Guest Post: A Proactive Cure for the Athlete Wealth Disease Epidemic – Part 2

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.

2. Facilitate and encourage the conversation.

The NFL is currently working vigorously to improve player safety as it relates to concussions. In June of 2012, 2,000 NFL players filed a unified lawsuit against the league “alleging that the NFL failed to acknowledge and address neurological risks associated with the sport and then deliberately failed to tell players about the risks they faced.”  The NFL would be wise to apply lessons learned from the concussion epidemic to its current experience with ‘Athlete Wealth Disease’. Both issues impact long-term player health and can be minimized, altered, and arguably avoided when players are armed with relevant knowledge. Further, in both cases, many of the negative outcomes are born from a pervasive culture that exists amongst players – on the playing field, it is the machismo culture of hitting, while off the field, it is the ‘baller’ lifestyle. Both the concussion and post-career financial problems that result can impede the ability of players to live normal, productive lives. What we need is for players, leagues, media outlets and fans to discuss all aspects of Athlete Wealth Disease, especially solutions, in the same manner in which we discuss concussions.

We demand that athletes be role models on and off the field, at all times. We demand that athletes do the right thing. As a result, we discuss, dissect and debate players’ offfield behavior, good or bad. However, these discussions tend to shy away from the facts that Sports Illustrated brought to light three years ago. Our heroes are going broke just as much if not more often than they are debilitated by playing injuries. (65% of NFL players retire from the league with permanent injuries). So why don’t we talk about it? ESPN’s 30 for 30 film “Broke,” directed by Billy Corben, could be seen as a step in the right direction. The film offers the usual examples of athletes who have struggled financially and certainly encourages the conversion. However, the discussion needs to shift towards solutions. And, rather than an occasional headline about a former star who has fallen or a documentary on the sexy lifestyle that carries players into bankruptcy, this must become an ongoing conversation. Embracing the discussion will force the hand of players associations, leagues, media and fans to find solutions and accountability for this epidemic – just as we have begun to do with respect to concussions.

3. Nudge

In “Nudge: Improving Decisions About Health, Wealth, and Happiness”, University of Chicago economists Richard Thaler and Cass Sunstein discuss innovative ways in which to encourage people to follow the most advantageous path. The trick is simple: start them on it. Thaler and Sunstein suggest ‘nudging’ people in the right direction with what they call ‘libertarian paternalism’. According to the libertarian paternalist, “one must not just maximize choice for others, but must set a default or no-action-required option that will cause people to make optimal choices (i.e., those widely agreed upon to make one better off, e.g., saving money for retirement)”.  In studying 401(k) retirement plans, for example, Thaler and Sunstein found that the vast majority of people never adjust the allocations of their 401(k) retirement portfolio after the initial set-up. The authors attribute this inaction to the tendency of individuals to become too overwhelmed by the decision making process, choosing instead to avoid it altogether. Therefore, when one starts a job and is required to enroll in a retirement portfolio, the libertarian paternalist recommends that the default option be set for a ‘Target Retirement Date’ fund, a portfolio that reallocates holdings automatically as retirement approaches. This ‘default option’ would help to steer those too overwhelmed with making big financial decisions to paths widely considered optimal.

Nudge-like provisions have, in fact, begun to emerge in sports. As a result of negotiations for the most recent collective bargaining agreement, the NBA Player’s Association will now default players into a league retirement plan, with the option to opt out. Those who go through the effort to opt out tend to be those well versed in personal finance, while those who do not know to opt out or do not want to deal with it have been nudged to the right path (and Thaler and Sunstein are somewhere smiling).  What the NBA has quietly done represents an important step toward preventing Athlete Wealth Disease. We need more nudges, in more forms, and next time it should not be so quiet.

For a long time we have known that professional athletes struggle with money and with the growth of sports business, we are talking big money. Occasionally, when financial market news becomes Main Street news, we will read a headline about a Mark Brunell or a Terrell Owens. Yet, when markets turn around, and Wall Street worries subside, we too quickly stop talking about a very correctable problem that still exists. The Athlete Wealth Disease epidemic is preventable. We should demand more out of the players associations whose mission is to ensure “that every conceivable measure is taken to assist players in maximizing their opportunities and achieving their goals, both on and off” the playing surface. We need to give the issue a voice – on TV, in the papers, in the blogosphere – the way we talk about and worry about concussions. Finally, leagues should follow the lead of the NBA and continue to ‘nudge’, by being more thoughtful in the structured programs used to secure the financial futures of our sports heroes.

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