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Tuesday, April 10, 2012
Magic Johnson and money matters

By Kareem Abdul-Jabbar
ESPN.com

Back in the mid '80s, I was involved with an agent who had quite a stable of NBA athletes as clients. He was not a dishonest person, but he had no training or experience in money management. His stewardship of our financial matters, as it turned out, was truly haphazard; and he made the wrong types of economic moves, resulting in almost all of our investments failing.

It was, for me, a wake-up call that made me super cautious about how my money was spent and who had the power to move it. When word got out about the mismanagement of our finances, many people made the assumption that all of us had lost all our money. It was true that our investments had gone under, but I discovered a path to recouping my losses. My accountants recommended challenging the action of the law firm of the agent, because the firm's attorneys had not spoken to any of us about the risks involved in the dubious investments. By not pointing out those risks, they had failed to uphold their fiduciary duty to the investors.

I was the only client to pursue this path; and sure enough, when the case was ready to go to trial, the lawyers followed the advice of their insurance company and decided to settle. I was made whole again by being reimbursed about 98 cents on the dollar of the total I had invested with the agent. People thought I'd lost everything, but I survived and learned some very fundamental rules about handling money. Among them are to know the risks inherent in any investment, to understand what is at stake, to check on the progress of the investment, to sign any and all checks that commit your money and, finally, to pay all your taxes.

Nowadays, the upper echelon is paid on a scale that players from my generation could only dream about. However, there have been a lot of disheartening stories about athletes and their money in the news lately. Too many of these stories deal with athletes who earned hundreds of thousands, if not millions, of dollars on the playing field but ended up destitute within a few years of their retirement.

These rules might seem like common-sense precautions to many people, but a significant number of investors fail to take these precautionary steps. The results can be devastating when an investment goes the wrong way. Going forward, I was able to manage my finances and keep myself in a position where my savings and new income were safe, and I was able to live comfortably within my means. This was during a time when NBA players made a great living but didn't get their hands on the serious wealth that today's superstars do.

In the past 15 years, much has changed for professional athletes with regard to their income. Nowadays, the upper echelon is paid on a scale that players from my generation could only dream about.

However, there have been a lot of disheartening stories about athletes and their money in the news lately. Too many of these stories deal with athletes who earned hundreds of thousands, if not millions, of dollars on the playing field but ended up destitute within a few years of their retirement. Sometimes, the trouble is related to the physical toll that sports takes, such as the brain damage that, according to some studies, might be connected to repeated hits to the head during a pro football career. But more often, it's financial mismanagement that leaves once-wealthy pro athletes broke and unable to cope.

Among the latest ones to come to my attention is Allen Iverson, who reportedly earned more than $150 million as an NBA star but apparently at present owes nearly $1 million in a jewelry debt. Just in the past few days, headlines have appeared about former NFL star Warren Sapp, who faces debts of more than $6 million and has filed for bankruptcy. These situations are usually a result of the athletes not saving their money, or failing to pay their taxes, or bankrolling an entourage or family members, or a combination of those factors, and generally failing to understand that the big bucks would not be available forever.

People who work for the retired players associations of the various pro leagues often find the former athletes living with parents or in cars or -- in one troubling instance -- under a bridge overpass. Recently, someone I have worked with noticed a former NFL great employed in the baggage room at a hotel. These sad tales should serve as cautionary stories for the present crop of pro jocks, but it seems the bad news does not cause many of them to pay heed and wise up.

One very positive example, though, of an athlete who has made it big in his post-playing life is Magic Johnson. Most sport fans by now are aware of how he led a group of investors in their successful effort to purchase the L.A. Dodgers at a reported price of $2.13 billion. This ability on Magic's part is no fluke. Prior to buying the Dodgers, he was looking to become involved with an NFL franchise for Southern California; and before that, he was routinely buying buildings, Starbucks franchises, movie theaters and other lucrative properties.

Magic-McCourt
Magic Johnson is now a part-owner of the Dodgers, thanks to his smart money management.

Magic was able to reach this level of financial power because he always kept his eyes on that specific goal. While he was still playing for the Lakers, he made a deal that nailed down a percentage of the club ownership. This asset grew and grew as the value of the franchise grew; and when he sold it, it was a nice payoff. Magic also parlayed his fame as an athlete as a way to open the doors to alliances with established business entities who were thrilled to be involved with him in ventures of many different stripes. For the past 20 years, the cumulative success of Magic's business empire has grown to its present state.

Magic's wife, Cookie, also has an entrepreneurial mind, and her clothing line has seen steady growth in the world of fashion. You know what they say about birds of a feather … The result has made it possible for the Johnsons to become major movers and shakers in the business world.

As an observer, I am saddened by the fact so many pro athletes making so much serious money cannot band together and emulate the success of Magic and his family. If 10 or 20 NBA/NFL/MLB athletes pooled their money and invested in solid projects, they could be important members in the world of business. Their awesome financial assets would allow all of the participants to acquire significant assets and stay wealthy in the same way the "old money" boys maintain their wealth. But for whatever reasons, I haven't often seen athletes come together and succeed like that.

Many of today's athletes come from disadvantaged backgrounds and families that have never had the opportunity to deal with real wealth. I know in my own circumstances, handling large sums of money was a strange new world to me. This might be an even greater task for many present-day athletes, who make so much more than we did in my day, because of their limited educational backgrounds. When I see today's stars spending their money on gold and diamond jewelry and neglecting to plan for a time when the cash won't be rolling in, I am very disappointed.

In West Africa, there is a proverb that states: "Sticks in a bundle are unbreakable." I hope someday soon to see the individual stars of the sports world bond together like a bundle of unbreakable sticks and make a mark in the financial world that won't soon be forgotten.

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