"It’s the same old story, same old song and dance my friend' -Aerosmith
Award-winning financial columnist Don McNay recently wrote an online article for The Huffington Post about the perils of overspending, entitled “Like Lottery Winners, Pro Athletes Also Blow Big Money.” In it, the part-time structured settlement consultant who has worked with injury victims, lottery winners and others who receive very large sums of money, has observed that some 90% of them will run through their money in five years or less; within two years of retirement, 78% of NFL football players are bankrupt or under financial stress; and 60% of NBA basketball players are broke within five years of retirement—all “running through their money faster than a crazed lottery winner.”
In this blog, McNay ponders the question many of us wonder: why are these people so compelled to blow big money?
To answer it, McNay references the Sports Illustrated article entitled, "How (and Why) Athletes Go Broke," which relays that one reason for the downfall of many pro athletes are the people who are advising them and hanging out with them. McNay writes:
“You can't choose your "friends" by their ability to serve as your Yes-men. In fact, a true friend will tell you when you are screwing up. You need friends who like you for who you are, not for your wallet. Professional sports figures attract flunkies for many reasons…. Someone needs to tell sports figures that if a person REALLY wants to be your friend, he doesn't need to be on your payroll. I have many friends. But none of them get paid for that ‘privilege.’”
The author also points to a second symptom of this larger-than-life status: an innate overconfidence that the well will never dry up, and that the money will always be there.
“Sports stars also get caught in the same trap that others with big money fall into. They think the money is going to last forever. Someone who gets a lottery jackpot or injury settlement is only going to get it once. As I told one injury victim, "You are only going to get hit by a truck once in your lifetime. You need to make sure that this money is there for all your lifetime."
Sports stars often think they will play forever, but the average career of an NFL player is only four years. The careers end, the money runs out and they are not prepared for the sudden fall.
Sports stars often have an attraction for risk. A young, professional athlete is the epitome of self-confidence. Those who make it to the professional ranks were probably stars in grade school, high school and college. They have never had anything go wrong in their entire lives.
Until they start investing big money. Overconfidence is an affliction that plagues many on Wall Street. It is the primary reason we are in an economic crisis. The problem is even worse for sports stars since they generally don't have the education and experience that the Wall Street crowd has. When overconfidence is combined with lack of knowledge, disaster strikes.”
In these tough economic times, you may be asking why should you care about the downfall of formerly wealthy sports stars and Powerball pickers? The answer is clear: the same principles apply to your money as well as their millions. And no one says it better than McNay:
I would tell a professional athlete the same thing that I would tell anyone….Plan on the money you have lasting for the rest of your lifetime. Assume you'll never get another nickel. Dump all the "friends" and hangers-on. Don't be spending to keep up with the Joneses. If they develop and stick to a sound financial game plan, they can avoid being another "same old story."
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