Unfortunately for sports fans, there is a real possibility of a lockout in professional football and basketball, because of disputes over salaries and revenue sharing between owners and players. This affords an opportunity to consider how compensation is distributed to players. I contend that most NFL and NBA athletes, plus their families, would benefit financially from receiving more deferred compensation.
According to a 2009 Sports Illustrated article:
· By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce
· Within five years of retirement, an estimated 60% of former NBA players are broke
These statistics amply demonstrate the abysmal track record that so many athletes have in dealing with their finances. Conspicuous consumption, bad investment schemes, and poor life choices are typically to blame. High profile cases include Antoine Walker and Scottie Pippen, both of whom earned over $100 million during their careers yet have declared bankruptcy. More typical are NFL players who make high six figures for 3-4 years before their careers are cut short by injury or supplanted by new talent.
For the vast majority of NFL and NBA players, the most money they’ll earn throughout their working years will occur in their 20s and early 30s. This phenomenon is unique compared to most professions and career paths, which in my view justifies players foregoing some compensation now in exchange for receiving more after leaving the league.
If a player makes over $400,000 let’s say, 25% of their compensation should be mandatorily withheld and paid over a 5-10 year interval (or longer in the case of very highly compensated athletes) once they retire. That will force their current budget downward to more prudent and sustainable levels, and smooth out their income stream during the toughest years to adjust to financially.
So if a player earns $2 million a year for 10 years, they’ll receive $1.5 million a year during their career and an accumulated $5 million (plus investment gains / interest) that can be distributed to them during their retirement. By that point they’ll have gained more maturity, discipline, stability, and an income stream which should dramatically reduce the odds of financial ruin.
Unless banks granted players massive loans against their future income stream, I honestly think this framework would solve much of the problem. I encourage you to submit your thoughts.
It seems to me that this is hand holding in the financial world... These athletes (and many of them millionaires) could do this on their own, or hire someone to do it for them. If they want to spend all of their money irresponsibly why should anyone get involved. They are just dumping back into an economy that could use it anyway.
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