Professional Athletes and Financial Investments: A Blueprint for Success

Abstract

The Sports industry is one of the most profitable and fastest growing markets in the entire world. With a worth of $60.5 billion in 2014 this value is expected to increase to $73.5 billion by 2019. Much of this revenue is brought in by the professional world of sports including but not limited to the three most popular North American sports leagues: The National Basketball Association (NBA), National Football League (NFL), and Major League Baseball (MLB). In employee driven businesses like such these athletes are very well compensated making more money than most people could even dream of. Everyone loves a great Rags to Riches story, and in so many of these stories what usually grabs your attention more than the athlete’s humble beginnings are the enormous paychecks they receive upon arrival as one of the elite athletes in the world. These Rag to Riches stories don’t always end in riches though; more often than you would expect, these stories actually transform to stories of Riches to Rags. According to a study done by, Sports Illustrated, “after two years of retirement 78% of former NFL players have gone bankrupt or are under financial stress and within five years of retirement. An estimated 60% of former NBA players are broke, and most retired MLB players face this same reality.” These financial troubles aren’t just limited to the NFL, NBA, and MLB: former boxer, Mike Tyson reportedly filed for bankruptcy in 2003 after blowing more than $400 million on multiple homes, cars, jewelry and many other assets of pleasure with decreasing value. How could a person with so much fame and fortune lose it all and in most cases, so soon after retirement? For an athlete just recently reaching the ranks of a professional, no matter the sport, these facts should absolutely be freighting. All the past cases of bankruptcy in professional athletes is proof that no matter how big the name or how large the career earnings, no athlete is safe from this reality. For all of those athletes who are just starting their professional careers you are not all doomed to fall under the money curse of the pro-athlete. For all of the stories of failure to save the millions made throughout a career there are still a significant number of athletes who not only successfully saved their earnings but even invested portions of it creating millions more. Ervin “Magic” Johnson who made no more than $40 million in his career has a current net worth of about $600 million. Magic has had partnerships with Starbucks, 24-hour fitness, T.G.I Fridays, AMC theaters; he owns a $1 billion company- Magic Johnson Enterprises, and is part owner of the LA Lakers and LA Dodgers. Yes, most athletes don’t have as bad of spending habits as Mike Tyson and will never be as good of a business man as Magic Johnson but these extreme examples act as proof that no athlete no matter that pay is destined to one of these outcomes because these outcomes are based on action. So, for a professional athlete the question lies, what actions will make me millions and what actions will make me broke? Although some of the answers to this question may seem like common sense, and the common mistakes may seem easily avoidable, how is it that so many athletes fall under this spell? That is the basic scope of this project; Using various examples of athletes who have failed to manage their career earnings and examples of athletes who have successfully managed their money. Then analyzing these examples to the find the why behind these two different paths of financial success/failure. Using these findings, the goal of this project is to design lifetime investment plans for theoretical pro-athletes of different sports, pay, years as a pro, lifestyle, and financial goals. For the people who aren’t professional athletes it’s easy to look at the financial troubles of these athletes and judge. You may ask yourself how could these athletes blow millions in a matter of a few years? And these same people say to themselves if I came across millions like that I would be rich forever, and the athletes believe the same, they will be rich forever. What they fail to understand is that having all that money is a lifestyle. A lifestyle of extravagance. The amount of money you make determines your lifestyle which determines your spending habits. Its human nature; the more money you have the more you will spend. For an athlete making millions before their mid-twenties the last thing that comes to mind is that one day this lifestyle will all be over and I will no longer have this money to spend. As not only an athlete but a celebrity and household name what does come to mind is how do I keep up my appearance as the rich all-star that everyone either loves or loves to envy? The answer to this question is spending.