|Thursday, August 28
Updated: September 3, 12:34 PM ET
Bank(rupt)ing on the future
By Tom Farrey
The offers start flowing near the end of their college, and sometimes high school, careers, carried on the wings of agents who have friends in the financial services industry. Offers of easy money -- instant money -- with terms so outrageous they might as well be framed in the parlance of Internet junk mail.
No collateral? No problem!
No job? No income? No worries!
Low-interest lines of credit of up to $100,000 are yours -- NOW!
"I remember thinking that my sister's a registered nurse and they'd never let her get that kind of money," said Torrin Tucker, who first learned at the Senior Bowl in December that a St. Louis financial firm was ready to loan him $75,000. But Tucker's sister isn't a 6-foot-6, 329-pound offensive lineman who was all-conference at Southern Miss.
Datatex Sports Management, a division of Huntleigh Securities, figured Tucker was worth the risk because its in-house football analyst projected the big guy as a second-rounder in this year's NFL Draft. The average signing bonus for a second-round pick is $1.5 million, so presumably Tucker could have easily paid off the loan upon signing a lucrative contract.
Tucker, who spent much of the money to pay off his mother's medical bills, went undrafted. The best he could do was sign as a free agent with the Dallas Cowboys, who are giving him a chance to make the team. But Tucker is by no means the only player that Datatex guessed wrong on. Of the 35 NFL hopefuls this year that the company gave "pre-draft lines of credit" -- as these financial instruments are known -- only 20 were taken in any of the draft's seven rounds, said Felix Wright, the Datatex football analyst.
"This was a weird year," said Wright, a former Cleveland Browns defensive back. "Guys who nobody had ever heard of were getting drafted."
Given the speculative nature of mock drafting, and the probability of default for athletes who fail to cash in on a pro sports income, you might think Datatex would get out of the Mel Kiper business. Next year, Wright said, Datatex wants to double the amount of money it distributed this year to athletes in lines of credit, to $2 million.
Wright calls it good business.
Total player salaries in the NFL, NBA and Major League Baseball alone exceed $5 billion a year. Banks and financial management firms covet the opportunity to handle athletes' funds, and high-risk, pre-draft lines of credit are the latest way to create early relationships with would-be millionaires. Datatex, for instance, requires that athletes let Huntleigh's portfolio managers invest 25 percent of their gross signing bonus, charging them average annual fees of 1.5 percent.
Others note that not every player has the assured repayment ability of James, who sparked a firestorm over his high school eligibility this year when his mother bought him a Hummer with a bank loan presumably based on her relation to the future NBA No. 1 pick.
"I just discourage credit lines because they set the wrong tone," said Ivan Thornton, a Wall Street banker with Credit Suisse First Boston who works with NBA, NFL, NHL and Major League Baseball players. "These kids have to learn how to handle their finances, and habits stick with you for life. (It's not helpful) when the first thing dangled in front of them is money and debt."
The best players in the NFL draft can merit a credit line of as much as $500,000, Walker said. Datatex uses a standard scale to determine how much money it will loan to NFL wannabes. Projected first-rounders get $100,000, with lesser amounts going to players pegged for each lower round, down to $1,500 for seventh-rounders, according to Smith.
If the player fails to make the team, or does not get a large bonus, the repo man snatches the car back.
"It's irresponsible of the agents and irresponsible of the banks" to supply lines of credit, said Rick Pitino, men's basketball coach at Louisville.
Louisville was among the colleges last year that recruited Lenny Cooke, a New York City guard who, at the time, was regarded as one of the top five prospects in the nation. During his senior year of high school, in anticipation of the NBA draft, he took a line of credit that was arranged through a popular money management firm for athletes, CSI Capital Management, according to Immortal Sports, his former agent's firm.
A decade ago, pre-draft money was handed out only to the surest of prospects, and even then, agents were sometimes required to co-sign on the loans. But now, insiders say, lines of credit are so common -- and commonly requested by athletes -- that agents need access to the best of the deals in order to recruit clients, who often start talking numbers with agents and their associates before the final game of their high school or college careers.
"Someone says 'I can get you a loan for X amount' and the next one says 'Well, I can get you X plus Y,' " said Leland Faust, CSI chairman. Adds Ernest Downing Jr., who recruits players for agents: "And you better have that truck with chrome wheels ready when they get off the plane. So it all has to be set up in college."
Thornton holds his nose at the roulette money shaping the decisions of some of today's athletes, who follow in the footsteps of many former players who retired broke due to poor advice.
"You end up getting represented not necessarily by the best agent or money manager but by who can give you the best line of credit," Thornton said.
Faust wants the players' unions to take control of these credit lines, by setting reasonable limits of debt that can accrue before an athlete earns a pro dime. But the unions have shown little enthusiasm for regulating the finances of athletes, and some find it hard to imagine how they would effectively regulate these private transactions.
The best antidote might be a larger helping of patience. Wait to make the pros before living like a pro. Then again, it's hard to lecture an athlete such as Tucker who, like many athletes, comes from a poor family. He said he used much of his credit line money to pay off a pile of bills owed by his diabetic mother.
"If my mom wasn't sick, I probably wouldn't have done it," Tucker said.
The tradeoff for Tucker is the consequence of failing to buck the odds and play his way onto an NFL roster. The signing bonus the Cowboys gave him as a free agent, he said, was only $13,000 -- hardly enough to relieve the mountain of debt that has transferred to his ample shoulders.
He is at a loss when asked how he plans to pay off the credit line should he be forced to get a regular job outside of football. Not listed on the Cowboys' two-deep roster, Tucker is on the bubble as NFL teams must trim their rosters to the regular-season limits of 53 players on Sunday.
"If the Lord looks after me and lets me make the Cowboys," he said, "everything will be fine."
Tom Farrey is a senior writer with ESPN.com. He can be reached at email@example.com.