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From Stoke To Broke: Why Are Sports Stars Going Bankrupt?

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Though few of us will ever earn a major-league salary, we’d all do well to learn from the financial mistakes of certain athletes. Spend within your means, diversify your investments, get the best help you can and learn as much as you can about your investments. Above all, remember that although good, old-fashioned savings may not be the most glamorous investment, maintaining some cash assets could be the difference between a visit to bankruptcy court and a peaceful coexistence with your money. 

Sports Stars’ Biggest Financial Pitfalls

Overspending. From Scottie Pippen’s corporate jet to Mike Tyson’s gold chain studded with 80 carats of diamonds, excessive spending on ourselves and others can shrink even the blingiest of fortunes.

They’re Not Prepared to Manage Their Finances. It’s hard enough being handed millions per year and knowing how to invest and spend it wisely after college, but it’s even more difficult when you’re in your teens. Two athletes who made our list were shy of their 20th birthday when drafted: Kenny Anderson and Antoine Walker. No matter your age, you should have at least a basic understanding of what to do with your money.

Being Too Charitable. By anyone’s standards, Derrick Coleman was a nice guy for investing so much of his $ 80 million fortune in Detroit’s downtrodden neighborhoods. However, Financial Advisor and Managing to Be Wealthy author John Sestina says athletes can make positive social contributions by investing with a business plan in mind – which can be devised with the help of a financial advisor. By thinking of your good deed as a business strategy, you could not only create profit to live on after retirement, but there’s a better chance of engaging in long lasting community development.  

Poor Investing Choices. Of the thousands of proposals a year Sestina is sent for his clients to consider, he usually only recommends one or two. When they are so successful in such a competitive field, Sestina says, “they suspect they will succeed in everything else they do.” But sports starts –like us mere mortals — can’t be good at everything; they need the business acumen of a trained financial professional(not just a good friend) who can help them spot good investments. Case in point: NFL Player Mark Brundell chose his teammate (who also declared bankruptcy from their venture) as his business partner.

They Entrust The Management of Their Money to the Wrong People. Sestina recommends athletes consult a fee-only financial advisor. Fee-only advisors charge a flat fee, so they make the same amount whether you invest all your money in savings or in risky investments. They therefore don’t benefit financially from anything other than keeping you as a client.

Which Athletes Have Lost The Most?

The list below details the approximate amounts lost and commonly-cited causes for the bankrupticies of major-league sports stars.

Under $ 60 Million

Lenny Dykstra, Baseball

Year bankruptcy filed: 2009

  • Spreading himself too thin in too many industries
  • Mortgaging a larger home than he could afford

 

Mark Brunell, NFL

 
Year bankruptcy filed: 2010

  • Excessive gift and charity-giving while going broke
  • Real estate ventures gone bad (lack of diversity in investments)

 

$ 60 million to $ 80 Million

Kenny Anderson, Basketball

Year bankruptcy filed: 2005

  • Lavish spending
  • Overly-generous with others

 

$ 80 Million to 100 Million

Derrick Coleman, Basketball

Year bankruptcy filed: 2010

  • Spent most of his money improving Detroit neighborhoods
  • Decline in real estate market

 

Over $ 100 Million

Mike Tyson, Boxing

Year bankruptcy filed: 2003

  • Excessive spending
  • Divorce
  • Back taxes

 

Antoine Walker, Basketball

Year bankruptcy filed: 2010

  • Couldn’t say no to family
  • Always picks tab for everyone
  • Lavish spending

 

Scottie Pippen, Basketball

Year bankruptcy filed: 2003

  • Risky investments
  • Buying a corporate jet

 


MintLife Blog | Personal Finance News & Advice


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