Why do Millionaire Athletes End up in Bankruptcy and What We Can Learn

Today, we'll be discussing why millionaire athletes end up in bankruptcy and what we can learn from their mistakes. Hello and welcome to Money Talks. My name is Ken Wink from Summit Financial Consulting here in Southeast Michigan. If you'd like more info about what you hear during our show today, give us a call, 586-226-2100. Or you can visit us online, summitfc.net. While you're at the website, please check out the podcast page. You can check out our past shows and you can subscribe on Apple Podcasts, Spotify, or Amazon Music. So today we're talking about something that sounds almost impossible. How do people who make millions and sometimes tens of millions of dollars and they end up broke? Professional athletes are some of the highest paid people in the world, yet a shocking amount of them end up in serious financial trouble right after their career is out. So this isn't something that happens every once in a while. We'll go over some stats to talk about. Often it does happen. But today we're just basically going to break down why this happens and what the rest of us can learn from it. But before I jump in, let me introduce my co-host, Tony Shore. Tony, do you know any professional athletes? You ever bump into one of these guys and get pictures? No.

Well, you know, I have met a few, four or five. I'm a huge Minnesota Vikings fan, and I've met some of the old players from the 80s who I grew up adoring. Our defensive line, they were called the Purple People Eaters. I was going to say. And Carl Eller, Jim Marshall, and Alan Page. I've met all three of them at different events, gotten pictures. And then, why am I drawing a blank on the name? Quarterback we had later on. I've met a couple of Minnesota Vikings players. Chuck Foreman, old running back, 44. Alan Page became a Supreme Court justice in the state of Minnesota. He went to law school. He was a super intelligent guy, but just huge guy. Part of the Purple Peep leaders. Great guy. Carl Eller, amazing guy. I've also met Dan Marino, the quarterback for the Dolphins. Got a picture with him at an event. I don't know if you were at that event.

I got my picture taken with Dan, too.

And Michael Irving. Michael Irving, great, great guy. Did you get your picture taken with Michael Irving? I did.

Yeah, he was he was something else. And I remember for that particular event, he got sort of booked at the last minute because somebody else backed out.

He's actually one of the best speakers we've ever had ever at the financial at the Gradient Summit, which they usually get a list speakers and great people. He is, I think, the best. And of all the people I've met was the nicest. Dan Marino was not enough. Nice guy. I was actually backstage and saw some of the behind the scenes stuff, you know, not to talk ill, but he was kind of a jerk. But a lot of these guys are nice. Michael Irving, what a great guy. I mean, super. What he had to say was so motivational. And so nice. Took his time with people. Photographs. Wanted to meet everybody. I mean, just a generous and genuine person, it seemed like. Also, famous athlete, Sugar Ray Leonard. I talked to him for a while. And the boxer. And what a guy. Again, super great guy.

Did you meet Sugar Ray Leonard? No. I did. Yeah. And so, yeah, me and Tony are lucky. We get to go to these top financial advisor conferences all over the country and meet all these famous people. But somebody bumped into Michael Irvin while he was getting ready to leave to catch his flight. And they asked him if he would have a drink with them. You want to know what Michael Irvin chose as his drink? What? It was vodka lemonade.

But he said yes. I mean, that's Michael Irving. Sure, I'll have a drink with you. He is just that kind of guy. I mean, great guy. Love watching him on whatever that is, ESPN or whatever.

I think it was vodka and orange juice. Sorry. Vodka and orange juice, yeah.

Yeah, that's funny. But yeah, I mean, I don't know any famous athletes and I've just, you know, just signing events where they're there taking pictures with people. I've met a few. That's about it. You know, just a few minutes each. I did talk to Sugar Ray Leonard for a little bit and he is just something else. I mean, what a legend that guy is as a boxer. But at any rate, this is kind of the discussion you have today, famous athletes, and I know we're focused on that, but it's also a very similar situation to people who win the lottery, right? So lottery winners and athletes, and sometimes music stars, too, who become big quickly. I have a story about MC Hammer that I could tell. because I worked for a record. I did radio promotions for labels in LA and I have a hilarious story about that, but that's another sad story who young guy sold 10 million records out of the box. First record got super rich, surrounded himself, had a huge entourage and put a hundred of his best friends on the payroll family. A hundred. He had lots of people and mansions and cars and he just, you know, he was bankrupt within a few years. So, That happens, right?

It does, yeah. The stats with this are crazy. And I don't want to, you know, some people are interested in athletes. What I want to emphasize to everybody today is that we are going to talk about these athletes, but we're also going to talk about some lessons that we can all learn from them. Financial lessons for everyone. Lessons from their mistakes, yeah. So the stats are crazy. So 70, you know, there's all these different... Statistics that are out there. But from what I found, 78 percent of NFL players face financial stress or bankruptcy within just two years of retirement. And 60 percent of NBA players basically go broke within five years. So this is a one off. This is a large majority. Yeah.

Yeah, that's crazy. And I know that the NFL has actually started to do things to curb this, where they try to get the athletes to not take all their payment up front, but put it into, they provide financial advisors like yourself for them, and they try to get them to put it in a trust where it's doled out, where they don't have access to all the money at once. That's the problem with lottery winners, too. If they take a lump sum, they don't invest it. They just spend it. Right.

Yeah. Yeah. Well, I mean, one of the biggest reasons behind the athlete side of things is just simple math. You know, the the average professional sports career is three to five years. So a lot of these guys think they're going to be at this. for 10 or 20 years, but they basically get the bulk of their life's earnings before the age of even 30. And they still have, in some cases, six or seven decades to live. So- Plus they're young.

If you had given me millions of dollars when I was 21 years old or 22 years old, I'd be dead in a ditch right now somewhere. Yeah.

I wouldn't have made it.

I mean, it just I was not I would not have been good with money in my 20s period. That's too much money to give somebody who hasn't learned good financial lessons.

Yeah, absolutely. That's why people set up their trust to say you get so much when you turn 22 years old and so much when you turn 25 years old and you get the rest when you're 30. Like 30 does seem to be that magic number where people get a little bit more responsible. Sure. Yeah, most people, hopefully.

But yeah, I mean, 78% of NFL players face financial stress or bankruptcy within just two years of retirement. And 60% of NBA players go broke within five years. That's amazing considering the millions and millions of dollars they're getting paid. All they'd have to do is put that in the, you know, have a good financial advisor that would invest it for them and live off the interest, right?

Yeah, then they're set for life. So I guess lesson number one is a big income doesn't matter if it doesn't last, you know, if it doesn't last. So a lot of times we'll have clients that have a really high paying job and even the client will admit, like, I can't believe how much money I'm making between stock options and bonuses and everything like that. But, you know, if you lose that job for any reason, what are the chances of getting another job just like that? And I'd say the majority of the time people don't get another job that is that high paying. So no. Yeah. So sometimes you just got. got to sort of assume this might not last. I'm going to play it a little bit safer. But, you know, what usually happens and what happens with these athletes is the money comes in fast. The lifestyle goes through the roof, you know, luxury homes, multiple cars, expensive habits. And then it's not just, you know, these one-time purchases, sometimes there's ongoing costs. So we've got auto insurance on this fleet of cars and a mortgage and the upkeep. And, you know, the example that I like to give people is just a pool. You know, if you get a pool, You think, OK, I'm paying for the pool, but then there's heating it, which, you know, skyrockets your gas bill. And then there's the filters that run on it and lights in some cases that skyrockets your electric bill. Homeowners insurance costs sometimes go up. So anytime you're making a big one time purchase, a good rule is to just see are there any unintended consequences? Are there any expenses that you're not thinking about that might might shoot things up?

Ongoing costs. People never factor in ongoing costs. Oh, a pool costs this much. We'll save up or we'll pay that off and that'll be the, you know, we'll have this much a month to pay off the pool. We can do that. They do not calculate ongoing costs. It's the same with a house. You know, even if you get your house paid off, Oh, we won't have house payments. We're going to have that paid off by the time we retire. There's property taxes, which have gone up exponentially. You still have to have an insured. You still have property taxes. And upkeep on a house is expensive. Same with the vehicles, especially these athletes buying a Lamborghini or a Bentley or what have you, a Maybach or whatever expensive car they buy. The insurance on those cars is outrageous. It's gotta be spendy.

Well, and you get in a fender bender and they have to order parts from Italy, you know, the Lambo's in the shop and it'll cost me tens of thousands of dollars. So yeah. Another thing. Well, and just on this, like gotcha things that you can buy, believe it or not, another one is a dog. Like we have a lot of people complain about pets because, you know, my dog Benji, we had to get an allergy safe dog because my son Jack was allergic to dogs when he was younger. But this dog gets haircuts more often than anybody in the house. You know, so it's like he doesn't have normal fur.

What's the name of your dog? Benji. Benji. Of course, it's Benji. And Benji costs a lot of money.

Benji has a more expensive upkeep cost than you do. He doesn't have normal fur. He's got hair, which makes him hypoallergenic and he's got a very, very, you know, soft coat or whatever. But yeah, he's got to go in for haircuts all the time. He's got to go in for otherwise it gets all matted or he can't see out of his eyes or like it gets all in his face. So anyways, yeah, between haircuts and I mean, at least $100 a month you spend on vet bills if you are getting your dog all the shots that they need.

So it's expensive. I do. We just took our dog in Enzo. We took Enzo in for his yearly shots and checkup and it's just hundreds of dollars. Right. I mean, it's just like, Oh, we need to draw blood to test that. We want to, you know, do the test, say sample stool sample. We got to do all this. And just the chart, I'm just looking at all these charges and shots for this and that I'm like, My goodness, there was nothing even wrong with the dog when I brought him in. Why am I paying hundreds of dollars? Preventive care, I guess, but dogs can be very expensive. That's why I say, you know, the two things, the reason that I always say to my wife, the reason we don't have any money, two reasons, dogs and children and pets. Children and pets, they're going to eat up all your money. And that's their ongoing costs. And even after they become adults, we're working hard to get our third off the payroll. We got two off the payroll. Now we're trying to get the third one off the payroll. And we're almost there, Ken. We're almost there. Now, I would not live without children and pets. I would not trade them for the world. But number one, it's hard to have nice things when you have children and pets. And they're outrageously expensive.

Yeah. Very true. Yeah. I didn't want to throw kids into this category of things.

Yeah.

Well, I guess the lesson number two that I want to share with everyone that we can learn from professional athletes is if you get a bonus, if you've possibly got not permanent income, you know, you don't you want to have a flexible lifestyle. If you've got temporary income, you've got to keep an eye on those ongoing expenses. A good rule of thumb is if this income disappeared tomorrow, how much of your life would you have to undo? Right.

So don't build a permanent lifestyle on a temporary income is what you're saying. Yeah. I think that's important. But a lot of times with athletes, it's lack of financial education. And that's what this is a big gripe of mine. Right, Ken? Yeah.

Oh yeah, yeah. In schools they don't really teach finance at all, you know. No, they don't. A lot of people come out of high school not even knowing how to use a checkbook or, you know, how to balance their budget every single month. They don't know what a budget is. They don't know that you should save somewhere between 10 and 20 percent of what you make for retirement. You know, there's just not a

Nobody's teaching the kids this. Now, in the high school where my kids went, public school system, we're in Stillwater, Minnesota. Great school system, by the way. One of the best, highest rank. So good education. However, they offer a personal finance class as an elective for juniors and seniors. Nice. That's it, though, as an elective. And it's just like it's like and so most kids don't take it. Right. But some do. But it's one class for like one semester. It's just like that's not they should. It should be personal finance and finance class should be like math and English. It should be and reading. It should be required in science and history. It should actually be it should be right up there. It's as important as any of the staples. It should be a staple. It should start at sixth or seventh grade, in my opinion.

So you're saying this is more important than calculus or algebra, too, in terms of your everyday life?

I'm saying it's more important than almost any of the other classes for your everyday life, let alone calculus. It's like if you're going to be an engineer or do certain things, you know, calculus and algebra two may come into play or a scientist. However, In life, you can be the smartest person in the world when it comes to math and be horrible with personal finance. And so many kids are because they don't have any financial education, like you said. I think that's that's this. That is a systemic problem in our society that has to be addressed. If I could change anything about education, it would be that is a required subject curriculum and it would be taught every year and required from sixth or seventh grade on.

Yeah, I agree with you 100 percent. Obviously, as a financial advisor, we love to see people more highly educated about this stuff. So that's lesson number three. Financial literacy matters more than income. Sure. Understanding budgeting, investing and actually risk. You know, sometimes these professional athletes buy restaurants or get involved in this business. And there's sort of a target for people to try to get them and get rich quickly.

Invest in my business or my idea. Yeah.

Yeah. So you got to not just you, but your kids and your grandkids. You've got to make sure that they have financial literacy because it really does matter more than your income.

Yeah. Yeah. That's a great point. Great point. Financial literacy, financial knowledge is actually more important than the dollar amount.

So what's what's another one? Just social pressure. And I feel like we all feel this at different times. But a lot of athletes feel responsible supporting their family and their friends. And in some cases, like their entire community, their entire neighborhood. And, you know, it comes from loyalty and gratitude. But financially, that can just completely spiral you out of control. So lesson number four is generosity needs boundaries. I really don't. very strongly believe in generosity and helping others and love your neighbor as yourself, but, and you know, parents, you know, if your parents are sick, you got to take care of them. If your kids are in trouble, you know, you got to give them a helping hand. But if you don't have limits on this stuff, financially speaking, it can pretty quietly and quickly destroy your own financial future.

Yeah, oh, for sure. Yeah, I mean, I think, and that's really, they say that's where MC Hammer, the artist, went wrong because he just, he gave all his friends, like, salaried jobs where he was just paying them to hang out and family members money. His generosity, I mean, he did have a mansion, you know, in the Bay Area in California, and he did have, you know, gold-plated, like, vehicle or something. So he went excessive in a few other ways, but he spent the majority of his money on his entourage. Or maybe it wasn't 100, maybe it was 50. I know it was some astronomical number of people he was employing. But really quick, Ken, I want to share a funny story. I worked for relatively small. They did quite well, but there was a company called Frontline Records. It was actually a Christian rock label. Okay. And Mike McClain, sharp guy, nice guy. He was my boss there. He was the head of A&R and marketing. And I worked under him doing radio promotions. MC Hammer said, not signed, had done a little rap on one of our artists, John Gibson's songs. And MC Hammer came in with a demo and sat a cassette tape on Mike's desk. Mike put it in, listened to it, and MC Hammer was sitting across from his desk saying, would you sign me? And it was the album that went on to become his first record, right? Yeah. Yeah, I mean, it was the same songs and some of the same recordings, I think, even ended up. But Mike had his demo tape. He was just a young kid trying to get signed, MC Hammer. And Mike McClain said, nah, I just, you know what, this is great stuff, but rap is a fad. It's not going to go anywhere. No. Oh, my gosh. And this was in the early to mid-80s. So this was in the mid-80s, basically. So he told MC Hammer that he wouldn't sign him because it was a fad. Well, a year later, MC Hammer signed to, I believe it was Capitol Records, a major label, and sold 10 million records.

So Mike loves to tell that story, like the biggest mistake I ever made. Wow.

And I guess he's a nice guy. And he got back on his feet eventually, but he had to file for bankruptcy.

Yeah.

I mean, he got a lot of money all at once and popular right away. And that fame and money will destroy people. right? No doubt. And, uh, that's why you need somebody like Ken Wink, uh, especially, uh, anyone, whether you have 200,000 saved for retirement or you've got 200 million, uh, the more money you have, the more crucial it is, but it's still crucial for everyone. If you want to have a successful retirement. Um, I think that's huge. So obviously financial literacy, um, Helping others. Obviously, you're talking about that. So, yeah, more money, more problems.

And, you know, it's it's it's later in April here while we're filming this. So we just had hammer time. I'm going to get as many callbacks to see cameras like, you know. Tax season just ended. When these athletes get these big contracts and you hear like tens of millions of dollars, you got to remember that that's not what the athlete takes home. They've got taxes. Oh, yeah.

The taxes are outrageous. And so they've got to be working with people who are really know their stuff and aren't going to take advantage. It's hard to find someone you can trust. Yeah. I'm not going to name names, Ken Wink, but they should pick up the phone because I know the Wink family will take care of them and Summit Financial Consulting LLC. They'll do what's in their best interest. That's what they need, a fiduciary, right? Yes. Absolutely.

We give we look at not just the headline income, but we're looking at net to, you know, their salaries and there's bonuses and their side gigs. But what really matters is what you get after taxes. And we can help people figure out exactly how much they should be investing to to reach all their goals. And I think that this whole topic before we wrap up, it's fascinating because. this isn't just a story about athletes. It's like human behavior, you know, like you said earlier, whether it's lottery winners or I would also argue entrepreneurs, we see lots of entrepreneurs where they just start making really big and their lifestyle just ramps up and then something changes with their business or the economy and then it all goes away. So if someone gets sudden wealth, no matter who they are, you've, you've got to, high income creates an opportunity, but it can also magnify the mistakes and really ruin everything. So we got to have a good plan. We would love to sit down with anyone who, whether they make a million dollars or whether they're just trying to figure out how much money they should save in their 401(k) each paycheck, we'd be happy to sit down with you and give you a roadmap.

Awesome. Yep. A financial roadmap is what we need. Ken, great show today. And again, like money alone doesn't create security, right?

No, no, it does not. Yeah. You got to have good habits. You got to make good decisions and you got to have a plan in place. Like our show from last week, if you don't have a plan, if you don't have a target, you're never going to hit the target. Right.

Right. And again, last week, you have to have a vision board. You talked about having a vision board. Absolutely. There's mine. So we're just going to show that for a second. For our viewers, they got a glimpse into my vision board. That was good. Well, Ken, great show today. Why don't you let our listeners know how they can get a hold of you to set up that consultation to avoid costly mistakes, make sure that they are making the right financial decisions.

Yeah, give us a call at 586-226-2100 and we'd be happy to go over your entire situation. We can help you figure out should I put money into an IRA or 401(k) pre-tax or do it after tax with the Roth after you're getting ready for retirement or you are retired? Should you convert IRAs to Roth IRAs? How much should you set aside from each paycheck? How much can you afford? for vacations once you're retired? At what age can you retire? What about Social Security? When should I turn that on? What about Medicare? Which plan should I choose? All these and more, we can help you get those answers. As an independent fiduciary, we look at everything that's available out there and we will put together a plan that benefits you.

Awesome. Well, thank you, Ken. Great show today. And hopefully some of those millionaire athletes were listening or will listen to the show and hear it and pick up the phone and give you a call to get the help they need. And a good one. Listeners, thanks for tuning in. That does it for today's episode of Money Talks with Summit Financial Consulting LLC and our host, Ken Wink. Thank you for joining us for Money Talks. Don't head into retirement without a strategy that addresses both income and taxes. For more information, please contact Ken Wink at Summit Financial, working with people you trust. Call 586-226-2100 or visit summitfc.net. Join us again soon for another episode of Money Talks.