Life as an NFL player can be interesting. For example, you get a reverse trajectory with your money — a lump sum of what could very well be your retirement savings, kids' college funds, and mortgages all in one.
Without careful management, former NFL players can end up in financial ruin and full of regrets. In the three years or less that the average pro NFL career lasts, players can expect to make about $2 million a year. As co-founder of Athlete Essentials (opens in new tab) — a wealth management firm with financial planning and brand consultant services catering to professional athletes — it’s been my experience that NFL draftees are usually not equipped to handle that kind of money or manage it well enough to last the rest of their lives.
The stakes are high. Together with weekly salaries, hefty bonuses and other payments, these players get one shot at setting themselves up for life.
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While a solid financial plan backed up by strict discipline can help build a sustainable lifestyle for these players, they should also consider external support to achieve this lifetime goal.
The Problem with Professional Athletes and Money
Statistics suggest (opens in new tab) that up to 78% of NFL players go bankrupt or fall into severe financial stress within just two years of retirement. For basketball players, the figures are only slightly better at 60% of financial ruin within five years of retirement.
A lot of money comes to draftees as a lump sum signing bonus, essentially front-loading their careers while they're still getting their toes wet in the world. As a direct consequence, many of them fall into a lavish lifestyle characterized by million-dollar cars, mansions, extravagant parties and more.
By the third or fourth year of their careers, players are already straining to live up to their former lavish lifestyle without their bonuses. This unsustainability spirals over time and creates a financial burden, even before players approach retirement.
Why Is This Happening?
It's easy to pin this lack of financial wisdom on youthful age and lack of experience, but the problem goes deeper than that. The fact that this situation is so widespread in professional sports shows just how chronic this problem has proved to be. Even older players, who should know better than to blow their salary so quickly, are often grappling with personal expenses and draining their income through living an unsustainable lifestyle.
A complete lack of financial guidance contributes greatly to this problem. Given that successful athletes in the NFL and other high-paying professional leagues make up only a small percentage of the industry, there is little systemic support and mentorship available to them. Additionally, young players rarely have any teammates to model good financial decision-making from. With so few good financial role models, poor financial decision-making is often passed from generation to generation, thus continuing the cycle.
What NFL Draftees Can Do to Better Manage Their Finances
The challenge of financial management for NFL draftees and pro-league athletes is simple enough to diagnose. The solutions are also straightforward, although not so easy to implement.
Develop a Budget
According to Bleacher Report (opens in new tab), former Lions wide receiver Michael Rothstein is one example of a player who has saved money for his family by sticking to a budget of $60,000 a year. While this is certainly a comfortable livelihood, Rothstein’s $3.6 million four-year contract left enough ensured that he could save the lion's share of his income for the future.
This is just one case where setting up and sticking to a strict budget can save the day for NFL draftees. CNBC also has a list of other pioneers who live like they're broke (opens in new tab) to make the future brighter for themselves and their families.
Work with a Financial Adviser
With all the money coming in, it's a little hard to restrict yourself to a limited budget. A financial adviser is often the missing link to effective wealth management and investment in the future.
Rich athletes will often retain the services of top financial advisers to help them manage their spending habits and store away the bulk of their earnings in a safe, prosperous investment portfolio.
According to NBC Sports (opens in new tab), veteran NFL safety Glover Quinn decided to save 70% of his after-tax income, which in total amounted to over $33 million. By maintaining a reasonable lifestyle, Glover will continue to enjoy a comfortable retirement, whether he works another day in his life or not.
Treat Yourself, Then Save
Trying to ignore the urge to splurge is almost as bad as giving in to it. These young players are likely to cave in from pressure at some point, and the key is to control it. Thus, with the help of a trusted adviser, draftees can decide whether or not to spend big on meaningful assets, such as houses or art.
Once this controlled spending spree is over, they will have a better chance of holding off and save money. Plus, these assets can be leveraged later in life as part of their investment portfolio.
The Biggest Threats to Financial Prosperity for NFL Draftees
To NFL draftees, the biggest threat to long-term financial security is not the taxman. These threats to financial security often come wrapped in good intentions.
One of these comes in the form of close family members and friends who often expect the rich draftees to fund their expensive lifestyles. With houses, exotic cars and strings of dependents, the money can run out quickly.
The players themselves can also sign away a lot of their money when trying to invest in supposedly good deals. These investment opportunities often look good on paper but end up being massive losses. This is just another reason why the support of a financial adviser who can decipher good business opportunities and stave off money-hungry relatives can make all the difference.
With all these, there is always the pressure to keep up with the extravagance of less prudent colleagues. For new draftees especially, it can be enormously tempting to “keep up” with the extravagant spending of your teammates, even if it harms your long-term wealth.
What NFL draftees and professional athletes need to know is how to live as if the last contract they signed is really their last. By counting their pennies, they can take a crucial step toward avoiding the terrible regret of a riches-to-rags story.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
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