Risk Management for Professional Athletes

Lately, there have been a number of articles about professional athletes who have lost millions of dollars due to poor financial decisions. Athletes range from golfers to boxers to professional baseball players and their bad decisions range from buying cars, women and tigers to fighting gambling addictions and making bad business investments. There are also those who have been defrauded by their agent, their accountant or his ex-wives. Most of these problems are due to a lack of education and some are due to a lack of maturity. Whatever the case, these issues have opened the doors for entrepreneurs who are in the business of financial and risk management.

A startling statistic indicates that 78% of NFL players file for bankruptcy or financial trouble within two years of retiring and 60% of NBA players go bankrupt within five years of retiring. The retirement. These athletes know they have a lot of money and they don’t think about what will happen when they stop receiving those multi-million dollar checks. Many of them do not understand business and/or finance. Some of them may never have taken a single class from either in college. Some professional athletes may not have time to focus on their finances. The stress of having to produce on the field doesn’t leave much time to focus on things off the field, such as investing or retirement planning. Raghib “Rocket” Ismail, a former professional soccer player who signed the highest salaries of his time in 1991 at $18.5 million over a four-year period, once said: “I once had a meeting with JP Morgan and it was literally like listening to Charlie Brown’s teacher.” It’s not that he’s not a smart person, but without focusing on the details, many professional athletes find themselves left out in the rain when their money runs out.

Of the athletes who have gone bankrupt, not all have necessarily lost their money by living extravagant lifestyles. Some have tried to make investments and plan for their future, but didn’t have people they could trust to manage their money or tried to manage it themselves, but didn’t have the time or knowledge to do it properly. Some of them have invested in high-risk businesses that failed and some invested in businesses that had no luck at all. A player once invested in an invention that consisted of an inflatable raft that attached to the bottom of a sofa so that people who lived in areas with a lot of rain could inflate the raft and float on their sofa when their area flooded. If this player had someone in the risk/financial management business that he could trust and who had a good reputation, he would not have wasted his money on such a foolish investment.

The financial/risk management companies athletes should use are ones that have a good reputation with all of their clients, not Uncle Joe’s accountant at the local mall. These companies should try to educate their clients about the things they don’t understand by offering consultation sessions and possibly workshops on financial management and personal finance. If they are trying to keep the athlete in the dark, then they are probably trying to outdo him in some way. Every investment doesn’t have to be a home run. These companies should try to keep the risk to athletes within reason.

Financial/risk management is key to everyone’s financial stability, no matter how much money they make. If every investment a person makes is going to be high-risk, high-reward, then they might as well go to a casino because all they’re doing is gambling anyway. While it’s bad that so many athletes are having this problem, it’s opening doors for those entrepreneurs in the risk management business. Athletes need to understand that even sports are business and they need to see themselves as independent contractors who need to run and run their business.