Pro Athletes: Rags To Riches To Broke

According to Sports Illustrated, 78% of NFL players who are retired for only two years file for bankruptcy, and after five years of retirement, 60% of NBA players suffer the same fate. According to a study in the National Bureau of Economic Research (NBER) as well, close to 16% of the NFL players in the study that were drafted between 1996 to 2003 also filed for bankruptcy within just 12 years of retirement. In a 2015 editorial, former high-powered sports agent Leigh Steinberg (whose life was the loose inspiration for the movie Jerry Maguire) touching on the same subject explains why so many NFL athletes go broke after making millions during their careers. Here are the five reasons why retired NFL athletes go broke:

  • Lack of competent financial planning advice.
  • Supporting a village. Some athletes feel obliged to provide financial support to their family, extended family, and friends – many of whom come out of the woodwork once a player is drafted.
  • Divorce.
  • Lack of awareness of how rapidly a career can end.
  • Lack of preparation for a second career.

With personal experience in the NFL, I can attest to Steinberg’s observations. I was fortunate to avoid the fate of 80% of my contemporaries because I prepared for life after the NFL. I knew that the only way to avoid the hard financial road most athletes travel down was to avoid making the same mistakes. One of the biggest mistakes pro athletes make is to think their salaries are going to sustain them forever. Unlike the golden goose, a pro athlete’s salary is not the gift that keeps on giving. I take that back. A pro’s athlete’s salary is not the gift that keeps on giving if the athlete spends it like every other athlete. The athletes who avoid bankruptcy learned to turn their salaries into a golden goose. Here’s how:

  • The problem with most athletes is they spend their salaries on the wrong assets: non-productive assets like big houses, cars, toys, vacations, etc.
  • These are all cash vampires. All these non-productive assets do is take and take.
  • Once the NFL checks stop coming in, that’s when these assets rear their ugly heads. They keep draining cash even as the money stops flowing in. That’s where the road to bankruptcy starts.

Athletes who avoid bankruptcy and having to pawn their championship rings on eBay approached their earnings differently.They learned that unless they generated other streams of income that would continue into retirement, they could be up a creek without a paddle once their careers have ended. The wise athletes allocated their earnings to productive assets – assets that give back instead of take. They sought out passive investments that made them money while they were sleeping – investments in cash-flowing businesses, commercial real estate, private equity, etc. To maximize investment capital for putting into this passive money machine, these athletes did everything they could to maximize income and reduce expenses by cutting back on unnecessary spending. The wise athletes were not satisfied with one additional stream of income, they sought multiple streams to:

  • Build wealth beyond retirement.
  • Insulate their wealth against unforeseen circumstances.

Wise athletes who are still playing, gravitate towards cash-flowing passive investments backed by tangible assets that appreciate over time. For that, they prefer private investment vehicles to leverage the expertise of others because of time constraints. Chris Rock put the whole rich athlete/broke athlete dichotomy in a colorful perspective when he once said, “Shaq is rich, but the white man who signs his check is wealthy.” – Chris Rock, Bring The Pain, 1996. What Chris did not expect was for Shaq to become a powerhouse investor. By investing early in startups such as Ring, as well as, owning a variety of franchises and other ventures, Shaq was one of the few athletes to break bad spending habits early and place his focus on investing. In other words, it’s the guy with the business that generates truly wealthy income – the guy who doesn’t have to work to continue his lifestyle. The guy with the business that pretty much runs itself is the guy you want to be, not the guy whose career and checks could be cut short in an ACL injury instant. Roger Staubach was one of these wise athletes. Roger Staubach made $25,000 as a rookie in 1969. Throughout his 11-year career, Staubach never made more than $500,000 a year despite winning two Super Bowls for the Dallas Cowboys. Realizing early on that his NFL career could end at any time due to injury, in 1971, Staubach got into commercial real estate development and investing in the off-season. In 1977, he formed his own commercial real estate investment and development company, Staubach Company, while still a player for the Cowboys. Staubach recognized early on that unless he found a way to make money in his sleep and unless he found a way to generate passive income, he would never achieve financial independence for himself and his family. He knew that relying just on his income as a player would not be enough to provide for his family in the long-term. When asked why he got into real estate early in his playing career, Staubach provided the following insight, “I was 27 and we had three children. If I got hurt, I knew I had a family to provide for, and it was not crazy money in the NFL then.” With providing financial security for his family in mind, Staubach religiously set aside a portion of his earnings for his real estate investments.  After the Cowboys won Super Bowl VI for the 1971 season, beating the Dolphins 24–3, he collected a $15,000 bonus from the team. While his teammates blew their bonuses on booze and cars, Staubach invested his bonus in his real estate company. He grew Staubach Company to a multimillion-dollar commercial real estate development and company during his playing years and after his retirement. He recently sold that company for $680M, making him the wealthiest NFL player ever, past or present. How can pro athletes maintain their wealth? How can the rest of us build and maintain wealth?

  • Invest in boring, real assets with intrinsic value (i.e., make you money).
  • Avoid investment fads. Some athletes understand the importance of investing. They just invest in the wrong things by listening to bad advice and chasing shiny objects.
  • Invest for reliable income instead of going big on a glitzy potential exit (IPO, M&A).
  • Avoid enablers. Surround yourself with like-minded producers, not sycophants and yes-men who only drain your money and time.
  • Don’t impress people with what you drive. Impress them with your play on the field. Strive to impress your future self with the passive income you’ll provide for yourself through retirement and beyond.


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Logan Freeman

Building generational wealth with alternative investments