Young Professional Athletes and Debt
It's not uncommon to open the newspaper and read about another professional athlete filing bankruptcy. Super star athletes get paid a ton of cash for what they do, but they don't always receive the financial advice necessary to keep their money. Imagine signing a multi-million dollar deal, getting paid even more through endorsements and having the world at your fingertips, all at a young age.
Those not fortunate enough to be gifted with athletic talent think these young men and women have it made, but that's not always the case. It's like winning the lottery and all of the sudden relatives and friends these athletes haven’t seen or talked to in years come out of the woods looking for a handout. There are many reasons why athletes struggle to manage their money. Let's look into what a young athlete deals with after being drafted into their sport and signing a huge deal.Where Does All the Money Go?
Athletes signing huge deals also deal with huge expenses
. The largest chunk of money goes to pay taxes, while other amounts are split between agents, managers, trainers and regular living expenses. Here's how it breaks down for a $5 million salary.
- Taxes - $2.5 million
- Agents/Managers/Trainers/Insurance - $750K
- Divorce/Child Support - Up to $100K (in some cases)
- Good Investments - $300K
- Bad Investments - $250K (Usually family members or friends trying to open restaurants or clubs)
- Jewelry/Women/Family/Entourage/Clothes/Events/Food - $350K
- Housing and Cars - $400K (includes mortgage, rent, remodeling and customizations)
- Other Service Fees - $350K
The money is quickly spent, but the biggest issue is the people surrounding these athletes. Between 60% and 80% of NBA and NFL athletes
go bankrupt after they retire and it happens quickly. Even with an average salary in the millions annually, not including endorsements, athletes still deal with a ton of debt. This brings up the question, should you pay debt before saving
?Poor Money Managements Leads to Huge Debt
Some of the high profile examples of athletes falling apart financially include Vin Baker, Mark Brunell, Allen Iverson and Antoine Walker. All went through over $50 million and found themselves filing for bankruptcy after leaving their sports. Some struggled early on and it's not because they "lost it all", as many headlines lead you to believe. We don't lose money when we spend it
. We are the ones making the decision to buy a huge house, fancy cars and go into debt to pay the dozens of people we surround ourselves with. When you're the one in control, it's not money you've lost, but money you've spent.How Our Society Can Cut Down on the Debt Problem
Athletes are not the only ones struggling with debt today. Many Americans think debt is just a way of life because they were never taught better. Some experts believe you need to save a little bit of money before paying off your debts, to protect you from small emergencies. Coupling about $1,000 in savings with good insurance coverage can protect you from emergencies.
The best thing we can do, as a society, is teach our young ones how to manage money. We do this through learning how to manage our money and setting the right example. A young athlete can survive and retire with millions, if they understand how to live a debt-free life. However, it starts with the parents and those raising the child.