March 23, 2009
How (and Why) Athletes Go Broke
Recession or no recession, many NFL, NBA and Major League Baseball
players have a penchant for losing most or all of their money. It
doesn't matter how much they make. And the ways they blow it are
strikingly similar
PABLO S. TORRE
What the hell happened here? Seven floors above the iced-over Dallas
North Tollway, Raghib (Rocket) Ismail is revisiting the question. It's
December, and Ismail is sitting in the boardroom of Chapwood
Investments, a wealth management firm, his white Notre Dame snow hat
pulled down to his furrowed brow.
In 1991 Ismail, a junior wide receiver for the Fighting Irish, was the
presumptive No. 1 pick in the NFL draft. Instead he signed with the
CFL's Toronto Argonauts for a guaranteed $18.2 million over four years,
then the richest contract in football history. But today, at a private
session on financial planning attended by eight other current or onetime
pro athletes, Ismail, 39, indulges in a luxury he didn't enjoy as a
young VIP: hindsight.
"I once had a meeting with J.P. Morgan," he tells the group, "and it was
literally like listening to Charlie Brown's teacher." The men
surrounding Ismail at the conference table include Angels outfielder
Torii Hunter, Cowboys wideout Isaiah Stanback and six former pros: NFL
cornerback Ray Mickens and fullback Jerald Sowell (both of whom retired
in 2006), major league outfielder Ben Grieve and NBA guard Erick
Strickland ('05), and linebackers Winfred Tubbs ('00) and Eugene
Lockhart ('92). Ismail ('02) cackles ruefully. "I was so busy focusing
on football that the first year was suddenly over," he says. "I'd
started with this $4 million base salary, but then I looked at my bank
statement, and I just went, What the...?"
Before Ismail can elaborate on his bewilderment—over the complexity of
that statement and the amount of money he had already lost—eight heads
are nodding, eight faces smiling in sympathy. Hunter chimes in, "Once
you get into the financial stuff, and it sounds like Japanese, guys are
just like, 'I ain't going back.' They're lost."
At the front of the room Ed Butowsky also does a bobblehead nod. Stout,
besuited and silver-haired, Butowsky, 47, is a managing partner at
Chapwood and a former senior vice president at Morgan Stanley. His
bailiwick as a money manager has long been billionaires,
hundred-millionaires and CEOs—a club that, the Steinbrenners' pen be
damned, still doesn't include many athletes. But one afternoon six years
ago Butowsky was chatting with Tubbs, his neighbor in the Dallas suburb
of Plano, and the onetime Pro Bowl player casually described how money
spills through athletes' fingers. Tubbs explained how and when they
begin earning income (often in school, through illicit payments from
agents); how their pro salaries are invested (blindly); and when the
millions evaporate (before they know it).
"The details were mind-boggling," recalls Butowsky, who would later hire
Tubbs to work in business development at Chapwood. "I couldn't believe
what I was hearing."
What happens to many athletes and their money is indeed hard to believe.
In this month alone Saints alltime leading rusher Deuce McAllister filed
for bankruptcy protection for the Jackson, Miss., car dealership he
owns; Panthers receiver Muhsin Muhammad put his mansion in Charlotte up
for sale on eBay a month after news broke that his entertainment company
was being sued by Wachovia Bank for overdue credit-card payments; and
penniless former NFL running back Travis Henry was jailed for nonpayment
of child support.
In a less public way, other athletes from the nation's three biggest and
most profitable leagues—the NBA, NFL and Major League Baseball—are
suffering from a financial pandemic. Although salaries have risen
steadily during the last three decades, reports from a host of sources
(athletes, players' associations, agents and financial advisers)
indicate that:
• By the time they have been retired for two years, 78% of former NFL
players have gone bankrupt or are under financial stress because of
joblessness or divorce.
• Within five years of retirement, an estimated 60% of former NBA
players are broke.
• Numerous retired MLB players have been similarly ruined, and the
current economic crisis is taking a toll on some active players as well.
Last month 10 current and former big leaguers—including outfielders
Johnny Damon of the Yankees and Jacoby Ellsbury of the Red Sox and
pitchers Mike Pelfrey of the Mets and Scott Eyre of the
Phillies—discovered that at least some of their money is tied up in the
$8 billion fraud allegedly perpetrated by Texas financier Robert Allen
Stanford. Pelfrey told the New York Post that 99% of his fortune is
frozen; Eyre admitted last month that he was broke, and the team quickly
agreed to advance a portion of his $2 million salary.
The Wall Street meltdown is only the latest threat to athletes'
financial health. "Athletes have a different set of challenges from,
say, entertainers," says money manager Michael Seymour, the founder of
Philadelphia-based UNI Private Wealth Strategies. "There's a far shorter
peak earnings period [in sports] than in any other profession, and in
many cases they lack the time and desire to understand and monitor their
investments."
In 2005 Butowsky began inviting sports figures—some well off, some
not—to what he calls his financial "boot camps," elementary sessions
that go from defining a bond to explaining a diversified portfolio as
the equivalent of a balanced meal. There is no charge for the sessions
or pressure to sign up with Chapwood, according to Butowsky, who calls
this service his "mitzvah to sports." The financial adviser, who helps
counsel Thunder forward Kevin Durant pro bono, hopes merely that the
sessions will reflect well upon Chapwood. Such goodwill is easy to earn:
The bar for radically improving the financial habits of pro athletes,
Butowsky acknowledges, is low enough for a toddler to trip over.
"Oh, I've seen it all," says veteran agent Bill Duffy, whose clients
include Suns guard Steve Nash and Nuggets forward Carmelo Anthony. "A
pro athlete's money is supposed to outlive his career. Most players
never get that."
Why? Where do they go wrong?
full:
http://vault.sportsillustrated.cnn.com/vault/article/magazine/MAG1153364/index.htm
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