Risk Management for Professional Athletes

Lately, there have been a number of articles on professional athletes who have lost millions of dollars due to poor financial decisions. The athletes range from golfers to boxers to professional baseball players and their poor decision range from buying cars, women, and tigers to battling gambling addictions and making poor business investments. There are also those who have been swindled by their agent, their accountant, or their ex-wives. Most of these problems are due to a lack of education and some are due to a lack of maturity. Whatever the case maybe, these problems have opened doors to entrepreneurs who are in the business of financial and risk management.

One startling statistic states that 78% of NFL player enter bankruptcy or financial distress within two years of retirement and 60% of NBA players go broke within five years of retirement. These athletes know that they have plenty of money and do not think about what will happen when they stop receiving those multi-million dollar checks. A lot of them do not understand business and/or finance. Some of them may have never even taken a single class of either one in college. Some professional athletes may not have time to focus their finances. The stress of having to produce on the field does not leave much time to focus on off the field issues such as investments or retirement plans. Raghib “Rocket” Ismail, a former professional football player who signed the largest salaries of his time in 1991 at $18.5 million over a four year period, once said, “I once had a meeting with J.P. Morgan and it was literally like listening to Charlie Brown’s teacher.” It’s not that he is not an intelligent person but without focusing on the details many professional athletes find themselves left out in the rain when their money is gone.

Of the athletes who have gone broke have not all have necessarily lost their money because living extravagant lifestyles. Some have tried to make investment and plan for their futures but did not have people that they could trust managing their money or they tried to manage it themselves but did not have the time or knowledge to do so properly. Some of them have invested in high risk businesses that flopped and some invested in businesses that had no chance at all. One player once invested in an invention that consisted of and inflatable raft that attached to the bottom of a couch so that people who lived in areas with high rainfall could pump up the raft and float on their couch when their area flooded. Had this player had someone in the business of financial/risk management that he could trust and that was reputable then he would not have lost his money on such a silly investment.

Financial/Risk management companies that athletes should use are those that have a good reputation with all of their customers, not Uncle Joe’s accountant down at the local strip mall. These companies should try to educate their clients on things that they do not understand by offer consultation sessions and possibly workshops on financial management and personal finances. If they are trying to keep the athlete in the dark then they are probably trying to get over on them in some way. Every investment does not have to be a “homerun.” These companies should try to keep the athletes risk within reason.

Financial/Risk management is key to the financial stability of everyone no matter how much money they make. If every investment a person makes is going to be high-risk and high-reward then they might as well go a casino because all they are doing is gambling anyway. Although it is bad that so many athletes are having this problem, it is opening doors for those entrepreneurs in the risk management business. Athletes have to understand that even sports are businesses and they have to view themselves as independent contractors who have to run and manage their business.