How Millionaire Athletes Go Broke

March, 23, 2009
3/23/09
10:18
AM ET

On SI.com, Pablo S. Torre wades deep into the waters of players going broke and comes up with all kinds of interesting specifics.

Whatever the percentage, certainly too many millionaire athletes end up broke. One of the themes, of course, is trusting the wrong financial people. And players are surrounded by people, from a young age, who want to invest their money for them. Would the best and most reputable financial advisors, I often wonder, invest time and energy getting close to athletes? If you get great results managing people's money, you wouldn't need to go to all that trouble. I suspect that a good portion of those who target this market are those whose businesses rely on people with deep pockets and a lack of financial sophistication.

Magic Johnson -- widely seen as a shining example of handling his money well -- tells Torre some of the lessons he dispenses.

"That's the killer," Magic Johnson says. Johnson started out by admitting he knew nothing about business and seeking counsel from the power brokers who sat courtside at the old L.A. Forum, men such as Hollywood agent Michael Ovitz and Sony Pictures CEO Peter Guber. Now, Johnson says, he gets calls from star players "every day" -- Alex Rodriguez, Shaquille O'Neal, Dwyane Wade, Plaxico Burress -- and cuts them short if they propose relying on friends and family. "It won't even be a conversation," says Johnson. "They hire these people not because of expertise but because they're friends. Well, they'll fail."

Says [Torii] Hunter, "They'll say, 'I got this guy, a cousin who's an accountant.' But he's usually an accountant in the 'hood. You hire him, you're doing him a favor."

[Former NBA player Erick] Strickland realized that all too late. In 2001, when a "friend of a close friend" of the nine-year NBA vet proposed a real-estate deal in Georgia, Strickland turned to his business manager: his dad, Matthew, a retired lieutenant colonel in the Air Force. The paperwork on the plot of land, which was on sale for $1.8 million but supposedly had been appraised at as much as $3 million, appeared legitimate, and Strickland bought it. "I trusted my father to help look it over for me because I was hooping and didn't have time," Erick says. "He checked it out. But he didn't go that extra length."

The land wasn't worth anything close to what Strickland was told. "I had to take that hit," he says. "I wish my dad hadn't been put in that position. He just didn't have the knowledge." As for his close friend? Strickland says the man secretly got a cut of the deal, and the conflict caused a permanent "falling out" between them.

Relatives are not the only ones foolishly trusted with athletes' money. One up-and-coming guard in the NBA allows his entire fortune to be managed by his former AAU coach, who has the player's power of attorney. In a meeting with Butowsky in December, the guard's dad admitted that he has no idea who the son's accountant is and said he wanted a financial "intervention."

That last paragraph is, to me, wholly shocking. I mean, I understand that players don't want to take the time to manage their money.

But there's no need to give anyone power of attorney.

As a drastic example of extreme simplicity, you could, in about five minutes online, set up automatic investments in some low-fee very broad index funds. You might not hit a home run, and you might miss out on some tax trickery. But that's a small price to pay to spend very little time watching anything, and to be in control of your money without having to trust anybody who could swindle you.

As comes clear in this article, is that they seek risky investments. Rather than boring mutual funds or bonds, it's all about private equity investments in startups and risky land deals. Those are high-risk even for sophisticated investors.

(Read the whole article. From devices that make your furniture float in a flood, to mouthguards that make your brain work better -- athletes have invested in it all.)

Another costly error many athletes make is having all kinds of relationship troubles. From child support payments, to divorces, some kinds of athlete lifestyles can prove to be extremely expensive.

One thing that comes up is pre-nuptial agreements, which are not very common in the NBA -- but Dikembe Mutombo is said to have called off his wedding at the very last minute, at tremendous cost, when his then fiancee wouldn't sign one.

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