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NFL player bankruptcy
The ever-excellent Mark Steckbeck offers up a quotation from Yahoo:
The 78 percent number (i.e., 78% of NFL players go bankrupt within two years of retirement) is buoyed by the fact that the average NFL career lasts just three years. So, figure a player gets drafted in 2009, signs for the minimum and lasts three years in the league: He will have earned about $1.2 million in salary. Factor in taxes, cost of living and the misguided belief that there will be more years and bigger paydays down the road, and it becomes a lot easier to see how so many players struggle with money after their careers end.
Posted by Tyler Cowen on September 20, 2009 at 07:32 AM in Sports | Permalink
Comments
Or consider the supply side of the equation.
Lenders are far more focused on current income than long-term earning potential when underwriting loans.
Loans (particularly mortgages) rely on a number of income tests, so a rookie earning $500k per year, will easily qualify for a $3+ million mortgage. Whether his playing career will last long enough to service the loan is never factored into the lending decision.
Posted by: Russ R at Sep 20, 2009 8:15:23 AM
SI had a great article (link) back in March on athletes going bankrupt that's an absolute must-read.
Posted by: DRDR at Sep 20, 2009 8:36:57 AM
The question to me is, why would anyone want to be football player, when he can easily access information like that? Or why is the price for a football player so low?
When we compare it to average professional soccer players, who last about 10 years on average, then this is a bit bizarre. Yes, the average soccer player doesn't get the salary and bonuses of a Christiano Ronaldo, but even then, they make around 50k-60k $ per year. So, after ten years, he has less money than a football player, but he is used to getting it in small quantities and often learns to use it more conservatively.
So, perhaps it would be an idea to do something like a 10 year plan, where you are paid steadily (with interest) the same amount of 3 years in 10 years...
Posted by: Max at Sep 20, 2009 8:45:28 AM
The sad thing is I actually can see how, in US, a football player who just made 1.2 million in 3 years could go broke.
Contrast that with the fact that it would take the combined wages of approximately 50 rural African men their entire adult lives to make that same 1.2 million dollars.
Decadence anyone?
Posted by: Justin Kraus at Sep 20, 2009 9:09:04 AM
Yes, the average soccer player doesn't get the salary and bonuses of a Christiano Ronaldo, but even then, they make around 50k-60k $ per year.
50-60k per year? Based on EPL wage costs I imagine it's a lot more than that:
http://www.guardian.co.uk/football/table/2009/jun/03/premier-league-turnover-wages-debt
But perhaps you are including soccer players in the lower divisions as well as those that play in MLS.
Posted by: Colin at Sep 20, 2009 9:25:32 AM
The real story here isn't the players; it's the blithering idiots who lent money to people so overwhelmingly likely to go bankrupt quite soon.
The NBA and NFL don't recruit for financial skills ... but the banks allegedly do.
Posted by: pireader at Sep 20, 2009 9:52:56 AM
Contrast that with the fact that it would take the combined wages of approximately 50 rural African men their entire adult lives to make that same 1.2 million dollars.
Wow, guess I should feel really really really bad about the 55k I make every year, when compared to the combined wages of approximately 50 rural African men.
Maybe what you should focus on is how much the many corrupt "leaders" in that continent make and the hundreds of millions (billions?) squandered and squirreled away in non-African banks by those same "leaders" and then lecture us about decadence.
Sheesh.
Posted by: anon at Sep 20, 2009 9:56:20 AM
That SI article that DRDR linked is very good. There's also a good series from the Washington Post:
http://www.washingtonpost.com/wp-srv/special/sports/setforlife/index.html
Whenever I see the stories about the 1950's-era NFL players with bad knees or dementia, or read about the today's athletes blowing through fortunes, I always think the writers are missing the big picture. Maybe the money and the bad old age doesn't matter: for 5 or 10 or even 20 years, these guys got to be gods on a small scale.
From junior high school, high school, college and on, they get a mix of high status and women in a way that almost no person could buy. What is that worth?
I think that an awful lot of these 'old athlete blew it' stories could be read as the triumph of lower-status guys who get to write--or read--about gods brought low.
Posted by: tom at Sep 20, 2009 10:19:38 AM
Stick that number in your rational expectations/Ricardian equivalence will you?
Posted by: capitalistimperialistpig at Sep 20, 2009 10:41:37 AM
So, does the 78% bankruptcy rate call for more paternalism with respect to contracts, or is it an acceptable way for the market to sort itself out?
Posted by: Allan at Sep 20, 2009 11:16:57 AM
So, does the 78% bankruptcy rate call for more paternalism with respect to contracts, or is it an acceptable way for the market to sort itself out?
Considering that the players have an active union, the NFL runs mandatory investment and money management seminars for all rookies, professional athlete insurance against injuries exists (and is even available to college players, with expected future earnings used as collateral), and all players have agents representing them, there's already a large amount of paternalism here. Certainly agents have the principal agent problem, and might want to maximize their own short term return at the expense of the player's long term (since they can get new clients).
What you're asking for is better paternalism. We can all imagine a perfectly functioning paternalism, but would it happen in reality?
Posted by: John Thacker at Sep 20, 2009 12:25:10 PM
I wonder if bankruptcy is lower in baseball, where there is no salary cap, but players also get used to having low prestige and income playing the minors before they hit it big.
Football players who make it to the NFL have been tremendous successes beating the odds their entire career. They've taken enormous risks and won their whole lives.
Posted by: John Thacker at Sep 20, 2009 12:28:41 PM
Football players who make it to the NFL have been tremendous successes beating the odds their entire career. They've taken enormous risks and won their whole lives.
And likely told all along how smart they were, how they were "the best". If you get involved with youth athletics, the very few really good kids are already surrounded by a lot of bad advice from over-eager parents and coaches who overemphasize the possible financial rewards (in the form of scholarships and future earnings).
Imagine anyone under the age of 18 who gets a lot of press and adulation. Not many are going to have the kinds of advisers (parents and coaches) who will advise about realistic, i.e., probable, long term rewards and consequences. You see a lot of parental insecurity in youth athletics.
I suspect it is very easy for young athletes and those closest to them to get caught up in unrealistic attitudes about success, money, and fame. And not learn how to manage those. Because they're busy trying to manage and capitalize on each athletic "success".
Posted by: anon at Sep 20, 2009 1:26:47 PM
Lending guidelines and tax tables are wrong.
Posted by: Andrew at Sep 20, 2009 2:54:55 PM
A large percentage of big lottery winners also go bankrupt within a few years (the estimate most often quoted is one third). We might also surmise that younger lottery winners would be more likely to blow their money. So part of it is just human nature. The rest of it can probably be attributed to the temptations and problems faced by athletes and young urban males, including the posses and hangers-on and party girls and hustlers in orbit around them as long as the good times roll.
Posted by: anonymous at Sep 20, 2009 4:40:42 PM
I used to know a baseball pitcher who made $20 million in his career, but he was a Stanford grad, and his money was managed by his older brother, who was a CPA. So, he did fine.
Much of the problem of athletes is that they seldom have close family members they can trust who are competent to manage their money for them, and they don't have the skills to check up on their money managers. So, they wind up surrounded by parasites, including unscrupulous money managers.
Posted by: Steve Sailer at Sep 20, 2009 5:45:05 PM
"Factor in ... the misguided belief that there will be more years and bigger paydays down the road, and it becomes a lot easier to see how..."
... otherwise reasonable people think it's a good idea to quadruple our National Debt.
Economics ain't complicated, people.
Posted by: Jim at Sep 20, 2009 8:28:39 PM
Jim - Economics ain't complicated
Unfortunately, it is. Most of the reasonable people thought it was a bad idea for Reagan and Bush I to quadruple the national debt. They also thought it was a terrible idea for Bush II to double it again. But because economics *is* complicated, most of those same reasonable people understand that this is the wrong moment to try to undo that damage - so taxes must go up, but just not this year.
Posted by: capitalistimperialistpig at Sep 21, 2009 12:18:07 AM
Tom's comment on this post gets at the essence of how actual human behavior differs from rational expectations theory, and why. Humans were designed to maximize reproductive success in a world where you got only a brief shot at being an alpha male with reproductive priviledges, and the legacy you left your lineage was almost entirely in your genes. Football player behavior fits that pattern almost as perfectly as the behavior of our ape like cousins. It works too - NBA players (a somewhat similar class) tend to produce an impressive number of offspring, mostly outside wedlock.
Posted by: capitalistimperialistpig at Sep 21, 2009 12:27:43 AM
It isn't complicated, but people make it so, especially econ professors. I would never tell them that. They might tell you they are the only people for which agency costs don't apply.
Athletes and their families treat the payoff like winning the lottery, so they end up bankrupt just like lottery winners.
As for debt and athletes, it's all about what you get for your money. Athletes don't get anything of lasting value and right now, neither are we. Economists don't seem to believe in that either. I guess they might claim that being populist helps stave off popular uprisings. But, it isn't the populists buying all the guns is it?
Posted by: Andrew at Sep 21, 2009 3:22:30 AM
Have you factored in minor league pay? I've had a few friends who know they can't make it in the bigs, but can play for a few years in their early twenties in A and AA ball. This results in a low salary, but some money to live on during the 6-8 month season.
Posted by: audiokabel at Sep 21, 2009 5:05:16 AM
Seems hard to believe. How reliable is that 78% number?
Posted by: Floccina at Sep 21, 2009 9:03:59 AM
BTW one could conclude from this that poverty in the developed nations is not caused by a lack opportunity, education or money.
Posted by: Floccina at Sep 21, 2009 9:08:33 AM
How does this begin to imply that poverty is not caused by lack of education? Where in the statistics does it say how many of these bankrupt football players held BA's from prestigous colleged or attended top notch prep schools?
Posted by: wlu2009 at Sep 21, 2009 12:51:52 PM
" the average NFL career lasts just three years"
Many NFL players hang around for ten to fifteen years. So the median NFL career must be considerably less than three years.
"it becomes a lot easier to see how so many players struggle with money after their careers end."
Not sure I'd refer to one or two years of pro football as a career.
Going bankrupt at age 27 should not cause one to struggle throughout life. If a football player cannot find decent employment after the NFL, the problem is not with professional football. The problem is with the marketable skills the player possesses. Such a player likely received a full four or five year college scholarship. If he did not use that gift wisely, he's got no one to blame but himself.
Posted by: John Dewey at Sep 21, 2009 12:58:17 PM
