GREENSBORO, NC-- With the draft this past week, millionaires were made overnight. To many of us, we see the huge contracts and compensation and think to ourselves "how on earth are these guys going broke?".
Matt Logan of Matt Logan, Inc is looking at some of the numbers, some of the reasons that these guys blow through so much money and some of the things being done to try to fix it.
The bottom line, it doesn't matter how much money you have, if you don't pay attention to how you save and spend it.
According to a Sports Illustrated article, by the time they have retired for two years 78% of NFL players have gone bankrupt or are under financial stress because of joblessness or divorce. That number is staggering considering that the average NFL career lasts 5.88 years according to the NFL website and the average NFL salary in 2009 was just under $1.9 million a year. How on earth can these people be broke after making so much money?
FIND HELP TO NAVIGATE YOUR FINANCES
First of all, let's look at the background as one reason these guys are destined to fail financially in the first place. Many of these players being drafted are not the Johnny Manziel's of the world who comes from a family with wealth from the oil business. Many players come from very meager beginnings. They simply have never even seen money like this and have never been taught the skills to manage this type of wealth by their family or anyone else for that matter. For a 21 year old person to come from a home that has never had an adjusted gross income above $30,000 in any one year to go to getting $1.9 million, they are destined to fail.
SURROUND YOURSELF WITH GOOD PEOPLE
The second thing that players do is they surround themselves with the wrong type of person and often fall prey to outlandish financial schemes. They have crews of people hanging around them for all of the wrong reasons. They find that they have long lost relatives they did not know who all the sudden show up and want something. They even have their own families who see their newfound wealth as winning the lottery. They fall prey to unscrupulous financial advisors and have a well documented propensity to invest in bad deals. From restaurants to car dealerships to bad real estate deals to a company that planned to produce inflatable couches in the wake of Katrina, professional athletes have been widely targeted as ripe for being ripped off.
KNOW YOUR EXPENSES
The unfortunate part is that the money is not really that much. The first thing that happens is the player pays their agent 3%. The next thing the player faces is taxes, and lots of them. On a salary of $1.9 million, a player can expect to pay FICA, Medicare tax, Federal Income Tax and State income tax. Guess what, they have to pay in each state they play road games in and some cities as well. This can all add up to 40% to 50% of total wages. Combine that with the pressure to live up to the lifestyle of teammates and you can whittle that $1.9 million down pretty quickly. The next thing you know is that you have a garage full of expensive toys, a few luxury homes and a torn MCL with no income to pay with your newfound lifestyle.
Work is being done on both the university level and the NFL level to better educate players on the financial principles they will need to make sure this vast wealth is managed properly. My own alma mater has been working to create a program for athletes to teach them the basics of financial planning. The NFLPA has a Financial Advisor program through which they screen advisors and their backgrounds in advance for players to use. They have also made a strong effort to teach rookies the basics of financial literacy.
The good news is that the news media has shined a light on this problem and many players are reacting. They realize what is going on around them and they are working to try to make better financial decisions. It still makes me cringe when as I see players who are not even drafted yet posting photos of their new cars and jewelry on Twitter.
You can also go to my website www.mattloganinc.com for more information on financial topics you may find helpful.
Matt Logan is a Representative with Matt Logan Inc and Summit Brokerage and may be reached at www.mattloganinc.com, 336-808-0126 or firstname.lastname@example.org.