals in this industry have a small window to make their millions, and if they don’t they cannot survive on their savings for very long (even if they saved responsibly).

3 – A lack of finance knowledge
Ed Butowsky of Chapwood Capital Investment Management believes athletes don’t understand finances. He says the leagues try to help educate them, but the system doesn’t work well enough. Athletes see prominent people spending money, and they believe that their spending pattern should be the same. However, athletes fail to take into account that those prominent members have spent a lifetime learning about financial responsibility and budget strategies.

4 – Poor investment decisions
Also, according to Butowsky, athletes are targets for poor investment pitches. He said, “Chronic over-allocation into real estate and bad private equity is the number one problem in terms of a financial meltdown. I’ve never seen more people come to me about raising money for those kinds of deals than athletes.”

5 – Hangin’ with a bad crowd
Athletes often do try to be responsible with their savings. However, they pick the wrong financial advisors. The NFL Players Association claimed that 78 players lost a total of $42 million between 1999 and 2002 as a result of bad financial advisors. In fact, Bob Young – managing director for APEX Wealth Management – says athletes often don’t know who manages their savings. He said that he frequently asks players how they’re doing (financially), and they’ll often respond, “I have no idea. All the bills are paid by someone else.”

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