Preventing Athletes From Going Broke

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Whether you are a current athlete, a former athlete, or just a casual fan, you know athletes going broke has been an epidemic across Major Sports for decades. It was not always like that. The most paid guy in the MLB 100 years ago was Mr. Ty Cobb according to sabr.org. Ty’s annual salary was $20,000. Now, obviously 20 G’s then wouldn’t equal 20 G’s today, so lets adjust for inflation. BeeBopBoopBeep, $20,000 in 1918 equals about $359,889.05. I understand that $350K is a lot of money. Just 100 years later, the number one earner in the MLB is Mike Trout, earning a healthy $34.1 Million. Why is it that over the last 100 years there has been an inflation adjusted growth of just a doll hair under 100%, meanwhile the athletes bearing the fruit of all this growth, can’t keep it in the bank? The answer might be deeper than blowing it all on mansions, tigers and drugs, oh my. Lets explore a few very different strategies when it comes to being an athlete going broke.

 

Arguably the most well known case where there was a gross misappropriation of funds by an Elite athlete. Mostly because money was getting blown on the cars, the animals, and lawsuits. There is a few different ways an athlete can go broke. This way is perhaps the most “glorified” just because usually they at least buy some cool shit. Mike Tyson tore up the boxing ring for 20 years, knocking out seemingly everyone that challenged him. For doing that, he made a lot of money. It is estimated ‘Iron Mike’ amassed earnings north of $700 Million according to Sports Illustrated. Our first lesson for our athletes is always ONLY buy exotic animals with profit if you have to have one. Exotic animals are not investments for athletes but rather liabilities. People on the black market may disagree, we maintain our stance. 

 

This next story is different from Mr. Tyson’s. This story is about a guy born in Indiana. Quickly after being born, the Johnson family moved to Michigan, which is actually the state where Hockeytown is. Fast forward through his youth hockey career and into high school. Jack went to arguably the most illustrious hockey organization in the country for high schoolers. It was a boarding school, called Shattuck Saint Mary’s. Not that it’s a huge deal but I do want to say, when I played for the Thunderbirds we steam rolled the “Hogwarts of Hockey” every time we played them. Jack’s education combined with his ability and work ethic afforded him the ability to play hockey for the University of Michigan where he was learning and developing his hockey skills before the jump to the NHL. In 2011, Jack signed a seven year deal worth about $4.3 Mil per year. In 2014, He filed Chapter 11 bankruptcy, claiming only $50,000 in assets and $10-15 million in debt according to the Columbus Dispatch. What happened was, Jack’s parents gained financial Power of Attorney when he signed that seven year deal. His parents then, took out a few really expensive loans from the bank and used his future earnings as collateral. Jack had no knowledge that this was going on. He and his family were tricked by investment managers and the banking system. College education, no drugs, no hookers, no airplanes and still. Luckily, he is almost through his financial troubles and can get back to making and keeping all the money he is worth to his organization each year. 

 

This next and last story stars a colorful Golf player who has a drink named after him. Not Arnold Palmer, it is of course the monster driving and chimney smoking John Daly. With Golf being one of the highest paying sports, it is no surprise to see at least one Elite Golf pro lost the bulk of his money. John is really just a regular guy with regular problems who just had way too much money, plain and simp. He’s struggled with addiction, health issues, and women. John also had a method of asset accumulation many are attracted to due to the bright lights. Gambling; a lot of people have come to the justified realization that investing your money into the stock market is not much different from closing your eyes, crossing your fingers and putting your chips on Red. In his autobiography, he claimed to have lost between $50-60 Million over the past 15 years, NET. Meaning there is a bigger number in the “L” column since he won $35 Million. That is right, he actually lost $90 Million. If you look at this with the investment “logic”, John Daly spent $90 Million to make $35 Million. His investment lost 61% over 15 years. Think about that, what if your investment was down 61% over 15 years?! While you might think that will never happen to the stock market, go check out my article about a Japanese stock market index called, Nikkei 225. Scary shit.

 

My point of bringing up each of those stories is that making a lot of money isn’t enough, making a lot of money then trusting someone to accumulate “investments” isn’t enough, making a lot of money to risk it on a game bought with strategy and sold with chance, sadly, just is not enough. So, what do we do? First, we need to look at The Banks and this so called insurance we have on our money. For athletes and many others, financial optimization methods provide a lot of cool shit but without a doubt, the best thing is being confident that every time you “invest” into something, whether it turns out terrible or goes great, you have participated in the beauty of arbitrage and you have created money or value where it didn’t exist prior. So, if your investment lost, your financially optimized portfolio lost less or none. If your investment wins, your financially optimized portfolio just wins more. As opposed to: if your investment lose, you lose. Sounds very Soviet Union, doesn’t it? “if investment lose, you lose”. Any who, it doesn’t have to be like that, nor should it be like that. Even Russia is now called Russia. In conclusion, had these athletes been financially optimized, had their decision making been just a doll hair better, they would not be broke and would be able to do their job of inspiring people as well as doing what they love. The system destroyed these guys. It was not the money. It was not the fame. The system failed those guys just like the system fails you. 

 

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