If You Are a Successful Sportsman, Take Care of Your Money

September 21st, 2011

Your huge earnings won’t go on forever

It seems almost impossible that an athlete making $5 million, $10 million, or, in the case of Derrick Coleman, $90 million over a career could lose all of his money. Of course, many a now-bankrupt athlete also thought it impossible.

Their salaries

"They see their salaries as never ending, like they can’t spend it all," says accountant Scott Bercu, who handles the finances of professional baseball and basketball players. "But, if you make $5 million a year, by the time you get done paying your agent and taxes, you have $2 million left to spend. That goes very quickly."

Kenny Anderson

Among Bercu’s clients is Kenny Anderson, the former point guard who earned more than $60 million during his 14 years playing in the NBA, yet declared bankruptcy the year his career ended. Anderson once joked to The New York Times that an NBA labor dispute would force him to part with one of his eight cars. In truth, says Bercu, Anderson knew his spending couldn’t be sustained. The player and his accountant were planning for bankruptcy years before it became official.

Can’t stop spending

Most very wealthy people, be they CEOs, entrepreneurs or financial professionals, deal with finances as a major component of their jobs. But athletes and other entertainers can acquire great wealth without having a clue about money. Athletes are often unschooled, and have never had to strategize how to pay for an education because they were on scholarship. The leagues are aware of the financial illiteracy among many players, and therefore conduct financial seminars for all rookies.

‘Don’t Understand’ Money

Ed Butowsky, the managing partner of Chapwood Capital Investment Management, applauds the major sports leagues for good intentions, but says that in the minds of many pro-athletes, finances remain "an issue they don’t understand, and it’s not communicated right." Butowsky advises NBA all-star Kevin Durant, 15-year baseball veteran Torii Hunter and scores of other guys who score for a living. His words are a bit different from most everything these players will hear. Everyone tells the athletes, "Be smart, don’t overspend, invest." But Butowsky says the stars of the sporting world model their behavior on stars of the business world. "What these athletes do," Butowsky says, "is look at the front row and want to be the front-row guys."

Front-row guys

The problem with "front-row guys" is that they’ve often made their money through concentration in a single field. Butowsky advises that illiquid private assets should make up no more than 5 percent of an athlete’s portfolio, once $3 million is already in the bank. In fact, Butowsky says Magic Johnson, with his business empire of movie theaters, restaurants and coffeehouses, is actually an example of how not to build a portfolio, despite Johnson’s great success.

Educating athletes

In order to educate athletes, Butowsky conducts boot camps for any player who wants to attend, where he gives out special calculators that demonstrate when a free-spending athlete will run out of money. Butowsky’s cause happens to be a group of the most envied wealthy people on the planet. But Butowsky’s point is that too often they aren’t wealthy for long.

This entry was posted on Wednesday, September 21st, 2011 at 3:50 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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