The short answer is too many. The most cited statistic is about 80% from a Sports Illustrated article… But it only applies to NFL athletes. This stat also may factor in bankruptcy failed business ventures (common and not usually due to mismanagement) and financial setbacks that are not the same as being financially wiped out to $0.
NFL Players: A 2009 Sports Illustrated article reported that 78% of NFL players face financial stress or bankruptcy within just 2 years of retiring.
NBA Players: In the NBA, the figure is similarly grim, with around 60% of players going broke within five years of retirement, according to the same report.
MLB Players: While Major League Baseball players tend to have longer careers and often higher salaries, a study by the Sports Business Journal indicated that just 5-6% of MLB players declare bankruptcy within 12 years of retiring. The MLB number may seem lower compared to the NBA and NFL–but these are only the most extreme cases. Many, if not most MLB players, live paycheck to paycheck after retiring, just like most Americans.
While the statistics are mixed, the real tragedy isn’t that some (or even most) athletes lose all their money. The tragedy is that these athletes don’t become rich. Despite extremely high incomes, most fail to invest. They end up working normal jobs. A once legendary running back becomes a pot-bellied accountant working into his 60s.
There’s nothing wrong with working a middle-income desk job (in fact millions of Americans have become millionaires on this path). But very few athletes envision this as their future. It doesn’t have to be this way. With a simple investing strategy and a dash of discipline, many athletes could easily stop working when they retire from pro sports.
6 Reasons Why Athletes Go Broke
It might surprise you to know that most professional athletes already have financial advisors. Or at least they have met with one in the past. Even the ones who go broke young usually at least met with an advisor.
Sports teams don’t want athletes to go broke so they can keep them playing or some similar scheme. It’s the opposite, actually. Sports leagues want athletes to become filthy rich! Wealthy athletes improve the image of their team and the league. More rich athletes also mean more donations to the teams.
That’s why so many teams connect athletes with financial advisors. Yet these athletes still go broke, or at least don’t become wealthy. Why? While every case is different, athletes usually go break for one of the following reasons.
1. Short Careers and Injuries: The average career length of a professional athlete is often far shorter than people might think. According to the NFL Players Association, the average NFL career lasts only 3.3 years, while NBA careers average around 4.5 years.
Even MLB players, who have longer careers on average, only play for about 5.6 years. These short career spans mean that athletes have a very limited time to maximize their earnings. Unless the player is investing smart and living on an extremely tight budget, only a few years of earnings won’t make much of a difference. Don’t let this get you down, though. Only 3 years of high income can help you retire in under a decade. Non-athletes do this all the time via FIRE, often on far less income.
2. Lifestyle Inflation: Many athletes are thrust into fame and fortune at a young age, often with little or no experience managing large sums of money. It’s common for athletes to adopt extravagant lifestyles that include purchasing luxury cars, mansions, and expensive jewelry. The Professional Athletes Foundation notes that many athletes feel the pressure to keep up with their peers or maintain a certain image, leading to excessive spending.
3. Lack of Financial Literacy: Financial education is a critical yet often overlooked aspect of an athlete’s development. Most athletes come from backgrounds where they receive little or no formal financial training, which leaves them vulnerable to making poor financial decisions. In a survey conducted by the National Bureau of Economic Research (NBER), it was found that about 40% of athletes admitted to having made bad investments or having lost significant amounts of money through business ventures.
4. Bad Investments: Investing young is probably the single best way to guarantee meaningful returns. Unfortunately, young athletes often invest in high-risk ventures without understanding the intricacies involved.
5. Bad Advisors and Scams: Athletes are frequently targeted by unscrupulous financial advisors and business managers who offer poor advice or, in some cases, outright fraud. A report by CNBC found that up to 35% of athletes experience some form of fraud, mismanagement, or embezzlement over the course of their careers.
6. Good advisors who are bad at connecting with athletes: Plenty of amazing advisors work with athletes, too. But they may not be able to relate or connect to a young person with such high income. Advisors tend to be old, white, and extremely financially conservative. Not only is this not relatable to many athletes, but conservative financial advice may not even apply to their situation if their income is frontloaded (high income while young then lower as they age).
The advisor may be well-intentioned, but the promise of investing in a safe 401(k) and high-yield savings for retirement at 65 may just not be compelling enough to change the athlete’s lifestyle or behavior. The player assumes the best way to make money that meaningfully changes their life is just to earn more be performing better on the field. This isn’t true, of course. But they haven’t seen how investing can pay off for them and athletes like them.
Financial Education is Key
Given the risks athletes face, financial education is crucial. Proper financial literacy can help athletes make sound decisions, plan for life after sports, and avoid the pitfalls of poor financial management. Here’s why it’s essential:
Emergency Fund and Retirement Planning: Many athletes fail to prepare for the “what ifs”—whether it’s an injury that cuts their career short or a failure to secure another contract. Establishing an emergency fund and focusing on long-term retirement planning early in their careers is critical. The National Football League Players Association (NFLPA) offers a retirement plan for its players, but it’s up to the athletes to maximize the benefits and contribute to additional retirement savings vehicles such as IRAs or 401(k)s.
Budgeting and Cash Flow Management: Athletes, unlike those in traditional careers, receive large sums of money in a short period. Without proper budgeting, it’s easy to overspend and deplete funds quickly. Financial literacy can teach athletes how to plan their spending and manage cash flow over time. Check out our guide to getting started with cashflow investing.
Investment Awareness: Learning about investments, including stocks, bonds, and real estate, can help athletes grow their wealth and secure their financial future. Starting to invest early can lead to significant returns, allowing athletes to have a stable income post-retirement. A 2020 study by the Global Sport Financial Institute found that athletes who began investing within their first three years of professional play were 50% more likely to maintain or grow their wealth after retirement compared to those who waited until the end of their careers.
Understanding Taxes: One of the biggest financial burdens for athletes is taxes, especially because they often play in multiple states or countries, each with different tax laws. An NFL player, for example, could owe up to 40% of their salary in taxes depending on where they play and live. Proper financial education can help athletes better understand their tax liabilities and find ways to optimize their tax strategies legally.
Investing Early: Your Competitive Advantage as a Young Athlete
While athletes have a track record of bad investments, don’t let that scare you away from investing. The age you start investing is often more important than how much money you invest, or even what you choose to invest in (as long as it’s reasonable).
A 21-year-old player earning $300,000 yearly who invests just $5,500 monthly during the first five years of their career, earning a 7% annual return, could see that investment grow to over $400,000 by the end of year five. They would definitely be a millionaire by age 32 with this extremely conservative strategy–likely much earlier if they invested smart. The athlete could probably even stop working at age 26 when they retired from the league if they were willing to live a somewhat modest lifestyle… or live more lavishly while working part-time (endorsements, local speaking events, etc).
Don’t be late. Be late to practice, be late to post-game analysis, be late to a huddle. But don’t be late when it comes to budgeting and investing. You can’t afford it. A year could be the difference between retiring young and never retiring. That doesn’t mean you should rush into some crypto or penny stock your buddy recommended. But you should start saving money now–at least 15-20% of your take-home pay. And then you can put it in a high-yield savings or retirement account (like a ROTH IRA) while you still have a high income. While simple, you can develop a more complex plan after working with an advisor or mentor.
Plenty of Athletes Did Invest Wisely: You Can, Too
Sob stories of rich athletes going broke make for better news than athletes who quietly saved. You’ve probably seen dozens of stories about Mike Tyson and Antoine Walker losing all their money. But what about the success stories?
LeBron James invested in Blaze Pizza, a startup chain that has since grown into a multi-million dollar business. Serena Williams invested in various technology startups early in her career. Sure, maybe Serena Williams and Lebron James owe their massive fortunes to their long successful careers. Most athletes won’t play a fraction as long or as well.
But consider Glover Quin, an ordinarily NFL player. After 10 seasons in the NFL, Quin lived off just 30% of his salary. He invested the remaining 70% wisely. By 2016, he’d more than doubled his money.
For every ten disaster stories of an athlete who wasted their money, there is a Glover Quin, quietly enjoying financial freedom at a young age. You can be like Glover Quin, too. All it takes is starting early, a strategy, and good mentors.
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