Star athletes go for broke

Pax Arcana

During last night’s broadcast of Game 2 of the NBA finals, ABC ran a cursory-but-effective profile of Leon Powe — the shining star of Game 2 and a remarkable profile in courage for his struggle from childhood homelessness to the NBA.

Today we celebrate Powe’s 21-point performance by offering a humble prayer that his broke days are permanently behind him. According to the Toronto Star, that would put him in the minority of NBA players, a staggering 60% of whom are bankrupt within five years of retirement.

We’ve written about dumbass Latrell Sprewell here before, but there are plenty of other high-profile cases of athletes blowing through insanely ridiculous piles of money. Mike Tyson and Evander Holyfield both come to mind, as does the more recent story of Jason Caffey, who made a reported $29 million in the NBA only to go broke almost instantly upon retirement.

The Star article pins the blame on basic profligacy and scam artists, but Mark Cuban’s brother Brian, writing on his personal Web site, finds that excuse makes him uneasy:

While I have no doubt there is truth to this, I can also understand how such a generalization would make the NBA uncomfortable. It leaves you with the impression that 60 percent of NBA players are not only financially inept but also idiots in general. This is simply not true. While good business sense is often lacking, I view many of their mistakes as being more mistakes of trust, credibility and lack of life experience than anything else. Smart, busy people who can afford it, hire people with targeted expertise to help them. This allows them to focus on their expertise. Sometime mistakes are made and bad judgment is used in who we hire and hang out with. That is not unique to the NBA or professional sports. This happens to everyone. That is life. It happens all the time. It just does not make front page when we screw up. If there is any question at all as to how badly we as the general public screw up, just look at the personal bankruptcy filing statistics.

I have not looked at the personal bankruptcy filing statistics, but I think I’d be surprised to find much of a record of non-athletes or entertainers blowing through that many millions in that short of a time span. Just a hunch.

But maybe that’s the point. Jordan Woy, an agent Cuban contacted for comment, says the reason athletes stand out among the other super-rich is that they earn their money in almost lump-sum payments over an incredibly brief period of time — not by executing a savvy long-term business plan or inheriting it along with a team of financial advisors, lawyers, and other helpful employees like other uber-wealthy people.

In fact, the closest comparison is probably to lottery winners, who have a similar track record of going broke:

Most lottery winners or athletes make a great deal of money in a short period of time. They start spending it on things that only go down in value (cars, jewelry, partying, entourage, etc) and start to evaporate the money they do have. They can carry this off until they stop earning big money. This is when the trouble starts.

And of course there are the pressures of providing for family and friends — of not forgetting where you came from. Unfortunately many players fall into the trap of building unsustainable payrolls of acquaintances and relations and simply cannot continue the support after the checks stop rolling in.

But regardless of all that, it’s hard to discount the pervasiveness of conspicuous consumerism in all this. There is no reason on earth that a mortal human being should wear a watch that costs $75,000. Or needs drive a $700,000 car. Or spends $1 million per year to landscape your mansion. Those are the purchases you live to regret when you’re sleeping in a Hyundai.

I should know. I once spent $120 on a Brooks Brothers shirt and had to eat canned foie gras instead of the real thing until my next modeling check cleared. It was horrible.

NBA players’ financial security no slam dunk [Toronto Star]
Why Athletes Go Broke [Brian Cuban]