5 Reasons Why Pro Athletes Go Broke

Let’s stop pointing fingers at people and address the underlying issues

After seven years in the NFL, I transitioned to a career as a financial advisor.¹ The experience has afforded me a new perspective on the situation of professional athletes and their finances. This is NOT another tale of some 25-year old’s lavish spending. The players change, yet the problem remains. Let’s stop pointing fingers at people and address the underlying issues.

To all those athletes in pursuit of the “The Dream,” this one is for you. You’re told from an early age that your talent will deliver a life of enormous fortune. Unfortunately, newfound wealth comes with significant obstacles, even if you make it that far. That’s the story you don’t hear about, and the one I want to uncover.

No one wakes up at 5:45 a.m. and wins a championship—they wake up and train in hopes that it will lead to a championship. Money is no different.

Here are five of the systemic hurdles before you:

Breaking Personal Finance Rule #1

Name a profession from which you can retire before age 30 and still be financially secure. I’ll wait. Any guesses? There isn’t one. The average career in any professional sport comes to an end at age 26. You may walk away a millionaire, but that’s hardly sustainable. You are losing the only source of income you’ve ever known. Retirement is accepting the fact that you will begin breaking personal finance rule #1: your lifestyle exceeds your income. The thought of that unsustainable cash flow should be a reminder to plan with the end in mind.

The Short-term Mindset

Your life has always been cyclical—throw a dart on a calendar, and you know where you’ll be and what you’ll be doing. Your ability to adapt to a routine, to block out all distractions future and past, has contributed to your success. However, such a mindset can also have an adverse impact on your finances. Your time horizon never gets past next season. You aren’t seeing how your professional career could/should shape your life plan.

Athletes must begin to see money like training. No one wakes up at 5:45 a.m. and wins a championship—they wake up and train at that time in hopes that it will lead to a championship effort. Money is no different. You must begin to save or “train” and invest or “practice” if you hope to have something to show for it. Moreover, fans should recognize and revere those athletes who lead fulfilling lives off the field, not just the ones who stack up wins on it.

The Education Gap

You’d think that a primary mission of America’s education system would be to teach young adults the nuances of personal finance and capitalism. If that’s the intention, it’s certainly falling short. Your introduction to money comes as a member of the 1 percent, with no knowledge or appreciation of what that means. That’s not the time to begin an education. No parent waits for their child to be holding matches before teaching them about fire safety.

Put simply, this problem is not limited to athletes. How are people supposed to live out the “American Dream” if they possess no baseline knowledge of taxes or mortgages or saving for retirement? If you spend like you signed a $100 million deal, the reality is you will not only go broke but also be in DEBT!

Limited Flexibility

Important tools available to others aren’t at your disposal. You experience a similar financial windfall as those who win the lottery, but even they have a deferred compensation option. The lack of financial flexibility falls under the NFL umbrella.² Corporate executives can defer their compensation as far into the future as possible, allowing them to manage their lifestyles and save thousands in tax payments. Athletes do not enjoy the same luxury, and will continue to pay the highest bracket of income tax possible.

While access to a 401(k) is a clear positive, young players may be misled to believe that $19,000 is all they need to save throughout the year. The amount, which is not even a week’s paycheck, won’t be available for decades and must support 60 years of living! Each year you spend a certain amount of money—$60,000 or $5,000 per month or $120,000 or $10,000 per month—that represents your annual cash need. Protecting five years of that number grants you freedom from depending on the next contract.

Making the Transition

How long have you been identified as a jock? How long has the first question anyone asks you been, “How did you play?” The title of athlete was bestowed upon you before you could drive. Just imagine a doctor, after years of medical school, residency, and an active practice, being told they were no longer a doctor. You’ll likely feel lost, having never considered what’s next. All at once, you lose your focus, your confidence, and your purpose. The harsh reality is that the fans will forget, the team will move on, and even teammates will fall out of touch. It begins to feel like the only nostalgic action you have of the old life is spending like you are still in it.

How long has the first question anyone asks you been, “How did you play?”

The other four hurdles will impact this one. Not having a plan, not changing your perception of life, not gaining an education, and not taking advantage of the options you have will all make this hurdle more daunting. It’s easy for people to say “go get another job.” When you do begin looking for the next job, you’ll be overqualified in life experience and underqualified in actual experience. Peers who have admired you are now years ahead and suddenly the object of your envy. The crippling question remains: what else are you good at?

I’m not trying to give you an excuse. Rather, I want to introduce you to the difficult dynamics you must navigate. The system, the one that pushed you to be the best in one realm, has failed to prepare you for the rest of the Dream.

Every athlete knows that a lack of preparation puts you on the path toward failure. My hope is that you marvel in the fact that your dream is coming true. Take pride in it. But also be humbled by the statistics of how long your dream may last. Begin asking yourselves, “How long can I make my Dream last?”

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¹ A free piece of advice: the terms you hear—financial advisor, wealth manager, investment consultant—hold little meaning. Ask everyone two questions: 1) Are you a fiduciary? 2) How do you get paid?

² Another tip: most professional athletes should have an umbrella insurance policy.