I’m excited to share today’s guest post on why athletes blow their money from Michael at Super Millennial. This is an interesting topic for many of us, who wonder how athletes making hundreds of thousands of dollars can end up losing it all.
As kids, we all at one time or another envisioned being a professional athlete. We imagined hitting the game-winning shot, scoring at the buzzer or racing through the finish line.
We also dreamed about all the money and lavish lifestyle that comes with it.
Despite seeing so many past athletes go broke so many pros still spend their money like they will earn it forever. Today’s athletes are signing deals that are hard to imagine.
Top NBA & MLB athletes are signing 250+ million dollar contracts and that’s not even counting their separate endorsement deals.
Top Athletes and Their Earnings (Including Endorsements)
- Tiger Woods: $1.3 Billion
- Alex Rodriguez: $480 Million
- Lebron James: $450 Million (and a recent lifetime Nike deal rumored to be worth 1 billion)
- Peyton Manning: $400 Million
These are athletes who have earned a ton and also made incredible financial decisions during and after their careers.
Lebron James has learned from Warren Buffet, invested in a growing pizza franchise and is notoriously frugal despite earning half a billion. Peyton Manning owns tons of Papa John’s franchises and has lucrative endorsement deals.
Sadly, not all athletes are this smart with their earnings.
Top Athletes Who Have Blown Their Money
- Mike Tyson: $400 Million
- Evander Holyfield: $250 Million
- Curt Schilling: $115 Million
- Terrell Owens: $80 million
- And so many others…..
Could you imagine losing 400 million dollars!? Usually, it’s pretty clear to see why these athletes are so bad with their money. From the ridiculous spending, high-risk investments, and a knack for choosing shady financial advisers. Sadly everyday people make the same mistakes except on a much smaller scale.
Here are the top five lessons to learn from athletes who have gone broke and what you can do to create a great financial life.
5 Lessons Normal People Can Learn from Athletes Blowing Their Money
Lesson #1: They Live Beyond Their Means
What Athletes Do
Athletes make more per game than most Americans make in a few years and spend it like the money is going out of style. They live beyond their means by purchasing ridiculously things like:
- Oversized houses (Do you really need 14 bathrooms?)
- Yachts
- Garage full of new cars
- Jets
- Exotic pets (Mike Tyson, did you really need a tiger?)
What The Average Person Does
While it might seem crazy compared to their purchases, the average person usually lives beyond their means as well…just a much smaller scale. Credit cards make it easy to spend money we don’t have. The average American household has $16,883 of credit card debt.
This debt is usually from overspending, trying to “keep up with the Joneses”, and a lack of budget. To avoid ending up like these athletes you should:
- Pay off your credit card each month.
- Create a budget and stick to it
- Automate your money so you don’t have to use willpower each payday
Lesson #2: Forgetting About the Future
What Athletes Do
Professional athletes spend money like they will be making that much for the rest of their lives. According to a Wall St. Journal article, the average NFL player’s career is only six years! Instead of setting up a college fund for their kids or saving for their upcoming retirement athletes live beyond their means with little regard for the future.
What The Average Person Does
Unfortunately, people make this mistake just as often as athletes. It can be difficult to begin saving for retirement when you’re paying off student loan debt and starting your career. But the longer you wait, the more you will be missing out on compound interest.
Here are three steps to start planning your financial future, regardless of age:
- Have an emergency fund of 3-6 months cash in a high-yield savings account
- Contribute for retirement (401K, Roth IRA, or both if you’re an overachiever)
- Start saving for big events (Buying a house, wedding, honeymoon, etc.)
Lesson #3: Make Really Bad Investments
What Athletes Do
Not all investments are created equal. While the stock market and housing market has historically been good choices, athletes tend to stray from them and make some horrible investing choices.
These are two ridiculous investments athletes have made and unsurprisingly, lost it all:
Rock N Roll Cafe – Rocket Ismail, a former NFL player, invested $300,000 in a “knock-off” Hard Rock Cafe in the late 90’s. To this day he claims he has no idea what happened to the money.
Inflatable Furniture Rafts – Former MLB player Torii Hunter thought inflatable furniture rafts were an untapped niche and invested $70,000. Needless to say, the investor ran off with $70,000 and still no inflatable furniture rafts in this world 🙁
What The Average Person Does
While the average person may not be making investing choices like inflatable rafts, too many people make poor investment choices. Some of the most common are investing in one-off stocks (i.e. Snapchat), buying new cars, and enrolling in high-cost mutual funds.
Instead, you should make sound investments by:
- Contributing consistently to a 401K or Roth IRA to take advantage of compound interest and dollar cost averaging
- Buy used cars — even if they are six months old it’s so much better than driving a car brand new off the lot. On average, a new car will lose 19% of its value in the first year of ownership!
- Invest in what you know. Don’t invest in healthcare stocks if you primarily do tech. As Warren Buffett said, “Only invest in what you know and understand.”
Lesson #4: Keep Up With Their Peers
What Athletes Do
Athletes don’t like to be outdone, whether it’s on the field or in the spending category. For some reason, athletes feel it’s necessary to keep up with their teammates. Whether it’s $600 shots at the bar like Vince Young would do or Jarret Jackson’s $375,000 shoe collection.
What The Average Person Does
This is more commonly known as “keeping up with the Joneses” and is well too known by many Americans. I still remember reading “The Millionaire Next Door” and learning that doctors and lawyers were the people who are usually the worst money managers.
Why?
Because they were trying to keep up with their peers. Society perceives doctors and lawyers to be some of the top earners so we expect them to act like it by buying big houses, sports cars & fancy clothes. But instead of saving or investing they’re spending it all and simply raising their lifestyle with any new raise or bonus.
Here’s how you can avoid it:
- Save your Raises and Bonuses
Instead of thinking “I can move into a bigger apartment or get a nicer car” save a majority of your bonuses. Use the money to pay off any debt, save for a vacation and splurge 10-20% to treat yourself.
- Stop Caring
So many people buy a new phone, car, or house because they think it will impress others. I’ve found that once I stopped caring and trying to keep up with friends my happiness (and net worth) have increased dramatically.
- Focus on your own financial goals — don’t focus on impressing others.
Lesson #5: Trusting The Wrong People
What Athletes Do
As some of the previous examples show, athletes are notorious for trusting the wrong people with their money and investments. When I was researching this post I saw countless athletes who got involved with bad advisors, shady real estate gurus, or someone else who saw them as an easy target.
Unfortunately, a ton of them lost millions (or more) trusting people they didn’t know by trying to make a few bucks.
What The Average Person Does
Financial advisors for everyday people aren’t much more trustworthy as many of them are brokers instead of fiduciaries.
What’s the difference?
Fiduciaries are legally obligated to act in the best interest of their clients and are compensated by a fee only. Sadly, most advisors are not fiduciaries and have their interests before yours. They are often paid higher commissions for products that may not be the best for you but pay them the most.
I personally think if your net worth is under $200,000 you should manage your own money. But if you insist on getting a financial advisor make sure they are a fiduciary.
To locate a fiduciary financial advisor use the FINRA site here.
Will Athletes Ever Learn?
Hopefully, you can avoid some of the major financial mistakes that these athletes have made, and continue to make every year.
Regardless of age or your financial situation, you should always live below your means so you can plan for the future. Once you start the habit of budgeting and saving you will ahead of so many athletes.
Be sure to stick to sound investments (not inflatable rafts), stop trying to impress your peers and find trustworthy people to help invest your money.
Have you read about any other athletes wasting their fortune? Are you making any of these mistakes? Let us know in the comments!
Thanks to Julie for letting me guest post!
Bio
Michael is the creator of Super Millennial where he inspires others to side hustle and create a successful future. Be sure to follow him on Twitter and subscribe to his email list to get access to his free money and blogging resources.
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Thanks for posting this. I’ve seen a number of tax returns/financials from pro athletes and coaches for various business ventures, its amazing the wild differences in spending habits between sports and cultures. There’s also an age component, hopefully at some point in an athlete’s 20s they stop being a knucklehead with money. On that list above, both Floyd Mayweather and Manny Pacquiao will put them to shame in 5-10 years.
The baseball player raised in the Southeast may only want a truck, house, and eventually a farm, while the baseball player from the Dominican Republic has the attitude of “I came into this world with nothing and can’t take anything with me”.
I live four houses down from a 10-year NBA vet who’s playing on his last contract, every time I walk my dog by the house I always wonder if he’s one of the ones who is or isn’t managing his money correctly. The fact he lives in my neighborhood and drives an inconspicuous truck is probably a good sign. His spouse’s car (and the fact she’s a former Mrs. winner), not so much.)
Interesting post. Shows how human the weaknesses in these pro athletes are.
As rightly pointed out by Michael, while their mistakes might make the headlines, these are very true to what we often end up making in our financial lives.
It also shows just how important financial literacy is, irrespective of how much you earn and how successful you are in your chosen profession.