From Riches-to-Rags: Why 1 in 6 NFL Athletes End Up Bankrupt

Did you know one in six NFL players end up bankrupt?Footbal image article

Hard to believe, right?

According to a recently released study from the National Bureau of Economic Research, they found that 16% of NFL players end up filing for bankruptcy within 12 years of leaving the league.

A secure, comfortable retirement is every worker’s dream, but for many former NFL players – who are usually out of the game by age 30 – that dream may be farther out of reach than they thought.

The paper, titled “Bankruptcy Rates Among NFL Players with Short-Lived Income Spikes,” points out that NFL players do not follow the traditional model of consumption soothing. In this model, people try to balance their consumption over their lifetime and save for the future, instead of simply consuming more in proportion with their current income.

According to the NFL Players Association (NFLPA), the average NFL career lasts just over three years and translates into average career earnings of $4 million after taxes.

The NBER study ultimately shows that the financial rewards of a professional football player often vanish all too quickly. But how? What causes many NFL players to go bankrupt despite their lofty salaries?

Financial planning (or more precisely a lack of it) is the main reason.

Here are some key contributing factors:

1. NFL careers and peak earning years are short

2. Getting used to a certain lifestyle (extravagant spending)

3. Disregarding valuable investing advice, while taking bad advice and making bad decisions

4. Injuries – players often become crippled, both mentally and physically 

Athletes hit their earning peaks almost immediately after school, while young. However, they retire young as well, and most will never again earn at the same levels, while their extravagant spending habits remain the same.

Eventually, most professional athletes will have the same financial needs and challenges as the men and women sitting in the stands. They need opportunities to grow their assets and have their money work hard for them. In addition, they want security in a retirement that comes all too soon for them.

While the NFL Players Association (NFLPA) started a financial wellness program, too many players either do not take the advice or do not fully understand it. It is hard for an NFL athlete to fully grasp the fact that his career is short-lived and that he must plan for the future.

Early financial planning is key. Professional athletes need their financial advisor the most at: 1.) The beginning of their careers, when tempted by lavish spending; and 2.) In their retirement, when athletes must often adjust to living off their interest income and capital gains.

As a NFLPA Registered Player Financial Advisor, when players ally with me, I guide them with sound planning strategies focused around their risk tolerance. It starts with a thorough understanding of a player’s financial goals, lifestyle preferences, managing investment risks and time horizons. The NFLPA prescreens me and takes my credentials and experience very seriously.

Big paychecks don’t equal financial security, so it’s crucial that NFL athletes understand how to make their high but short-lived earnings last a lifetime.

I’d love to hear your thoughts or answer any questions you may have. Please don’t hesitate to reach me at mmartiak@pfawealth.com or on Twitter at @premieradvisor. 

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