10 Reasons Why Professional Athletes and Celebrities Go Broke

Mike Tyson

1) Gross vs. net income: It occurs over and over again that after one of my athletes get their first check they call me and say something is wrong. They are floored by how much of their check is taken out for taxes and other deductions. Unfortunately, many athletes and celebrities think they are making more than they are.  In some states such as California and New York nearly 50% of their paycheck can be taken out for taxes.  Then add in your agents’ fee, city tax, 401k deductions, union dues and your left with just a fraction of what you started with.

2) It comes too fast and easy: For athletes first it’s a college scholarship, then comes the advances and stipends from agents once you declare your eligibility for the draft and the large signing bonus.  For entertainers it’s that hit song or TV show. When money comes easy young athletes and actors assume that it will always be that easy.  It’s not, after your athletic or entertainment career is finished, you will need to go out and a regular job. I've seen many young people come to me after their career is finished asking for help, by that time it’s too late. They've been spending like the money will always be rolling in. They’re often stuck in a $50, 000 a year job with $10,000 a month in mortgage, car, and credit card payments.

3) The cost of bling: Customized cars, rims, jewelry and custom made clothes seem to go hand-in-hand with athletes and celebrities. I would estimate that 90% of all athletes and celebrities have gotten ripped off buying cars or jewelry. There is obsession in Hollywood and athletic circles to have the latest and greatest toys, the biggest house(s), the newest car(s) and the most expensive clothes. One thing I always tell my clients is that if it depreciates in value, it’s not wealth management.

Lawrence Taylor

4) Poor financial counsel: Time and time again I run across players and celebrities that have hired family members, friends or advisors new to the business to handle their financial affairs. This is the biggest mistake you could make.  Not only to they lack extensive the industry knowledge that is needed it’s very difficult to fire your best friend or parent if they lose your money. They are also unable to make the hard calls and control your spending when it’s needed most.  We always take time to educate our clients, set budgets and monitor our clients progress towards their financial goals.

5) Bad investments: Bad real estate deals, new restaurants, music production companies are just a few of the ways to end up broke.  Unfortunately con-artist and others seek out naive young stars to steal their cash, but in many cases they themselves seek out high risk endeavors that cause financial hardship. Then there are the family members and friends wanting to start a new business or needing loans. The best advice I give clients is to learn how to say NO early and often. If you can’t say no, you need an advisor that can do the dirty work for you.

6) Guilt and the family: It’s unfortunate but many athletes come from single parent homes or are raised by their grandparents. Usually they have a very tight extended family that offers support while growing up. Once the paychecks start coming in many athletes feel the need to give back to these people.  For some there is even a deep feeling of guilt. To alive this guilt athletes and celebrities start buying these people houses, and cars.  Many will also pay for trips to the Bahamas’, Hawaii, and Europe. Be very careful of falling into this trap, because once the money faucet is turned on it’s hard to turn the faucet off. 

 

Allen Iverson

7) Your career will be short: Ask any retired player if they thought their career would end when it did and almost everyone will say no. The average NFL career is only 3.3 years. Don’t get stuck in the mindset that it’s still early in your career and that you’ll start really saving later in your career, because that’s the easiest way to end your career with zero in the bank and a bunch of bills.

8) Divorce: Say goodbye to 50% of everything you have! The divorce rate with athletes is second only to Hollywood. Many find it difficult to make the transition from super star to average Joe. Once the fame, status and money are gone marriages can be stress to the point of divorce. In many cases athletes and celebrities fail to protect themselves by having a prenuptial agreement in place.

9) Living above their means: I constantly remind my clients that they should live a lifestyle just above their peers.  Their peers are those that you graduated college with, not the All-Pro in the locker-room or the Oscar winning actress.  The median household income in the U.S. is only $50,054.  I recommend that any money made above your peers should be saved, invested and allocated for future needs. It’s okay to rent an apartment for a few years and put off buying that head turning sports car.  Remember, it’s difficult to cut spending once you get a taste of the life style of the rich and famous.

10) Keeping up with the vets: Rookies often desire to live like the vets.  They want the same houses, cars, jewelry, custom clothes and trips.  What they fail to realize is that those vets are on their second contracts and making much more than them. Many athletes and celebrities feel that it’s okay to spend because they will make it up on their next deal.  But what happens if that second contract or TV show does come? Also in many cases the second deal only brings on higher spending habits.

As a professional athlete or celebrity I cannot stress enough how important it is to find a wealth manager that can educate, counsel on life’s decisions, intervene when needed and act as the bad guy when it comes time to say no.  If you do, you should not worry about making any other these ten mistakes that could leave you broke.

Athletes and Celebrities Who Lost It All (Or Most Of It)

Mike Tyson – Boxer

Francis Ford Coppola – Oscar winning Film-Writer-Director-Producer

Allen Iverson –NBA

Lenny Dykstra –MLB

Antoine Walker –NBA

Vince Neil – Rock Star

Kim Basinger – Oscar Wining Actress

Scottie Pippen – NBA

Richard Harris – Actor-Producer-Director

Nicolas Cage – Actor

Darren McCarthy  - NHL

Lawrence Taylor - NFL

Bjorn Borg – Tennis

Marion Jones - Olympian

Jose Canseco – MLB

George Best – Soccer

Evender Holyfield – Boxer

Willie Nelson – Singer

Bryan Trottier - NHL

Larry King – Talk Show Host

Vince Young – NFL

Terrell Owens – NFL

Eddy Curry – NBA

Barry Bonds – MLB

Pete Rose – MLB

Michael Vick – NFL

Travis Henry – NFL

Sheryl Swoops – WNBA

Scott Eyre – MLB

Raghib “Rocket” Ismail – NFL

Warren Sapp – NFL

Deuce McAllister – NFL

Rollie Fingers – MLB

Bobby Orr – NHL

John Daly – PGA 

And many, many more.

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Rick Paler is President of RL Paler Investment Advisors, LLC and is one of the most respected Wealth Managers working in Wall Street.  He has been helping athletes and celebrities managers their wealth for over 25 year.