Don Davey earned nothing in 1990 as a defensive tackle for the University of Wisconsin – college athletes aren’t paid salaries, of course. The next year, Davey landed a $150,000 salary, an equally large signing bonus, and a jersey to play for the Green Bay Packers.
When it came to handling such large sums of money at such a young age, Davey says, “I did what most guys did. Under the advice of my agent, I turned things over to a full-service broker.”
Lucky for Davey, he’d always had an interest in numbers – and knew enough to track the performance and fees associated with his accounts. “It didn’t take too long to figure out that the broker was doing more of what was best for him than what was best for me.”
Unlike Davey, very few college athletes are prepared after graduation to manage the salary of a pro athlete. Often-cited statistics from a 2009 Sports Illustrated story show that 78 percent of former NFL players experience bankruptcy or financial stress within two years of leaving the game. Three out of five NBA players also go broke within five years of retiring.
“Things are probably worse now than when I was a rookie 25 years ago,” says Davey, who became an investment advisor for athletes after leaving the NFL.
Recently, there have been several high-profile bankruptcy cases among athletes, including former Green Bay quarterback Vince Young who filed for Chapter 11 after earning an estimated $34 million across six NFL seasons, according to the The Los Angeles Times. Young eventually settled his debt and the bankruptcy was dismissed. Other recent high-profile cases of pro athletes with major money woes include baseball’s Curt Shilling, basketball’s Allen Iverson, football star Terrell Owens, and dozens of others.
The reasons pro athletes go broke extend beyond over-the-top spending. Short careers, poor money management skills, and extreme health care costs from permanent injuries are among the biggest culprits. There’s also the sudden influx of “investment opportunities.”
“It’s almost that somebody out there smells that you have money and the business plans just keep coming,” says Adonal Foyle, a retired pro basketball player who spent 13 years in the NBA and whose book Why Players Go Broke is due out this summer. “Some days, you can get as many as 50 business proposals.”
Even tougher, many requests come with personal ties, says Jimmy Lee, a managing partner at The Wealth Consulting Group, who represents about a dozen current or retired athletes. “Especially when it comes to people [these athletes] know, it’s very tough to say no. Sometimes it’s family members, even parents.”
Even 20-somethings who aren’t in the public eye and have nothing to do with stratospheric athletes’ salaries have trouble managing their finances. Young adults have a much lower level of financial literacy and financial capability than older adults, says a recent report by the FINRA Investor Education Foundation.
The lack of basic money skills becomes even more apparent among student athletes. Colleges have been dumbing down curriculums for years and have let students down before they even step foot on campus, says Gerald Gurney, an assistant professor of Adult and Higher Education at the University of Oklahoma, who has studied academic preparation for student-athletes. A CNN study of public universities showed that between 7 percent and 18 percent of college athletes in “revenue sports” such as football and basketball read below a 5th grade level.
By pushing them toward easy majors and ignoring the need for remedial education, such colleges are setting up their athletes for failure, Gurney says. “Some institutions even develop majors to keep these athletes eligible. In essence, you have a situation where athletes are kept eligible rather than educated.”
Many students who aren’t served by the college they attend depend on the money that comes with going pro; but the statistics aren’t in their favor. A tiny percentage – less than 2 percent of college athletes – make it to the NFL, NBA or WNBA, reports the NCAA. The only sport that boasts chances higher than 2 percent is baseball, where college players have a 9.4 percent chance of going pro. Athletes who don’t make the cut are left to their own devices without a pro-grade salary – and often without a basic education.
“Many of our students leave with no degree, or a degree that is not going to prepare them for the real world of work,” says Gurney. “That is the real tragedy.”
One new education program aimed at student-athletes hopes to better prepare the sports stars of tomorrow. Fiscal U, a joint initiative between Capital One and the National Association of Collegiate Directors of Athletics (NACDA), is a web-based personal finance workshop that launched last fall and is available at just over 100 schools. So far, about 1,500 student athletes have enrolled. It could be a sign of change – but it’s just a drop in the bucket in terms of what’s really needed to better prepare America’s student athletes.
“The whole idea of college is to prepare a generation of kids to face the world that they’re going to inherit,” Foyle says. “You would think it would be a moral imperative, then, that part of preparing young people to go out into the world is to make sure they have some mediocre form of financial literacy as part of the generic curriculum.”
Even if formal financial literacy courses are few and far between, awareness is growing among college players, says Billy Corben, director of ESPN 30 for 30: Broke, a documentary that explores the financial challenges pro athletes face.
“We were watching Twitter blow up live as the movie was premiering and the best part for me was the college athletes, many of whom were expressing sentiments like, ‘I'm not going to be in Broke 2,’” he says. “They were going to do it smarter and do it better if they got the opportunity at all. I thought that was very cool and very encouraging.”
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