
How and Why Athletes Go Broke (2009) - gwern
https://www.si.com/vault/2009/03/23/105789480/how-and-why-athletes-go-broke
======
southphillyman
The stereotype is that many of these athletes go broke because they are
foolhardy with money. I appreciate that this article highlighted that a lot of
these guys go broke because of scamming financial advisors.

The athlete attempts to do the responsible thing and hires someone they are
led to trust with managing their assets only to be ripped off. I'm not sure
how financial literacy prevents this from happening when you literally may be
lied to about where your money is.

~~~
ChuckMcM
Agreed, look at it from their perspective. They haven't been around a lot of
money before, they don't have a lot of friends who have been around a lot of
money either, so they don't really know even what questions to ask to
understand the people who are arguing to be their financial advisors.

Perhaps major league sports would do well to help train their athletes in the
basics of financial management in order to help avoid this situation.

~~~
test6554
It's not their responsibility though. The player could take a course on their
own initiative.

~~~
ChuckMcM
Its true they could. I think of it like auto repair shops. Here is something
really valuable to your daily life, and you want it taken care of properly,
but how do you verify that the person you are talking to is honest and
trustworthy? You could buy the factory service manual for your car and read it
cover to cover, with digressions into the parts which are assumed to be known
by anyone servicing a vehicle, and then you could evaluate an auto mechanic's
answers based on a ground truth of the service manual, but how many people
actually do that? 1% ? 10% ?

In my experience in the Bay area with people who suddenly have more wealth
than their friends and family ever did, there are two ways that people seem to
split. Either they start splendiforus spending because they are "rich" or the
start calculating what sort of 'burn rate' they can support drawing down at a
rate of anywhere between 2% and 10% of their net worth. Using the 4% number
(which used to be the standard before the great recession knocked it back to
2% for more conservative savers).

One of the things that people usually don't think about deeply is that money
in the bank pays you, things that you own cost you. A car needs gas, a jet
needs maintenance, a home needs gardening. And when you scale up the 'thing'
you scale up the cost. As a result if you live what you perceive to be a
'rich' life you may find its sucking your wealth away. There are lots of
studies on lottery winners which show this effect.

~~~
wutbrodo
> In my experience in the Bay area with people who suddenly have more wealth
> than their friends and family ever did, there are two ways that people seem
> to split. Either they start splendiforus spending because they are "rich" or
> the start calculating what sort of 'burn rate' they can support drawing down
> at a rate of anywhere between 2% and 10% of their net worth.

Wow that's depressing as hell. I've seen the spending side of things, but for
a long time out of college I was making more money than anyone I knew and also
spending towards the bottom of the distribution. I think I was 25 when my
average return started covering my cost of living.

My family didn't have much money growing up (due to medical reasons) and my
parents don't really know much about managing money, probably because they
both come from upper-class backgrounds where family money just seemed "taken
care of". So I have to confess I'm not really sure where the financial
irresponsibility of the sorts discussed in this post comes from. I'm tempted
to say that it's a simply matter of high time preference, but that's a really
self-serving explanation, so I'm not quite satisfied.

~~~
test6554
I feel the same. I have been in the top 2 to 3% income-wise but I spend money
like I am on food stamps.

------
pascalxus
At the end of the day, it's the same reason most people go broke: they know
nothing about money. Unfortunately, Money is the most important thing in the
world because you can't get anything without it. And yet, it's not even a
primary subject taught in k-12. Where are people supposed to go for a decent
financial education? Instead k-12 teaches kids about useless butterflies and
countless other things that are of lesser importance. You would think, they'd
at least teach it in college. But, I know MBA graduates with 3.8 GPA who don't
even know what a tax deduction is!

I recommend basic financial classes for everyone k-12, everyone should have
the right to basic understanding of personal finances and basic economics.

~~~
Baeocystin
Do you have any book recommendations? I have some younger relatives graduating
from college soon, and although they are bright, I worry about their financial
sense. I talk to them regularly, but something more concrete would likely also
help.

~~~
fantispug
"If You Can" by William J Bernstein.

It gives a simple conservative investing strategy, and refers to other great
books for the details.

Available here:
[https://www.etf.com/docs/IfYouCan.pdf](https://www.etf.com/docs/IfYouCan.pdf)

------
sytelus
TLDR; 60-70% of players go bankrupt or are under financial stress after they
retire. Reasons are (1) they don't follow balanced mix of investments and
squander money in opportunities presented by smooth talkers (2) they end up
hiring people who are friends of other players as opposed to actual
professionals to manage their assets (3) divorce.

The recommended mix of investments for 20+ million assets is apparently _"
5%to private equity, 7%-12% to real estate, 50%-65% to a mix of public
securities(stocks, mutual funds and the like) and the rest to alternatives
such as gold and hedge funds."_.

~~~
fivedogit
Thank you. That article was insanely long winded.

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DoubleCribble
Let us not forget that even in 2018, your Financial Advisor (loosely defined)
may not be obligated to act in your best interest [0]. The Financial Services
industry has been fighting hard for the gravy train to continue unabated for
years. Fortunately for them, Trump has been very receptive to their plight and
doesn't want the party to end just yet.[1]

[0][http://time.com/money/4809060/fiduciary-rule-financial-
advis...](http://time.com/money/4809060/fiduciary-rule-financial-advisor-what-
know/)

[1][https://www.dol.gov/newsroom/releases/ebsa/ebsa20171127-0](https://www.dol.gov/newsroom/releases/ebsa/ebsa20171127-0)

~~~
auxym
Reminds me of this John Oliver segment:

[https://www.youtube.com/watch?v=gvZSpET11ZY](https://www.youtube.com/watch?v=gvZSpET11ZY)

------
ggm
In many situations, people who are identified as being at risk have somebody
else placed in control of the finance, by court action. Brain injury patients
for instance. Hmmm.. hang on.. whats the major risk factor in the football
circuit again?

Seriously: the recruitment of minors for major league with giant cash benefits
should require them to sign a consent form for arms-length management of their
capital for some time period, and give them the income stream not the capital.

 _after all, its often how the money is being controlled that wound up being
their notional capital in the first place_

~~~
Kluny
Really, taking their adult autonomy away is the first step? How about
education?

This might be anecdotal, but I feel like we don't hear these athlete
bankruptcy stories as often about hockey players. Why? Because they're all
white, not black. Putting a kid through junior hockey is expensive and hockey
players tend to come from privileged homes with much better financial
education than young black football players. They get just as many knocks on
the head, but they get better advice from their father's accountant, and they
make it to retirement with some money left.

Making them sign away control of their money sounds like a new version of the
old story of infantilizing black people by removing their adult rights, "for
their own good".

~~~
talmand
I'm curious as to how hockey is any more expensive than any other sport that
has player equipment and a privileged background is more beneficial to making
it to the professional level than any other sport.

Could it be that black kids as a group just isn't that interested in playing
hockey?

~~~
majormajor
In most of the US you can't even practice ice skating without paying money.
Compare that to the number of basketball courts out there for pickup games, or
fields where football could be played. It's not solely that the equipment
costs more, it's that practice directly requires money, and practice time is
the biggest overall driver of excellence. Professional race driving is another
example of this. Tennis another notable one.

If you want a direct non-racial example of this: white hockey player origin
distribution, Canadian and Scandinavian-born versus US-born. Guess where the
ice is? :)

Baseball is another sport where black participation has declined in the US and
the general assumption is that it's similarly because it's harder to find
places to practice baseball in modern American cities (while still much more
common in Latin America). Hence
[http://mlb.mlb.com/mlb/official_info/mlb_official_story_head...](http://mlb.mlb.com/mlb/official_info/mlb_official_story_headline.jsp?story_page=rbi)

~~~
talmand
So the problem is lack of ice and not directly related to economic status? If
one goes far enough north, or south, where ice is easily found for practice
then the costs decline? So it's more where people choose to live versus the
cost of the sport as a whole?

~~~
smogcutter
[http://time.com/4913284/kids-sports-cost/](http://time.com/4913284/kids-
sports-cost/)

Organized youth sports are expensive (in the US at least), and hockey more so
than others. You need a lot of equipment which your kid will keep growing out
of, and then costs for ice time. Ice time is likely less expensive in big
hockey regions (I have no idea), but it's always a cost. A competitive youth
league team isn't practicing on a frozen lake.

~~~
talmand
So, sticks and skates as more equipment than football.

Although, someone pointed out elsewhere that good skates can be expensive and
requires maintenance. I didn't consider costs of keeping skates sharp. But I'm
still curious as to why high-quality expensive equipment is required
specifically for hockey when it seems to me that every other sport has a large
number of kids with substandard equipment. Do hockey players not use hand-me-
downs or used equipment?

------
dangerboysteve
ESPN's "30 on 30" sports docs looked into this matter and did a really goof
job and worth watching. The episode is called "2 Broke".
[https://www.youtube.com/watch?v=Elfw0ESih-A](https://www.youtube.com/watch?v=Elfw0ESih-A)

~~~
crescentfresh
What a bunch of goofs.

 _Edit_ : downvotes, really folks? You don't see the parent's typo?

~~~
varenc
I think most downvoters get the joke! It’s just that your comment seems a bit
snarky to the op and doesn’t contribute much to the discussion. The HN
community puts value on civil and substantial comments. (most of the time...)

[https://news.ycombinator.com/newsguidelines.html](https://news.ycombinator.com/newsguidelines.html)

------
arcaster
Pretty much the plot of the HBO series "Ballers". It's not the most
intellectual show, but it does tie together the fallacy of "Balling",
essentially how trying to maintain an outward perspective of wealth and excess
usually leads to a quick demise of said wealth...

------
efa
I don't know all the tax implications around huge salaries like these, but
every time I read one of these stories I always wonder why they don't just
stick their money in t-bills or CDs. Something completely risk free that will
get a modest return. If you have 20 million in the bank do you really need to
invest in high risk stuff to try to double your money?

The problem is everyone they've ever known comes out of the woodwork and is
hitting them up for money or pitching some great investment. That's the hard
part. Saying "no" to these people.

~~~
lazerpants
This is why there should probably be an early age pension system for these
athletes. The major sports leagues could certainly afford it (and it would
lower players upfront salaries some).

~~~
efa
Agree. My young son was recently in a car accident. As part of the agreement
with the insurance company he got some compensation. But this is in the form
of an annuity with yearly payments when he turns 18. This protects him from
parents looking to blow the money and from him blowing the money when he turns
18.

~~~
albertgoeswoof
This might be a bit rude, but can I ask what the compensation here covers? It
seems odd to me to receive compensation for an accident from 10-15 years ago,
without anything in between?

------
Skunkleton
This sounds a lot like how most people go broke. Even when you are talking
about people who have been fortunate enough to make a lot of money (like lotto
winners), the story sounds the similar.

Maybe we need better financial education in the public school system?

~~~
IntronExon
I have an unsupported conjecture that critical thinking skills and financial
literacy aren’t taught in (US) schools more or less intentionally. Financial
literacy would harm the business models of institutions offering many types of
loans, mortgages, lines of credit, etc. Truly educated consumers are harder to
fleece.

Critical thinking dovetails with that, and would probably make it harder for
ideological, religious, and political figures to “win hearts and minds.” In my
experience parents want their kids to believe whatever they believe,
politicians want vacuous morons, and ideologues only want to propagate their
ideology. Giving people general tools to sort through the mess of competing
ideas seems to appeal less than using the opportunity of education as a means
of inculcation.

In short most people and groups want their own version of reality instilled as
early as possible, and no others. A relative minority want critical thinking,
financial literacy, and sound scientific principles instilled. It’s harder to
take advantage of the prepared mind after all, and so much profit and power is
gained through shallow blandishments and lies.

~~~
zappo2938
[deleted]

~~~
dragonwriter
> 'Mansplaining' by definition means that a man explains something the other
> person already knows.

No, it means a man explaining something condescendingly to a woman based on
and conveying a negative, gender-based presumption of the target’s
understanding and/or capacity for understanding.

While its most egregious when the matter is something where the target is an
expert (and especially where the speaker is not, and is relatively clueless),
that's not the essence of the term.

~~~
zappo2938
If I can't talk about, how am I'm supposed to understand? Do you think you can
explain it to me without being condescending?

------
JiNCMG
30 for 30 did an episode on this. It was so interesting and while true many
get scammed out of their money, a lot more are spending it check to check.

Quotes from the show "I had more mortgages than HUD" "I had 30 to 40 cell
phone contracts" "No athlete wants to earn a few percentage points in bonds.
They wanna go for the big dollars, Open restaurants, clubs and car washes!
They conquered sports now they will own their next endeavor"

Worst stat from the show: 60% of athletes are broke within 5 years and 70% are
divorced within 3 years.

Shocking stat: There is (was?) a website that tracks athletes as they go from
town to town so women can go hook up with them.

Many of these quotes are from the big money makers in various sports (NBA,
NFL, MLB). They also interview the ones that were able to maintain their
money. Like Jamal Mashburn who told his mom that he was going to set her up
with a new house and car and before he could finish she told him to save it
and take care of himself first.

~~~
emodendroket
> Quotes from the show "I had more mortgages than HUD" "I had 30 to 40 cell
> phone contracts" "No athlete wants to earn a few percentage points in bonds.
> They wanna go for the big dollars, Open restaurants, clubs and car washes!
> They conquered sports now they will own their next endeavor"

I mean those all sound like athletes either getting scammed or getting in over
their heads with business endeavors.

------
aphextron
I’ll assume for this conversation we are referring to black and latino
athletes in the US. In that case, a lot of it comes down to family. A $10
million contract is a life changing windfall for a single unnattached person
with no extended family to support, or whose extended family already is self
sufficient (as a much greater proportion of white people in the US naturally
are). But when you are the first person in your entire family tree to have
above a 5 digit net worth, you immediately become liable for everyone, and it
can quickly go to squat. Its called the “brown tax”. Escaping poverty can be
almost impossible for an individual when they are weighed down by these
obligations. It doesnt matter how financially literate you are when your aunt
is being evicted from her apartment or your cousin needs bailed out of jail.

~~~
ghostly_s
I get what you meant, but I would suggest being careful with language like
calling white people 'naturally' self-sufficient.

------
DoreenMichele
A couple of things:

I can't manage to copy and paste it from the article, but one section talks
about these guys hiring friends and family, not for their expertise, but as a
favor. This inevitably goes bad places.

The old boys club is about knowing you well enough to vet you on two things:
1. How trustworthy you are generally and 2. What you are good at.

Having connections matters and if you can't establish those connections, you
will go nowhere fast. But when it is at all healthy, establishing those
connections is about vetting you. These athletes never got the memo. They
haven't learned that the reason you hire someone you know is because you can
literally trust them with your life, not because they need charity. If they
need charity, give them charity. Don't entrust your millions with them.

Second, I really appreciate the section where they talk about divorce and that
it often happens after retirement in part because these guys can no longer
avoid the hard conversations. A lot of marriages seem to only work in X
circumstances and to fall apart if circumstances drastically change. The two
people are compatible as cogs in X machine, but the personal relationship
isn't really that strong. They don't adapt well when that situation goes away.

~~~
sowbug
"I can't manage to copy and paste it" control-shift-I in Chrome, then use the
element-selecting arrow to highlight the element in the DOM containing the
text you want to share.

I was there for a different reason: to figure out whether my browser was to
blame for all the typos in this 9-year-old article ("Old habits diehard" being
the one that set me on the quest.)

~~~
DoreenMichele
I am on a phone with an Edge browser. I usually can copy and paste. I don't
know why I couldn't manage it that time.

------
CryoLogic
tl;dr of the article:

Athletes have high earnings for short periods of time, but often prefer risky
"flashy" investments (e.g. nightclubs) and aren't typically knowledgable
regarding anything having to do with basic finance.

------
aorloff
Its easy to invest a lot of money in a good way when you have no ego and all
the time in the world to learn about investing. Professional athletes almost
never fit that bill.

------
aj7
Everybody is being too nice. Athletics is hard, and is an almost full-time job
for professional aspirations from 15 years old on.

Many of these athletes are semi-literate. And this has been going on in
boxing, for time immemorial, for the same reason.

A means has to be found to better attack the perpetrators.

------
jakidud
There was a podcast by Freakonomics where they tried to educate ex-NFL players
about finance and economics. It seems one of the most important differences
from the average person is that NFL players earn almost all their life's
earnings in the first quarter of their lifetime

------
kelukelugames
A mitigating factor is professional sports offer amazing retirement benefits.

[https://www.bankrate.com/retirement/retirement-benefits-
of-p...](https://www.bankrate.com/retirement/retirement-benefits-of-
professional-athletes-2/)

------
starpilot
Olympic athletes are known to sell some of their team clothes after the games.
I overheard a well-to-do family at Mammoth saying they bought the jackets off
some US Olympic ski team members who were broke.

~~~
emodendroket
I don't think Olympic athletes are typically making Big Four league kind of
money, are they?

------
rjkennedy98
So many of these athletes feel that they are role models and civic leaders,
yet they can't so much as balance a budget. Our culture glorifies these guys
so much when they are much more like lottery winners than anything else. It
doesn't take intelligence to be 6-8 and jump out of a gym.

------
rectang
This article is from 2009.

~~~
gwern
Still one of the best articles on the topic, and if anything, it's even more
topical now with the continuous drumbeat of evidence on brain damage in pro
sports since 2009 (note the bankruptcy imbalances between professional sports
- the ranking goes about as you would predict...).

------
partycoder
It works like this:

1) Increase your income

2) Increase your expenses

3) Lower your income, keep your expenses the same

------
tw1010
Let me guess, getting your entire career salary in a lump sum before you're 30
and having the impulsive personality of an athlete doesn't mix well?

~~~
andrepd
What's your basis for saying athletes have impulsive personalities?

~~~
ch4s3
Perhaps that could be better stated. Being a star athlete is highly correlated
with having a risk insensitive personality. That type of personality also
correlates with impulsive financial decisions.

I'm no sure if that's all true of if it's anything more than correlation, but
it makes some sense as a hypothesis.

~~~
1jojojo
Being a star athlete is highly correlated with having a risk insensitive
personality.

According to whom?

~~~
ch4s3
Ahh, I'm postulating a bit.

>I'm no sure if that's all true of if it's anything more than correlation, but
it makes some sense as a hypothesis.

As I said, I could be wrong. But we know that other fields like management,
fashion, music, etc are dominated by risk takers. It may not be true of sports
or all sports, but you could imagine that a risk taking basketball player,
football QB or running back, soccer forward, or similar players tend to be
risk takers.

Again, I could be wrong.

~~~
specialist
Please stop explaining yourself. They're trolling you.

~~~
1jojojo
I'm not trolling here. The people I know who have been successful athletes
developed as a result of discipline and hard work, not because of risk-taking,
and certainly not to their own detriment.

------
doctorwho
Finding it pretty hard to muster up any kind of empathy for millionaire
professional athletes.

~~~
emodendroket
Well, who cares whom you can "muster up any kind of empathy" for, especially
when the article aims to answer the question "how" more than to engender
sympathy?

