There is a saying that “a fool and his money are easily parted”
1. Mike Tyson the “Iron Man” in the boxing ring finally filed for bankruptcy after making extravagant and unimaginable spending. During the height of his boxing career when he was paid $30 million dollars for a single fight, Mike Tyson will simply buy mansions, Bengal tigers, and cars. His most reported spending was when he purchased $174,000 gold chain with diamonds of 80 carats in Las Vegas jewelry shop. But in 2003, filed for bankruptcy and The New York Times reported about his $23 million debts. The debts comprised unpaid taxes to the U.S. and the British governments, seven law firms, and limo services.
2. Allen Iverson
Over his NBA career, Iverson made over $154.5 million in salary. The 39-year-old also racked up quite a bit of income in endorsements, bringing his income to over $200 million,” the piece said, adding that he wasted his money on jewelry, cars and other expenses.
3. Whitney Houston
At the height of her career, Houston’s work on “The Bodyguard” soundtrack sold more than 17 million copies in the United States alone. She commanded millions for films and was ranked in the top 20 of Forbes’ most powerful entertainers. In 2001, despite her personal problems beginning to come to light, Arista signed her to an unprecedented six-album contract valued at more than $100 million
“Whitney’s fortune is gone. Music industry heavy hitters are supporting her and her label is fronting her cash against her next album, but no one knows when that will be released. She might be homeless if not for people saving her,” an insider told the entertainment site. “She is broke as a joke. She called someone to ask for $100. It is so sad. She should have Mariah Carey money, and she’s flat broke.”
According to several reports, Sony music mogul Clive Davis, who launched Houston’s career, loaned her more than $1 million last year to assist in the rehabilitation process of getting clean.
nlike Michael Jackson, who controlled and owned much of his music, Houston was not entitled to a prominent share of revenues from her work. She did not write her own hits, and doesn’t have share in the revenues for publishing rights. Sony’s Legacy Records owns the catalog of her albums and instead paid Houston singing royalties. As for “The Bodyguard,” Time Warner-operated movie studio Warner Brothers controls the rights, which means Houston doesn’t profit from downloads or sales.
4. Antoine Walker
The 3-time NBA All Star, who was once engaged to “Basketball Wives” star Evelyn Lozada, lost approximately $110 million over 13 seasons in the NBA- a devastating loss that he attributes to bad investments and a lavish lifestyle.
There is no better way to described MC Hammer’s bankruptcy but to go over the lyrics of the song of Kanye West “So Appalled.” Perhaps, MC Hammer is now dreaming about living his previous lifestyle wherein he had a 200-person crew which he paid $500,000 a month. In 1990s, MC Hammer only thought about spending his cash rather than adding money in his bank accounts. When his album that turned Diamond Please Hammer, Don’t Hurt ‘Em was released, he acquired $33 million from it. But after six years, reports about his bankruptcy surfaced and they were all verified. MC Hammer is now worth just $1.5 million.
5. Gary Coleman was considered to be the highest-paid actor on TV for his unmatched performance on “Diff’rent Strokes.” In 1999, he filed for bankruptcy due to his expensive medical expenses and much more expensive legal battles. The legal battles were about his adoptive parents and debts. For him, his financial troubles are the works of his accountants, lawyers, agents, and himself. At age 42, Gary Coleman passed away due to health woes. But even after his death, Gary Coleman will always be remembered for delivering his well-known question: “Whatcha talkin’ ’bout, Willis?”
6. Toni Braxton
(Photo by David Livingston/Getty Images)
78% of NFL Players & 60 %NBA Players In five years
1 – Overspending
Scott Bercu, a financial accountant for professional athletes, believes this group spends like mad, and blows their savings too rapidly. He said, “They see their salaries as infinite, like it doesn’t end, like they can’t spend it all but if you get $5 million a year, by the time you get done paying your agent and taxes, you have $2 million left to spend.”
2 – Career duration
The average career span in the NBA, MLB and NFL is 4.8, 5.6 and 3.5 years, respectively.
The “shelf life” of athletes is tiny. Professionals in this industry have a small window to make their millions, and if they don’t they cannot survive on their savings for very long (even if they saved responsibly).
3 – A lack of finance knowledge
Ed Butowsky of Chapwood Capital Investment Management believes athletes don’t understand finances. He says the leagues try to help educate them, but the system doesn’t work well enough.
Athletes see prominent people spending money, and they believe that their spending pattern should be the same. However, athletes fail to take into account that those prominent members have spent a lifetime learning about financial responsibility and budget strategies.
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4 – Poor investment decisions
Also, according to Butowsky, athletes are targets for poor investment pitches. He said, “Chronic over-allocation into real estate and bad private equity is the number one problem in terms of a financial meltdown. I’ve never seen more people come to me about raising money for those kinds of deals than athletes.”
5 – Hangin’ with a bad crowd
Athletes often do try to be responsible with their savings. However, they pick the wrong financial advisors. The NFL Players Association claimed that 78 players lost a total of $42 million between 1999 and 2002 as a result of bad financial advisors. In fact, Bob Young – managing director for APEX Wealth Management – says athletes often don’t know who manages their savings. He said that he frequently asks players how they’re doing (financially), and they’ll often respond, “I have no idea. All the bills are paid by someone else.”
Trust issues. Think Goldilocks. Too much or too little can be a problem. For the athlete that doesn’t trust anyone, he won’t be open to good tax, legal, and financial advice that could protect his wealth and ensure a lifetime of financial stability. On the other hand, more than a few professional athletes have been duped, taken advantage of, or downright defrauded because they blindly trusted a smooth talking “suit.” A newly announced financial helpline by the NFL Player’s Association aims to address this very issue. Liz Davidson, CEO of Financial Finesse and the company supporting the helpline says, “This program gives players a strong base to build upon, and that with the continued growth of their financial education initiatives, players will continue to progress financially.”
Wired differently. It’s pretty easy to spot a professional athlete in a lineup. Physically they are quite different from you and me. But psychologically they may be different as well. Research found significant differences between athletes and non-athletes across personality characteristics such as inhibition, emotionality, and aggressiveness. Good characteristics on the field, but not necessarily optimum for making financial decisions.
Today focus. Research published in the Journal of Judgment and Decision Making shows professional athletes are more present focused rather than future focused as compared to non-athletes. In other words, there is much greater emphasis placed on today than there is on tomorrow. This may help support the athletes’ winner-take-all mindset needed to excel, but can impede any attempt at saving and investing for their future.
Familial pressure. “If you haven’t experienced it yourself, there is no way to describe it” is how one client expressed the rush of a windfall and the ensuing pressure from friends and family to “spread the love.” The star we see on the field is often the proverbial tip of the iceberg. Who we don’t see is the family or friends that may have encouraged and even supported the athlete. For some athletes, they feel a sense of duty to buy houses and cars or invest in the business ideas of those who helped them get to where they are. They may do this to the extreme in order to assuage the idea that money has changed them. “Look at me,” they’ll say. “Money hasn’t changed me and I’ll prove it.”
Ego bleed. For professional athletes it’s the Lake Wobegon Effect — the tendency for everyone to think they are above average — but on steroids! Because in this case, these athletes are truly the very best in the world at what they do. The problem is when this over confidence bleeds into their finances — thinking they don’t need advice and that they have some special insight or talent in areas beyond their athletic expertise.
Need excitement. Investing and finance is fast-paced and exciting with high emotions and drama … in the movies. In the real world, financial planning is slow and methodical. The glitz and glamour we think of on Wall Street doesn’t translate into a good, long-term financial strategy. But some athletes want and expect the drama. A steady return in the stock market just isn’t exciting enough, so some seek high-risk, winner-take-all (sound familiar?) investments that often leave them high on adrenaline but low on funds.
Two worlds. As foreign as it would feel for you to enter their world, it is often just as alien for the athlete to discuss asset allocations, family limited partnerships, and the alternative minimum tax. According to former professional baseball player Bobby Grich, “Players are not trained in wealth management and that world can be totally intimidating as I know from firsthand experience.”
Athletes suffer financially for many reasons, but the dumb jock explanation is not one of them. Professional athletes are intelligent and talented in ways the rest of us cannot fathom. Davidson agrees, noting that “The game requires a high level of discipline, focus and intelligence — all traits that can be parlayed into smart money management.” Sometimes all it takes is recognizing and overcoming some of these barriers, entering their world, and providing a little guidance.