Seven Costly Pro Athlete Screw-ups

It's been awhile since we've covered fabulously wealthy people who have spent all their money and then some, so when a reader sent me this piece covering seven costly pro athlete screw-ups, I knew I had to run it.

Here's a summary of the athletes and their screw-ups:

• Scottie Pippen - Former Chicago Bulls star Scottie Pippen lost $120 million in career earnings due to poor financial planning and bad business ideas.
• Evander Holyfield - Four-time boxing champ Evander “The Real Deal” Holyfield reportedly made over $250 million in cash during his boxing career, but despite this he reportedly is flat broke.
• Lenny Dykstra - According to Dykstra’s July 2009 bankruptcy filing, he owed more than $30 million to creditors, including his $18.5 million purchase of Wayne Gretzky’s home.
• Latrell Sprewell - Sprewell, who made over $96 million during his career, lost his $1.5 million dollar Italian yacht, named “Milwaukee’s Best”, in 2007.
• John Daly - Two-time PGA major champ John Daly gambled away between $50 and $60 million in career earnings, according to his 2006 autobiography.
• Jack Clark - Former professional baseball slugger Jack Clark was driven into bankruptcy in 1992 by his appetite for luxury cars.
• Mike Tyson - The king of them all is boxer Mike Tyson, who squandered a $350 million to $400 million dollar fortune.

It's amazing to read these stories. These guys had more money than they ever needed, more than enough to live several lifetimes, and they still blew it all!

Just goes to show you that it's not how much you make, but how much you spend. No matter how much you earn, you MUST control your spending or else you'll end up flat broke.

Comments

[Money Reasons]

Most of the above athletes never read financial books like "The millionaire next door" and any of the more instructional financial book.

Their main focus was on their sport, which is also a lot of fun for them when they were younger! So
earned income - financial savvy = money loss. They probably lived like they were never going to run out of money.

It's sad to see such great success end up in financial failure...

[Jeroen]

you'd think that with that kind of money, athletes would pay a financial advisor...

[Brandon Schmid]

I used to be a financial consultant and I can't count the number of times that people would tell me that the answer to their problems is to just make more money....No! no!

If this was true then any rich person would not run into money problems. Of course this is not the case as shown by the example above.

Broke is broke!!! I does not matter how much you make.

Cheers!

Brandon

[CPA Abroad]

What is most amazing is the guys that are in a union (MLB, NBA, NFL, NHL) get even more help than the average guy. Take the NFL for example (although no NFL player is mentioned above):

After an NFL player's rookie season their 401k contribution is matched 2:1 up to the first 10k. If they max out their 401k (16,500), they will have $35,500 in their 401k for an after tax cost of $9,300.

That is an amazing return for essentially doing nothing, but how many of these guys do that? Can you imagine the nest egg if you play 10 years? Without factoring in inflation adjustments, they would have $328,500 (9 years x 36,500) in contributions at age 32 or so. Not a bad start. And the minimum salary for an NFL player in 2010, $310k, so it is not like the $16,500 on their part is straining them.

Let's face it, a lot of these guys have never had a dollar to spare and all of a sudden they are rich beyond their wildest dreams. As the lottery proves time and again, sudden riches is not the best impetus to learn money management skills.

[Eugene Krabs]

From what I've read in the past, most of these people do have wealth managers who handle their money. That way, celebs don't have to worry about managing it, only spending it.

The problem is that, no matter how much professional help you hire, they still can't stop you from blowing it all at the race tracks. So, in the end, financial responsibility still comes down to the individual in question.

[Squirrelers]

Its a two-part approach, in my opinion.

1) Live within your means. This can be taken many ways, but what it comes down to is: live on what you need, and if you want luxuries make sure that you:
- pay your self first
- are saving as much of your income as you comfortably can
- have a cost-controlling mindset

2) Keep your career healthy. This too can be taken many ways, but I would describe it in ways such as:
- be active in how you manage your career
- keep alert in terms of any threat to job security
- plan, think ahead two steps when it comes to your career
- stay current in your field
- protect your earning power
- stay physically and mentally healthy (be ABLE to work)

The problem with these athletes is that their careers are basically limited by the "shelf life" of their athletic ability. Once these guys hit their mid-30's, they are going downhill. Thy have a relatively short window to make the big bucks, then its over. If they destroy their finances toward their mid-30's, they just won't recover. Their big earnings years are over.

Of course, athlete or not, its best so make your mistakes when you are very young, not as you get older. The most valuable thing we have is time - for health, money, etc - and that is pretty much finite.

[Old Limey]

I think it has a great deal to do with intelligence and education.

Some of the retired NFL quarterbacks have successfully moved into Finance, three I know of are Roger Staubach of the Cowboys and Steve Young and Joe Montana of the 49'ers. NFL players are for the most part college graduates whereas boxers come from very different backgrounds, as well as sometimes taking too many blows to the head.

[jim]

I think this is no surprise at all. 50% of Americans live paycheck to paycheck which is mostly due to poor financial control, skills or lack of knowledge.

The athlete stories are similar to the stories lottery winners going bankrupt. If you hand $10M to 100 people then a significant # of them will simply blow the money within 5-20 years.

Even financially smart people lose all their money sometimes. How many times has Trump been bankrupt?

[segfault]

Tiger Woods... How much did the promise his wife in the revised post-nuptual agreement?

[guinness416]

The Dykstra story is actually pretty amazing .... from whatshisname from CNBC's involvement to all of the good press and praise he got for being a successful businessperson and "excellent investor" etc.

As for Sprewell, how the hell do you lose a yacht?! That's just careless!

[Eugene Krabs]

I dunno Jim. I've been wondering whether "Donald Trump" and "financially smart" actually goes together. :D He is ballsy (and egotistical) if nothing else.

Interestingly enough, I thought his daughter, Ivanka Trump, does appear to display a sense of financial aptitude and level-headedness for a woman her age. Especially when you compare her to other trust fund babies.

[Budgeting in the Fun Stuff]

Yeah, that article made me cringe too. I posted about it a month ago and one of the commenters brought up the fact that some guys like Mohammed Ali just never understand money. His financial advisors had to literally ask, "Do you want to spend 35 Lincoln Continentals to buy this house?".

I'm going to try to discuss personal finance with as many young people as possible so this isn't an issue no matter what they grow up to do...so far, I'm working on my little sisters and their friends. If enough knowledgeable adults just talked the basics with kids, silly stuff like listed above wouldn't happen so often, right?

[Stacy]

Thats remarkable that people can make all that money and then blow it all and have nothing to show for it.

[VT]

I think the NBA does have some financial classes that rookies must take. Trouble is, a lot of these guys don't come from stable backgrounds. So, with more $$, their mistakes get more expensive.