What do baseball’s Curt Schilling, boxing’s Mike Tyson, football’s Bernie Kosar and basketball’s Allen Iverson have in common? In addition to being highly-regarded athletes at the pinnacle of their respective sports, they all made and lost fortunes. And, they’re far from alone. Regrettably, it’s all too common for superstar athletes to earn millions and millions of dollars from their contracts and the attendant business and merchandising opportunities only to have their wealth vanish irrevocably.
According the Hannah Shaw Grove, an expert on the high-net-worth and the author of Fame & Fortune: Maximizing Celebrity Wealth, “We’ve conducted extensive research with elite athletes to understand their unique financial issues and there are three key reasons why they can go from top earners to flat broke in a very short timeframe: overspending, poor and exploitive financial advice, and an insidious combination of the two.”
The reason that attracts the most attention from the media and fans is overspending. What at first can seem like a never-ending supply of money, coupled with pride in personal accomplishment and a desire to enjoy life to the fullest, can lead to over extending oneself on cars, jewelry, houses and other highly-visible and highly-coveted symbols of wealth. Overspending by itself, however, is actually not the primary reason why the majority of professional athletes lose significant wealth.
Another reason is unsound or intentionally deceptive financial advice. “We spend a lot of time and effort helping athletes correct financial mistakes and then setting them on the right track to financial stability and wealth maximization,” explains Robert A. Raiola, an international tax and advanced planning authority at CPA firm O’Connor Davies.
Raiola, who is also known as @SportsTaxMan by his 34,000 followers on Twitter, goes on to say: “Bad advice is the precursor to many of the financial problems that plague high-earning athletes. Sometimes it’s unintentional, a case where the advisor is just out of his or her depth, but more often than not we find that the advice that’s been given was done to benefit the advisor rather than the athlete. It’s no surprise that many athletes and their families do not have the expertise or wherewithal to evaluate financial professionals, so unfortunately there’s a number of ethically-challenged advisors who are hoping to exploit them for personal gain.”
Obtaining life insurance, for example, is one area where star athletes are repeatedly swindled. “While life insurance can play an important role in creating a secure financial future for an athlete and his family, the type and structure of the policies must match the needs and situation,” asserts Raiola. “Far too often we find that our clients have seriously overpaid for what they got and we are almost always able to get them superior coverage at lower costs through strategic relationships.”
The third reason behind rapid wealth dissipation is the predictable result of unbridled expenditures in combination with unsound financial advice. “Beyond drugs and other forms of addiction, there are so many ways to derail or take advantage of high-performing athletes with lucrative contracts,” says Grove. “Huge personal entourages and greedy agents and business managers can make a serious dent in wealth, especially when they start pitching investment opportunities. For every success story, there are thousands of sad endings that could’ve been avoided with the proper due diligence.”
Harebrained investment schemes aside, Grove indicates that “most athletes are unprepared and unprotected for the plethora of criminal and civil charges that accompany life in the public eye. With some advanced planning expertise and a trustworthy team of attorneys and accountants, most athletes can prevent the messy, costly lawsuits and divorces that destroy so many public figures.”
