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People like to take advantage of rich athletes. They always have.
One reason they like to do that so much is because a lot of people have been successful at it. Many very wealthy athletes don't have the inclination to manage their own money, and are therefore forced to entrust others. Making a bad selection can be a fatal financial flaw.
When you get into the nitty gritty of the basketball business -- agents, managing money, preparing for the draft, and the like -- you often hear things like "there is no book on that stuff!"
The message is that athletes have no choice but to stumble around and make some mistakes.
But I have come to learn that in fact there is a book on that stuff. It's called "Money Players: A Guide to Success in Sports, Business & Life for Current and Future Pro Athletes." Financial consultant, author, and blogger Mark Isenberg wrote it and was nice enough to send me a copy (with his blessing to reprint a little bit of it that you'll see below).
Topics covered include relating to the media, dealing with team owners, nutrition, taxes, deciding whether or not to declare for the draft ... It's not deep advice on any topic, but it's a lot of common sense put into one place, and it's not hard to read or implement.
It's in keeping with a growing trend: empowering athletes to learn how to take control of their own affairs, instead of being forced to trust whichever agent or adviser happens to be around.
I think that trend, in the long run, could be a key to reducing the fraud and financial mishaps that have long dogged athletes.
For instance, here is some typical advice from "Money Players." It's plucked from a chapter about working with an investment advisor (I'm paraphrasing): Deposit your investment money with a large SEC-registered firm; empower your investment adviser to move money between funds, but not to make withdrawals; monitor your account both through the company's website (can't be doctored by your investment adviser) and through monthly statements mailed directly to your house.
It's doable and it lets the player appropriately give up the hassle of day-to-day investment decisions, while eliminating the vast majority of scams.There are also plenty of anecdotes involving NBA players, including these:
"Steep tuition" for "crash course in business school"
When NBA Hall of Famer Kareem Abdul-Jabbar's first money manager -- a Wall Street lawyer with a conservative investment philosophy -- died, Kareem turned to Tom Collins to be his sports agent, business manager and investment adviser. Collins was supposed to take care of everything.
Six years later, in 1986, Kareem severed his relationship with Collins. In those six years, Collins had taken out more than $9 million in loans in Kareem's name, had used Kareem's money to pay other clients, and had made risky investments that Kareem did not know about.
Kareem made two mistakes highlighted in the previous chapter. He signed an agreement giving Collins full power of attorney, and he ignored early signs of trouble. For example, Collins never provided the monthly statements to Kareem that their agreement required. When the first statement did not appear, red lights should have flashed. Then, Kareem received notice from the IRS that his taxes had not been paid for two years. Alarm bells!
By the time Kareem became aware of all of his losses (through an audit) and sued, it was too late. The money was gone.
Kareem now oversees his advisers and personally signs his checks. In an interview with Sports Illustrated, he said, "It's been a crash course in business school and I've paid a steep tuition."
"He was a good guy"
Early in Charles Barkley's basketball career, he was referred to as "The Round Mound of Rebound." Unfortunately, Sir Charles' bank account did not swell along with his belly. Barkley selected the wrong agent and financial adviser -- in his case, he hired one person to manage both functions.
Barkley on why he selected his first agent: "Lance [Luchnick] was the only agent who hadn't given me money while I was in school. When it came down to my final selection, [not offering money] worked in his favor. I thought he had been smart enough to know that I couldn't be bribed ... I chose him for the worst reason anybody could choose an agent -- write this down, kids -- because he was a good guy."
Luchnick invested Barkley's money in speculative deals that did not pan out. Barkley lost his original investment, but his problems did not end there. As Barkley notes, "When the investment goes bad, and everyone else declares bankruptcy, they keep coming after you because you're still earning money." Luchnick declared bankruptcy and Barkley won a $5-million judgment -- which is hard to collect from someone with no money.
Gone with the Wind
In 2004, former NBA star Scottie Pippen sued his former financial adviser, Robert Lunn. Pippen, who reportedly lost $17 million in deals recommended by Lunn, was awarded an $11.8-million judgment against the adviser. Lunn filed for bankruptcy, and Pippen is unlikely to collect much, if anything. Pippen also sued Katten Muchin, the reputable Chicago law firm that referred him to Lunn. That suit went nowhere, and Pippen was out the attorneys' fees. It gets worse. Pippen borrowed $4.375 million to buy a private jet (to lease out when he wasn't using it). The plane was a money pit, and Pippen was sued to recover the money, which he had personally guaranteed. Pippen lost in court and lost again on appeal. He has been ordered to pay the debt holder $5.021 million in principal, interest and attorneys' fees.
I imagine that the real key to good long-term business decisions is not just reading a book, but building the right team of advisers, and entrusting them appropriately. But how do you go about doing that? A book like this is probably a good start.