You just had one of the best days of your life.
You officially signed the big contract.
You now have more money than you ever thought possible. More money in a year than most make in a lifetime.
What if I told you 78% of professional athletes go broke within a couple years of retiring?
I know what you are thinking...that would never happen to me.
The reality is, it could be you if you don't plan from the start.
In this blog, I am going to walk through the reasons professional athletes go broke.
From Stoked to Broke - The Reason Professional Athletes Go Broke
Professional athletes get paid handsomely and for good reason. 123.4 million people watched Super Bowl LVIII - the most watched production in the HISTORY of television.
So yeah, professional athletes who draw that much attention should get paid.
But why do so many go broke so quickly?
First, it is important to realize your career as a professional athlete does not last as long as you think.
We read about guys that have played forever...Derek Jeter, Lebron James, Peyton Manning.
This is not the norm as most believe.
An average career in most professional leagues does not last long.
MLB = 5.6 Years
NBA = 4.8 Years
NFL = 3.5 Years
It is a cutthroat business.
My colleague, Jacob Turner, is no stranger to this. If you don't believe me, check out his story.
Unlike most, Jacob played for 11 years in professional baseball.
His healthy perspective on sports and finance led to his financial success today.
As he puts it, "Money is a tool we all need in life but putting it in proper perspective is key."
Most know they can go broke if they are not careful. They hear it from agents and teammates. They hear stories and see headlines.
But it still happens.
Despite all the warnings, professional athletes still fall into the trap.
Why?
Well, let's break it down.
Common Mistakes That Lead to Bankruptcy
There are no one size fits all stories when it comes to athletes and money.
But there are many reasons professional athletes retire with no money.
I am going to outline 5 that I see the most often.
Sudden Wealth Syndrome
Pressure to Support Others
Poor Investments or Business Ventures
Lifestyle Inflation
Financial Mismanagement & Lack of Planning
Sudden Wealth Syndrome
Your dream of becoming a professional athlete is now real. You just signed your name for a ton of money.
With that can come a lot of distress. You went from having no job, to signing a professional contract with large sums of money tied to your name.
Oftentimes, this can lead to what we call Sudden Wealth Syndrome.
While not a psychological diagnosis, Sudden Wealth Syndrome is a term that describes issues, stress, confusion and money mismanagement when coming into sudden wealth.
To put this into perspective, the No. 1 pick in the NFL draft will SIGN his name for ~$27 million. The 31st pick (last pick in the 1st round) earns a signing bonus of ~$6 million.
That is a ton of money and doesn't even include their actual salaries!
Do you know what the minimum NFL salary for 2024 is?
...$825,000...
Do you know what the average salary in the United States for 2024 is?
...$63,795...
No wonder Sudden Wealth Syndrome is becoming more prevalent for professional athletes.
Pressure to Support Others
Another common reason professional athletes go broke is the pressure to support others. You are sitting there on draft night with all your loved ones.
They have been there through the ups and downs. Your parents probably sacrificed everything to make sure you fulfilled your dreams.
Your friends are now reaching out to you to congratulate you.
It is not uncommon to want to give back to the community that gave you an opportunity.
Oftentimes, professional athletes feel the pressure to give back to those around them.
While admirable, it is important to keep things in perspective. I am not saying don't spend some of the sudden wealth to celebrate and support loved ones.
But you need to understand that it can become a habit if you are not careful.
The key is distinguishing between one-time purchases and lifestyle ones.
The pressure to support "your crew" can become overwhelming without a plan.
Poor Investments or Business Ventures
Let's say you are thinking about your future and want to put your money to work for you. That is a great first step! But understanding what you should focus on is super important.
Another main reason professional athletes go broke is their investment decisions.
If you go on the internet, you will read headlines like: "Sports star headlines new investment platform."
"MVP becomes part owner of a new sports franchise."
"Top athlete among new investors in a rising brand ."
It all sounds nice and dandy. What could go wrong?
A LOT...
Especially if you are new to the investment space.
While I won't get into it here, I highly suggest reading The Moment Guide To Athlete Wealth Management.
This will outline everything you need to know about investing as a professional athlete.
Lifestyle Inflation
I have outlined a few common mistakes professional athletes make that lead to bankruptcy.
The number one reason professional athletes run into financial trouble is this:
Lifestyle Inflation
Lifestyle inflation is the idea that as you make more money, your spending continues to go up.
This could include:
Buying more cars
Spending more on luxury items
Upgrading to more expensive homes
Let's face it, you are going to be surrounded by people who make a lot of money and also spend a lot of money. Spending money on the things above is not inherently bad. You should spend money on things that make you happy.
However, knowing your limit is important.
Morgan Housel has one of the more fascinating quotes about spending money.
He states: "One of the most important financial skills is getting the goalpost to stop moving."
In other words, spend less than your income grows.
When you get in the habit of spending money, it is hard to stop. This is where lifestyle inflation creeps in. It can take over your life.
You earned the money by your hard work. Don't let your lifestyle today dictate your future.
Financial Mismanagement & Lack of Planning
As a professional athlete, you put together plans constantly. You gameplan the opposing team.
You eat right for optimal performance.
You prepare your bodies to have the strength to be the best.
You work with your teammates to implement the plan.
Why does this have to be any different when it comes to your finances?
One of the most common reasons professional athletes fall into financial trouble is a lack of understanding of their finances.
You may have never been educated
You may not know what to ask
You may not know how to save or how spending impacts your future
You may not even know how to emotionally deal with financial success
Unfortunately, all of these things play a role in professional athletes going broke.
So what can you do?
Step 1 is enjoying your moment and celebrating with loved ones. You put in the hard work and deserve to congratulate yourself.
Step 2 is not letting it snowball into an eventual problem.
Step 3...well, that is where we come in.
At Moment Private Wealth, we work with professional athletes to ensure they can hang up their cleats with peace in knowing their financial future is secure.
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If you are a professional athlete looking for a financial team that specializes in you, schedule a call, and talk with a Moment founder.
Get in Touch With An Advisor
Frequently Asked Questions
Here are some answers to questions I received frequently about this topic.
Are you a fiduciary? Moment Private Wealth serves clients as a fiduciary 100% of the time.
How does Moment Private Wealth make money? We are only paid in one transparent way, by our clients. We receive no kickbacks or participate any profit sharing arrangements. Our fees are simple, transparent, and clear for our clients.
How are you different than other financial advisors? We are specialists in working with professional athletes and entrepreneurs. We limit the number of new clients we take on. This allows us to provide unparalleled value and highly personalized service to professional athletes. We work as a team to service our clients. We believe in building a team of “A” players. This ensures our clients receive world-class tax, estate, insurance, and investment strategies. We focus on educating first, then executing.
Where do you hold my investments and how can I see them? Moment Private Wealth uses Fidelity Investments as a third-party custodian for our client investment accounts. As a third-party custodian, Fidelity safeguards and provides reporting to you and the IRS each year. Clients can also access all financial information via the Moment Private Wealth Client Portal.
How do you work with other members of my team? We believe in the power of the team. For most of our clients, their team consists of Moment Private Wealth, an accountant, an attorney, a banker, and an insurance specialist. We help our clients build out their team of individuals or work with existing partners clients have. Our goal is to ensure every family has a team of experts to protect their interests.
How do you choose investments for clients? As independent financial advisors, we can gather research and make recommendations based on all available options. We determine clients’ portfolios in partnership with some of the largest asset managers in the world. Each quarter, we have calls with teams of CFA (Chartered Financial Analysts) to ensure our clients are receiving the most up-to-date strategies and recommendations.
What does your average client look like? Our clients are nearly all athletes and entrepreneurs. Our average client has a net worth greater than $5M. The strategies, solutions, and planning that we implement have a high-net-worth and ultra-high-net-worth client in mind.
Why should I consider hiring Moment Private Wealth? Great question! But first, let us explain why you shouldn’t hire us. If you’re looking for an advisor who will pitch shiny object investments or be a “yes man” you are in the wrong place. Why? Because we believe in being truth tellers and only giving advice that we take ourselves. The investments, strategies, and planning we do are all things our advisors do with their own money. If you are an athlete or entrepreneur interested in things like lowering your tax bill, investing smarter, and finding a trusted partner we might be a good fit
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*Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
