How to Ensure Financial Stability as a Professional Athlete

The Myth of Athlete Bankruptcy

In October 2012, ESPN’s “30 for 30” series called “Broke” painted a dire picture of professional athletes’ financial futures. It suggested that a vast majority of athletes become financially destitute after their careers end. However, the data used in the series was flawed, relying on surveys from individuals within the sports industry rather than hard evidence. Despite this, the overarching concern remains—professional athletes need to navigate significant financial complexities to maintain their wealth.

Jeff Locke, known as “The Professor,” confirms that while the 78% bankruptcy perception is inaccurate, the reality includes numerous challenges athletes face that can lead to financial distress. The key takeaway is recognizing these challenges and implementing strategies to avoid becoming a cautionary tale.

Recognizing the Challenges

Professional athletes earn substantial sums of money, often more than they or their families have ever managed. This “sudden wealth” can lead to numerous pitfalls if not properly managed. Sam Acho doesn’t remember feeling the fear of financial failure when entering the NFL, but the reality quickly set in when he learned about the statistics of financial distress among players.

For instance, only about 4% of Americans have a net worth of $1 million, and an even smaller fraction possesses higher wealth. Managing such finances is new territory for most athletes. Zach Miller, who has successfully maintained his wealth, emphasizes the need for empathy and understanding. The drastic income drop after retiring from the NFL is a challenge many athletes face, making it easy to go broke if they’re not prepared.

Miller stresses the importance of having a financial plan and understanding your spending habits. For instance, spending $500,000 to $700,000 annually and giving away another $100,000 can easily deplete savings within a few years if not invested wisely. These spending habits, combined with family pressures and the desire to live lavishly, can quickly lead to financial ruin.

The Impact of Sudden Wealth

Sudden wealth—earning a significant amount of money over a short period—comes with both positives and negatives. According to Jeff Locke, proper planning and investing can secure multi-generational wealth. Yet, the challenges are substantial. Sudden wealth can lead to guilt, anxiety, isolation, and pressure to take care of everyone around you. Locke adds that many athletes feel the isolation of being financially different from their peers, which can strain personal relationships.

Moreover, athletes often face immense pressure to provide financial support to their extended families. This dynamic can strain their finances further and lead to excessive spending. The hope is that athletes understand the volatility of their income and prepare for the financial drop-off once they retire.

Warning Signs and Solutions

Identifying the warning signs of financial mismanagement can be lifesaving. Sam Acho describes the pressure athletes feel to take care of everyone—whether it’s covering substantial dinner bills or constantly buying the latest luxury items. This pressure, coupled with financial illiteracy, can lead to the financial downfall of many athletes.

Solutions lie in meticulous planning, disciplined spending, and seeking professional advice. An emphasis on saving and investing during the earning years is crucial. Jeff Locke mentions that planning for sudden wealth requires understanding the temporary nature of high income and focusing on creating sustainable financial habits.

Equally important is choosing the right financial team. Athletes should surround themselves with advisors who understand the unique pressures and financial intricacies of their careers. Locke urges athletes to build a team that serves their long-term financial goals—including creating and maintaining multi-generational wealth.

Conclusion

Professional athletes are not doomed to go broke, but the journey requires conscious financial planning and prudent decision-making. As Riccardo Stewart points out, wealth management for athletes isn’t just about preventing bankruptcy—it’s about creating and sustaining multi-generational wealth. Understanding and addressing the unique challenges of sudden wealth can help athletes secure their financial futures and those of their families for generations to come.

If you have any further questions or need assistance with planning your financial future, please reach out to us at AWM Capital.