7 Reasons Why 70% Of Athletes Lose All Their Money Within 3 Years Of Retirement
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You’ve heard the horror stories about professional athletes going bankrupt. And it isn’t just benchwarmers or low-earners who have fallen victim to poor money management. Big name stars like Mike Tyson, Allen Iverson, Antoine Walker and others have all been hit hard by bad financial decisions. Some have dug their way out and learned from their awful choices, but their downfalls haven’t stopped other athletes from following their footsteps to financial peril.
The average salary in the four major sports surpasses $4,000,000, an astronomical figure by any standard. However, the fact remains that more than 70% of athletes find themselves bankrupt within a mere three years of retiring from their respective sports. This phenomenon can be attributed to several key factors, which shed light on the precarious financial situations many athletes face post-career.
Why Do Athletes Go Broke?
Firstly, the lavish lifestyle and extravagant spending habits of athletes contribute significantly to their financial downfall. Consider the recurring boys’ trips to Vegas, replete with indulgent steak dinners, opulent hotel suites, and a personal driver. While such experiences undoubtedly provide great pleasure, they come at an exorbitant cost. A table for eight in an upscale restaurant is not only a pricey affair but also an immense source of enjoyment for athletes accustomed to the luxuries their earnings afford them. However, when it comes time to split the bill, the astronomical figures often deter any notion of sharing expenses, amplifying the strain on their financial stability.
Another reason behind the financial downfall of athletes lies in their lack of financial literacy and tax knowledge. During their transition into the world of professional sports, athletes are often provided with minimal guidance regarding tax withholdings, focusing instead on the direct deposit information for their substantial earnings. Consequently, they find themselves ill-prepared to comprehend the intricacies of their tax liabilities. The eye-catching number on their paychecks does not align with the amount that ultimately finds its way into their bank accounts, leaving them with less financial security than anticipated.
Moreover, athletes frequently fall victim to the influence of the “Yes Man” phenomenon. When surrounded by a supportive entourage comprising spouses, siblings, and friends, athletes rarely encounter dissenting voices discouraging them from making impulsive purchases. While a reasonable individual might be advised against buying a $200,000 wrist watch, athletes seldom receive such cautionary advice. The prevailing attitude among their teams is one of unconditional affirmation, reinforcing the notion that they should follow their desires without reservation. The abundance of enablers within their inner circles often blinds athletes to the potential pitfalls of their financial decisions.
The world of professional sports can often create an alternate reality for athletes, akin to winning the lottery and finding oneself in the company of royalty. With millions of dollars pouring in at once, athletes find themselves surrounded by individuals eager to cater to their every whim. In this extraordinary environment, the need for self-reliance diminishes as someone is always available to find solutions and fulfill their desires. However, this bubble of privilege and constant assistance fails to prepare athletes for the harsh realities of everyday life and financial responsibility that awaits them once their careers come to an end.
Athletes face the delicate challenge of managing life-altering wealth in the present while grappling with an uncertain future. The allure of doing whatever they want whenever they want is enticing, given their enormous earnings. Unfortunately, the average professional sports career spans a mere four years, rendering the notion of perpetual kingship a fallacy. Athletes must recognize that the true legacy lies in responsible financial planning, as the actions of the prince today shape their future beyond the realm of sports.
The realm of investing presents another treacherous obstacle for athletes. While many may possess engaging tales of successful investments made during casual campfire discussions, such stories merely amount to minor accomplishments in the realm of professional athletes. Athletes are lured by the appeal of exclusive investment opportunities promising substantial returns. Often blinded by the allure of these “sexy” investments, they neglect more prudent options that can yield sustainable financial growth. This tendency to prioritize flashiness over practicality leads them astray in the wild west of investing, further endangering their financial stability.
Lastly, the prevalence of the Dunning-Kruger effect within the athlete community exacerbates their financial predicament. The locker room atmosphere is replete with individuals who possess unwavering confidence in their financial acumen, akin to Tiger Woods in his prime. Unfortunately, this sense of self-belief is often coupled with a lack of financial knowledge, creating a dangerous combination. Athletes, buoyed by their exceptional athletic prowess and success, overestimate their understanding of monetary matters. Such overconfidence compounds their financial missteps and leaves them vulnerable to making ill-informed decisions that can have dire consequences.
The staggering statistics regarding athletes’ financial struggles after retirement point to a series of underlying factors contributing to their downfall. From extravagant lifestyles and limited tax knowledge to the influence of enablers and the illusion of perpetual luxury, athletes often find themselves ill-equipped to navigate the complex world of personal finance. The allure of reckless spending, poor investment choices, and misplaced confidence exacerbate their predicament. To overcome these challenges, athletes must prioritize financial education, seek professional advice, and develop a long-term perspective that transcends the transient nature of their athletic careers.