Professional athletes might seem particularly blessed in the modern sports world, where multiyear, multimillion-dollar contracts can provide them and their families financial security after their generally brief playing careers are over.
But based on the disheartening fates of thousands of young athletes, cursed may be the better description.
The sad truth is that many, if not most, of the athletes skilled enough to play in a professional sports league are totally unprepared for their good fortune. They spend too much, they invest poorly and they become victims of fraudsters.
A high proportion of them, in fact, don't achieve financial security but end up in financial ruin, often in worse condition after their playing days are over than when they started their athletic careers.
Just in the past year, several high-profile former athletes have made headlines for large losses that resulted in suits against their financial advisers for mishandling their money.
National Football League wide receiver Terrell Owens was among a group of more than 30 NFL players who went after a Florida-based broker following a botched casino project that led to more than $40 million in losses. Their broker was barred from the industry in March.
In February, former boxing champion Mike Tyson and his wife sued his former adviser and advisory firm for allegedly taking more than $300,000 from their accounts and costing them millions in lost income.
And five-time Major League Baseball All-Star Mike Sweeney sued his former broker and UBS Financial Services Inc. just last month for $7.6 million in losses tied to investments that he alleges were misrepresented or hidden from him altogether.
Like every other individual trying to achieve financial security, pro athletes have to accomplish two things: manage their lifestyles in a sustainable way and invest their wealth wisely. And on both fronts, athletes are particularly challenged.
For one thing, most young athletes have never had money, have never paid taxes and have never had the ability to buy houses and cars for their families and friends. The typically extravagant confidence that has served them well during their athletic careers tends to be a handicap when it comes to sensible financial planning.
Most assume that they will get the big money that only a very small percentage of pro athletes ultimately do, and they spend accordingly both on themselves and on their family and friends.
“These are typically very young people with little to no experience with money and they're ill-equipped to deal with it,” said Jason Katz, an adviser with UBS, who works with a number of professional baseball and basketball players. “Even if they have some background in finance, they spend as if the gravy train will last forever.”
In fact, the gravy train is typically very short.
The average professional football player has a career of 2.7 years, according to Eugene Lee, an NFL agent with ETL Associates Inc.
Players in other major sports leagues last only slightly longer on average.
Most professional athletes can count themselves extremely lucky to sign a second contract in their careers.
“These athletes don't come from wealthy homes, and it's a major shock when they come into sudden wealth,” said Mr. Lee, who tries to pair up clients with a good adviser as soon as he can. “A lot of them don't get the advice they need and end up in post-career bankruptcy or with major financial problems.”
The breadth of the problem has been well-documented by sports media organizations. Last year, ESPN aired a documentary called “Broke” that described the financial ruin of dozens of pro athletes who ended up bankrupt.
Among those profiled was Keith McCants, an All-American linebacker from the University of Alabama and fourth overall pick in the 1989 NFL draft. After leaving the Crimson Tide before his senior year, an unorthodox move at the time, he signed a five-year, $7.4 million deal, and scored a $2.5 million signing bonus.
Mr. McCants spent the sum total of his five-year salary right after signing his contract — the only one he would ever sign.
“I bought myself a yacht, a mansion, a couple of cars. That ain't a million dollars,” Mr. McCants said in the documentary.
“That's $7 million,” he said. “I pretty much gave it away.”
The problem is endemic to the major sports leagues, but it is particularly acute in football and basketball.
In a 2009 article, Sports Illustrated cited a “host of sources,” including athletes, agents, advisers and players' associations, who said that two years removed from the gridiron, 78% of pro football players are either bankrupt or in financial distress because of joblessness or divorce.
In the National Basketball Association, an estimated 60% of former players are broke within five years of retirement.
“Those numbers are probably about right,” said Andre Mirkine, an adviser with Wells Fargo Advisors LLC, who along with three other advisers formed the Sports Financial Advisors Association in 2004.
The association works to promote a network of licensed advisers to help with the unique needs of pro athletes.
“It pains me as a financial planner to see someone who has the chance to amass wealth run into big problems, and I see it all the time,” Mr. Mirkine said.
He suggests that athletes in sports such as baseball, golf, hockey and tennis tend to be better managers of their finances because they usually have to struggle more to get their big paydays.
“If someone has to manage their lives on a $10,000 allowance in the minor leagues, they're probably going to do a better job managing big money if and when they get it,” Mr. Mirkine said.
Pro athletes are also prime targets for unscrupulous advisers and fraudsters who see them as an easy mark — because they are. Most athletes are predisposed to taking outsize risks with their money.
“They tend to be Type A personalities [who are] comfortable with risk, and you have to talk them down,” Mr. Mirkine said.
“Athletes just don't have the time to vet all the inquiries and offers that come their way,” he said. “I tell my clients to run everything by me or their [certified public accountant].”
Raghib “Rocket” Ismail, a former wide receiver with the Dallas Cowboys who earned nearly $20 million during his time as a professional football player, probably wishes he took that advice.
Another of the athletes featured in ESPN's “Broke” documentary, he had a tendency to invest in far-fetched business ventures, including a phone card dispenser, an inspirational movie, a calligraphy store and a record label. Mr. Ismail invested in a cosmetics procedure based on blasting oxygen into the skin, and sank $300,000 into a Hard Rock Café knockoff.
The list of current and former athletes suing advisers and investment promoters for losses from risky investment schemes during and after their playing careers is a very lengthy one.
The NFL Players Association recently added a telephone help line manned by certified financial planners to a financial education program that it launched for players in 2004.
The service offers players a second opinion on investment ideas and strategies they get from advisers. The overall program is intended to help football players, who typically receive the least amount of guaranteed money among the major pro leagues, better educate themselves on money matters.
“We try to get them to focus on building their wealth and help them transition to second careers,” said Dana Hammonds, the NFLPA's director of player affairs and development.
David Emma, a former professional hockey player for 11 years in the NHL and European hockey leagues, who now works as an adviser, said that he learned some lessons the hard way.
“I worked with a friend of a family friend, and no disrespect to him, but I took a lot of risk I shouldn't have and really didn't want to,” he said.
After retiring from hockey, Mr. Emma worked as an adviser with Merrill Lynch for 11 years and two years ago joined registered investment adviser Masterson Emma & Associates at HighTower Advisors. About a third of his practice is focused on families with professional athletes, and his firm manages about $400 million in assets.
“I did some good things, but I'm not afraid to say I made mistakes. I'm now trying to do what others didn't do for me,” Mr. Emma said.
That includes helping players make the transition to a second career.
“At 35, you're too young to do nothing. If you meet the right people, you can do great things,” Mr. Emma said.
“Athletes have so much opportunity, and I want to help them take advantage of that,” he said.
They could certainly use the help.