Why athletes go broke - and how good accounting can help

When Mike Tyson took a chunk out of Evander Holyfield’s ear in their infamous 1997 WBA title fight, the sporting world was aghast. Tyson was fined US$3 million, had his boxing licence revoked and the pair would forever be inextricably linked in one of pugilism’s most memorable and bizarre moments.

As it turned out, they’d both go on to bite off more than they could chew – in a less dramatic financial sense. From making an estimated A$390 million during his career, Tyson found himself owing about A$30 million by 2003.

Holyfield, who was purported to have made A$324 million and once owned a 109-room mansion, called in the receivers in 2008.

Australians aren’t exempt from this unfortunate fate, either. Former Socceroos captain Lucas Neill, who played in England’s Premier League for 15 years, recently declared bankruptcy after a career that earned him an estimated A$40 million.

These are far from isolated incidents when it comes to sporting heavyweights getting knocked to the canvas by financial mismanagement.

A Sports Illustrated article, “How (and Why) Athletes Go Broke”, shone a light on the depth of the problem, citing athletes, players’ associations, agents and financial advisers in determining, among other things, that:

• By the time they’d been retired for two years, 78 per cent of former National Football League (NFL) players in the US were bankrupt or under financial stress because of joblessness or divorce.
• Within five years of retirement, an estimated 60 per cent of former National Basketball Association (NBA) players went broke.

While some have questioned the figures, it’s not hard to find a litany of other well-known sportspeople who’ve gone bust.

There’s Argentine soccer star Diego Maradona who owed around A$59.5 million in taxes to the Italian Government in 2009; NFL quarterback Michael Vick, bankrupted in 2008 just four years after signing a 10-year, A$171 million contract; and NBA great Allen Iverson, who couldn’t stave off administrators despite earning an estimated A$202 million in salary alone over a 14-year career. The people who manage things well don’t exclusively rely on other people to do everything for them.

There’s more than the odd Australian, too, with Mark Bosnich and Craig Johnston (soccer); Dale Shearer (rugby league); and Mark Philippoussis (tennis) all treading the same path. The recently released movie Broke, about a fictionalised former Queensland rugby league player, revolves around the issue.

And while male athletes would appear most at risk of losing their fortunes – no surprise given the salary inequities between the sexes in many professional sports – women are far from immune.

American basketball pioneer Sheryl Swoopes was thought to have made more than $67 million during a glittering 15-year stint in the WNBA but a series of poor business decisions saw her declare bankruptcy while still in the throes of her career in 2004.

Olympic ice skating gold medallist Dorothy Hamill’s decision to invest in the travelling skating show ‘Ice Capades’ proved her financial undoing while the admission of using performance-enhancing drugs saw fellow American, sprinter Marion Jones, lose most of her assets largely through legal fees and then lack of income.

How does it go so financially wrong?

David Kenney, partner at the accounting and business advisory firm Hall Chadwick, has seen things go wrong for sportspeople firsthand. 

A football lover and former director of the Manly NRL club, Kenney now also works in consultation with the Rugby Union Players’ Association (RUPA) to offer accounting, financial and taxation advice to professional rugby players.

“I’ve seen players invest in inappropriate properties,” he says. “I’ve seen them backing businesses that have gone belly up [and] players with big homes and big mortgages not worrying about cash flow. I have seen gambling and all sorts of things that don’t make financial sense.”

There can be myriad reasons, but Kenney believes the core of the issue for sportspeople is often their failure to take partial control of their finances. Further to this, big money often comes with people who want a slice of the action, but don’t necessarily have the player’s interests at heart.

“The people who manage things well don’t exclusively rely on other people to do everything for them,” says Kenney. 

“You hear, ‘My manager can do that’ a lot, but they are not going to have a personal concierge after sport. They need to know how to do basic things like pay bills or have a mortgage [and] learn to be self-sufficient.”

Athlete success stories

At the top of the tree, there are some good examples of sportspeople getting it right.

Former NBA superstar Michael Jordan has business interests worth a reported A$1.45 billion – made in part through the shrewd use of his name for endorsements with companies such as Nike. 

Fellow American Dream Team member Earvin “Magic” Johnson has similarly cashed in on his post-basketball career – but in a decidedly different manner.

Johnson started investigating opportunities before he retired, quizzing business leaders and meeting with executives while travelling interstate for matches. 

His first major venture, a sporting goods store, resulted in a A$259,000 loss, but he recovered quickly and had successful investments in Starbucks, financial services and real estate companies, as well as his NBA team the Los Angeles Lakers. His personal worth is estimated at A$657 million.

Tennis’s sister act, Serena and Venus Williams, have also had a very hands-on approach to their investments – and it appears to be paying dividends. 

Seven-time grand slam winner Venus is the CEO of a successful design business, V Starr Interiors, a part owner of the Miami Dolphins with Serena, franchise owner of Jamba Juice and also manages athletic clothing line EleVen. 

 

"If you’re not investing, if you’re not doing sensible things, then you can end up with not a lot to show for your blood, sweat, tears and broken bones."

 

Serena, still the world’s best women's player, has a raft of high profile and lucrative endorsements with the likes of Chase Bank and PepsiCo and also runs her own fashion label.

Closer to home, California-based Australian basketballer Andrew Bogut took it upon himself to get schooled in finances. Currently playing with NBA championship team Golden State Warriors, the towering centre commands a salary of more than A$16 million a year. 

He was determined not to waste that kind of income. After “reading through my statements and realising how much I was paying people to do things I could do for myself”, Bogut said he decided to educate himself so he could transition more easily into life after basketball.

“I did a full year’s course on financial planning and financial management, which covered everything from budgeting to going through different investment criteria – stocks, bonds and all that type of stuff,” he told (now defunct) sports website Grantland. 

“It really helped me. It gives you a little bit more than the basics, where you can manage yourself, and [you can] save that 30, 40 or 50 grand you’re paying someone to do this stuff for you.”

It won’t last forever

While sports professionals, like much of the rest of the general populace, can’t be expected to look after all their financial affairs, Kenney says it is important that they do their due diligence in selecting trustworthy people to help. 

He’s also seen athletes get it right and has noticed some basic fundamentals – such as sound research when buying property – that helps achieve financial success in life after sport.  

“If they are respectful and diligent, they can also form good business relationships that will serve them well after sport,” says Kenney, adding that athletes need to also understand that they have a limited time in the sun with their sporting careers.

This last point is particularly pertinent. While there’s good money to be made – the average Australian Football League (AFL) player now earns A$300,000 per season – it can be fleeting. 

The AFL Players Association says the average career of an Australian Rules footballer is about six years. And the NRL? Just 43 games – the equivalent of two full seasons. 

Says Kenney: “If you’re not investing, if you’re not doing sensible things, then you can end up with not a lot to show for your blood, sweat, tears and broken bones.”