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Risk Management for Professional Athletes
Lately there have been a number of articles about professional athletes who have lost millions of dollars due to poor financial decisions. Athletes range from golfers to boxers to professional baseball players and their bad decisions range from buying cars, women and tigers to battling gambling addiction and bad business investments. There are also those who have been defrauded by their agent, their accountant or their ex-wives. Most of these problems are due to a lack of education and some are due to a lack of maturity. Either way, these issues have opened doors for entrepreneurs working in the area of financial and risk management.
A startling statistic states that 78% of NFL players enter bankruptcy or financial distress within two years of retirement and 60% of NBA players go bankrupt within five years of retirement. These athletes know they have a lot of money and don’t think about what will happen when they stop getting those multi-million dollar checks. Many of them don’t understand business and/or finance. Some of them may have never even taken a single course of either in college. Some professional athletes may not have time to focus on their finances. The stress of having to produce on the pitch doesn’t leave much time to focus on off-pitch matters such as investments or retirement plans. Raghib “Rocket” Ismail, a former professional football player who signed the highest salaries of his time in 1991 at $18.5 million over a four-year period, once said, “Once I had a meeting with JP Morgan and it was literally like listening to Charlie Brown’s Professor.” It’s not that he’s not a smart person, but without focusing on the details, many professional athletes find themselves left behind when they run out of money.
Among the athletes who have gone bankrupt, not all have necessarily lost their money because they live extravagant lifestyles. Some tried to invest and plan for their future but didn’t have anyone they could trust to manage their money or they tried to manage it themselves but didn’t have the time or knowledge to do it right. Some of them invested in high-risk businesses that failed and some invested in businesses that had no chance. A player once invested in an invention that consisted of an inflatable raft attached to the bottom of a couch so that people living in high rainfall areas could pump the raft up and float on their couch when their area was flooded. If this player had someone in the financial/risk management field he could trust and was reputable, he wouldn’t have lost his money on such a stupid investment.
The financial/risk management companies that athletes should use are ones that have a good reputation with all of their clients, not Uncle Joe’s accountant at the local mall. These companies should try to educate their customers on things they don’t understand by offering counseling sessions and possibly workshops on money management and personal finance. If they’re trying to keep the athlete in the dark, they’re probably trying to get past them in some way. Every investment doesn’t have to be a “home run”. These companies should try to keep athletes’ risk within reasonable limits.
Financial/risk management is the key to financial stability for everyone, regardless of income. If every investment a person makes is high risk and high return, then you might as well go to the casino, because all they do is gamble anyway. While it’s bad that so many athletes have this problem, it does open doors for entrepreneurs in the area of risk management. Athletes need to understand that even sports are businesses and they need to think of themselves as independent contractors who need to run and manage their business.
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