Many people place a lot of emphasis on the income of professional athletes, and rightfully so. But what many people don't realize is the tremendous 'change' which occurs after a pro athletes extremely brief peak earning period.
As I've mentioned in many of my presentations, 'I don't care how much money you make....taking over a 90% pay cut is a major lifestyle change no matter how high your previous income.' This pay decrease is exactly what occurs when an athlete transitions from professional athletics and sometimes more. As an easy example; let's say a professional baseball player makes the MLB league average of about $3.2 million dollars a year for two years (about the average length of a pro athlete's career). Let's say this athlete was extremely smart and saved 20% of that income (rare, but let's dream a little), giving him approximately $1.28 million in the bank. At 4% this athlete could generate about $51,200 annually from interest...quite a far-cry from their $3.2 million salary, but a decent income for many nonetheless. Let's say this athlete finds some type of sales position and makes the entry-level average income for sales positions of $30-$100k per year (many athletes choose this type of position because of name recognition and their former pro status opens many doors). At 24 or 25 years of age their income realistically goes from $3.2 million to $81,200-$151,200 per year...which is a 95%-98% decrease in salary following their pro sports career.
No wonder there is a laundry list of former pro athletes who are now bankrupt and the exit stats are sobering.
- 100% of professional athletes ultimately experience job termination
- 25% of NFL players are bankrupt within the first year out
- 60% of NBA players are broke within five years
- over 75% of NFL players are broke within two years
- up to 80% experience divorce
I'll be the first to admit not ALL of the financial troubles haunting former professional athletes comes from the practical sense and extreme loss of income. Many an athlete have made poor decisions or entrusted people such as the case of former NBA player Latrell Sprewell who turned down a $30 million contract extension toward the end of his career simply because it wasn't enough and stated, "I have a family to feed...(they) better cough up some money. Otherwise, you're going to see these kids in one of those Sally Struthers commercials soon." (referring to the ChildFund International commercials for deprived children around the world) The upper management didn't offer him one more cent and he became quickly unemployed with many possessions, including his yacht, repossessed by federal marshals and two homes foreclosed on. The ultimate example of poor money management and direction still reigns with boxer, Mike Tyson, who reportedly earned over $400 million during his boxing career spending almost every penny of it and eventually losing most of the possessions purchased with it.
So whether a pro athlete is really 'good' with their money or not, the substantial loss of income poses some practical and adverse challenges following their pro sports careers and warrants as much emphasis as the attention provided to those extravagant incomes.
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