By: Todd Burach (Twitter: @ToddBurach)
Todd Burach works in wealth management in New York City. He specializes in asset allocation and investment strategy for upper high net worth clients, including corporate executives, professional athletes and entrepreneurs. He is a 2007 graduate of Syracuse University where he was a member of Coach Boeheim’s back-to-back Big East championship teams. In 2012, Todd completed his MBA at New York University with concentrations in Finance and Economics.
Curt Schilling had a storied baseball career. He accomplished feats on the field of play that most athletes can only dream of achieving. Schilling won World Series rings with the Arizona Diamondbacks and the Boston Red Sox, highlighted by his 2001 World Series MVP Award. He is one of four pitchers to amass 3,000 strikeouts and fewer than 1,000 walks over the course of a career, joining Ferguson Jenkins, Greg Maddux, and Pedro Martinez. However, despite athletic triumph that most players will never know, Schilling recently experienced a career milestone of sorts that, regrettably, many professional athletes will more than likely achieve: bankruptcy.
“According to Chapter 7 bankruptcy documents filed in Delaware, Mr. Schilling’s company, 38 studios, and three subsidiaries owe more than $150 million to creditors, but have assets of no more than $50 million.”
Unfortunately, this is a familiar tune for many of us who follow sports. See the below statistics from the 2009 Sports Illustrated report, “How (and Why) Athletes Go Broke” by sports writer Pablo S. Torre published in the midst of the Great Recession, and highlighted again at the start of ESPN’s 30 for 30 documentary “Broke”:
– 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.
Torre’s article outlines several theories intended to explain how athlete after athlete can blow through so much money time after time. While the article is worth reading in its entirety, the quick synopsis of the how (for the sake of this writing) is summarized below:
1. The Lure of the Tangible – ‘chronic over-allocation to real estate and bad private equity’
2. Misplaced Trust – ‘hiring the wrong people as advisors’
3. Family Matters – ‘the divorce rate for pro athletes ranges from 60% to 80%’
Torre called attention to the epidemic of financial troubles amongst athletes at a time when financial markets were a hot topic even outside of Wall Street. Yet now, more than three years removed from the onset of the most impactful financial crisis since the Great Depression, with stock markets marking new highs, real estate prices off their bottoms, and credit markets beginning to open, professional athletes and their business ventures are still going broke. What this tells us is a very important, albeit somewhat readily apparent lesson: the epidemic of financial duress for professional athletes is not cyclical. Athletes do not go broke only when markets go down. Athletes will go broke all the time. That is, unless, something changes.
The fact of the matter is that we – professional athletes and those charged to support them – need to do more. We need to implement proactive solutions that address the root of the issue before an athlete ends up in the next Pablo Torre article or “Broke” documentary.
How can we influence professional athletes to make smarter decisions?
1. Demand more from Players Associations.
The NFL Players Association as a whole strives “to do whatever is necessary for the betterment of our membership,” while the NBA Players Association pledges to ensure “that every conceivable measure is taken to assist players in maximizing their opportunities and achieving their goals, both on and off the court.” It is safe to say that the long-term financial health of players falls squarely within the confines of these stated objectives. However, of the four major sports leagues in the United States, only one players association (the NFL) has a formal Financial Advisor Program. The NFLPA Financial Advisor Program’s mission is ‘to provide an additional layer of protection – not just from poor financial advice, but from outright fraud.’ While this stated mission is certainly just and warranted, it inadequately addresses the overarching problem. As Torre explained, trusting the wrong people is just one reason that players go broke.
For more effective and meaningful financial support, players and their advocates should demand their players associations form Player Finance Divisions, tasked specifically with promoting the current and long-term financial health of its players. In addition to services similar to those offered by the current NFL Financial Advisor Program, these divisions would provide education and outreach programs, alumni initiatives, foundation management workshops, and research of potential programs. The necessity of such support has been widely recognized. Forbes contributor James Crotty wrote in his February 2012 article on Allen Iverson that “an NBA that cared more about its personnel and brand would have required that Iverson, as well as all players, pass a yearly financial planning and retirement course before they were allowed on the hardwood.” The NBA is a corporation much the same way my employer is a corporation. My firm offers annual educational seminars on 401(k) plans and retirement benefits and takes an interest in the health of its employees. Why? Employees who are physically, emotionally, and financially healthy are superior employees. They are more productive, more committed, and ultimately present a stronger representation of a company’s brand.
Between the NFLPA Financial Advisor program and Rookie Transition Program, which provides business training to new players, players associations have certainly demonstrated a commitment to aiding athletes in their financial health. The documentary “Broke” includes clips of Former NFL player and coach Herm Edwards speaking at a rookie symposium highlighting this fact. “A goal without a plan is a wish,” Edwards told the players in attendance. The Financial Advisor programs and Rookie Symposiums currently in place seem to be just that. Bankruptcy statistics suggest that these programs need broader scope, new life, increased funding, more staffing, and a lot more media attention.
Visit RulingSports.com tomorrow for Part 2 of Mr. Burach’s piece.