OT: 60% of Players Broke 5 Years After Retiring

[Louis]

The NBA Players’ Association met with the Toronto Raptors recently to discuss financial prudence among players and during that meeting cited a statistic that scared the heck out of most of the team. It was said that 60% of NBA players go broke after only 5 years of retirement! Are you kidding me?!? That statistic however is said to be an educated estimate and some players actually have a hard time believing it. The statistic could be used as a scare tactic, but it is definitely something these players should be paying attention to.

“Sixty percent is a ballpark. But we’ve seen a lot of guys who’ve really come into hard times five years after they leave the league,” said Roy Hinson, the former NBA forward who’s a representative for the players’ association. “The problems are, for a lot of guys, they have a lot of cars, they have multiple homes, and they’re taking care of their parents. They’re taking care of a whole host of issues. And the checks aren’t coming in anymore.”

“Sometimes you can stop the bleeding, and other times you can’t stop the bleeding,” said Hinson, who added that many players associate with “too many ‘yes’ people.”

We’ve all heard the stories of NBA players owning 15 cars and 5 vacation homes. The sad part is most of these players lack educations and support outside of their posses and families. Most of these players could use some legal guidance as well as financial guidance but seem at times to not be so willing. The players’ association has continually proposed a financial firm that offers players free 2nd opinions on their financials, but getting these players to act has been a challenge.


Back in October, Jason Caffey, who made an estimated $29 million during his eight-year NBA career, was in bankruptcy court seeking protection from his creditors, among them the seven women with whom he fathered eight children.

Shaquille O’Neal of the Miami Heat was in the news recently with a court document representing his annual income as well as his annual and monthly spending. The “Diesel” pays $156,000 a month just in rent and mortgages on the various properties he owns or leases and another $1500 just for his cable TV bills! Of course Shaq is on another level than most other NBA players with the simple fact that he pulls in $20 million a year in salary but this still shows you a great example of the kind of money players are capable of spending.

Remember former Chicago Bull, 6 time NBA Champion, Michael Jordan running mate and top 50 player of all-time Scottie Pippen? Just 2 years removed from retirement, Pippen was back in the news looking to make an NBA comeback to a team that was a title contender. NBA teams laughed at a Pippen return which was later rumored to be based on his poor financial standing. The rise and fall of Pippen was so drastic that he was seen overseas playing 2 games for Finnish powerhouse, Helsinki ToPo to make a little cash.

Besides the fact that players fork out all of this dough for houses, cars and cable bills you still can’t forget that many of them have multiple children from multiple women. This is yet another expense that must be accounted for and child support is one of those bills that doesn’t go away for at least 18 years. Again, you can see how 5 years removed from an NBA career with 2-3 child support payments a month and you could run out of millions pretty damn fast.

Jason Kapono of the Toronto Raptors expressed his thoughts after the players’ association presented their materials. “Going above and beyond isn’t worth it. I don’t want to be a part of that 60% that’s in trouble five years down the road. It’s a short career and I’m blessed to be earning a great salary playing basketball. But if it ended, my contract only takes me to age 30. Life expectancy is 80-plus. So I’ve got another 50 years. Do I really need to buy another car?”

http://lebasketbawl.blogspot.com/2008/01/60-of-nba-players-broke-after-5-years.html

 

[abomb]

Great article. Kapono has a good head on his shoulders.

I've enjoyed the stories about Bynum and Durant living with their families and not going crazy.

The agents should take a more active role in setting up annuities and other instruments for the player to ensure a lifetime of riches.

 

[elindholm]

It's a particular problem for minimum-salary players. A million dollars a year is a huge amount, of course. But when you lose half of it immediately to taxes, earn that amount for only a few years, and have no other marketable skills, it starts looking like not very much at all. To think of it another way, someone who earns $60,000 for 50 years ends up pulling in $3 million, but he gets to keep more of it, plus his salary will probably go up over time. That's a much better financial situation than making $4 million before you turn 25 and then trying to spend the rest of your life living off of it.

 

[Ouchie-Z-Clown]

the jason caffey's of the world disgust me. he made $29+ million and now he's trying to shirk his responsibilities to 7 children? shameful. just shameful. if it's true. i'll grant the possibility that this report is possibly not the whole story or completely accurate, but if it is . . . wow.

 

[MigratingOsprey]

i disagree with that completely - if properly managed it's much easier to live off that early lump sum

say a guy makes $1M per year, loses 40% due to taxes and wants to live a comfortable lifestlye at say $200k per year

that gives $400k they put in the bank that year. Say they get a minimum return of 3% per on this (which is the lowest end of the bucket and there is no reason to pull this little interest on such a large sum.........) - they are now at $412k from that year

next year they do the same thing - now they add another $400k to that $412 giving them $812k - add another 3% to this and they are sitting at $836,360 in the bank.

They get a 3rd year in the deal - once again they pay a large portion of taxes, live off $200k and put $400k away. This now gives them about $1.236M in the bank - another 3% earned jumps this up to $1,273,450.

This guy isn't that great of a player and only has one more year in him. Same scenario. So now there is $1,673,450 in the bank. Add another 3% and he retires with $1,723,654 in the bank.

Let's say he's really terrible at investing and only continues to get 3% per annum. This would give the player a salary of $51,709 for the rest of their lives without diluting their base cushion. Capital gains taxes would eat that away at let's say 20% leaving a haul of around $41,300.

So with that cushion they are already living better than most. Not to mention they'll have some level of NBA pension to supplement this.

Now at the ripe old age of 26 (because you weren't good enough to stick, you obviously took advantage of that whole free college thing and got a degree ,right?!) you can start your professional career

Basketball is in your blood so you teach PE and coach. This will start you out at a little over $40k per year.

So now you are living like everyone else - just trying to chase an income - but you have a combined salary of $80k - $100k per year for just teaching gym and coaching at the HS level (this is combined with the minimal rate of return mentioned earlier)

i'd much rather be in that position

 

[Shane]

WHat do they consider broke? Dont the NBA players who retire get a retirement check from the league just like the NFL?

 

[bko32]

Problem is peer pressure. These marginal players may be making $1M per year, but they see teammates making 5-10 times that amount and they want to keep with those guys in terms of lifestyle.

It's like real life. There are regular, white collar working people making six figures that struggle financially because they are trying to keep up with their peers. It doesn't matter how much you make, it's all about how much you spend. For some people/players, they simply cannot control their urge to "keep up with the Jone's"

 

[Dan H]

A guy I know has a friend who played for 2-3 years in the NBA as a 12th-man type player. I think he was a third-string PG for the Hornets back in the 90's.

But this guy pretty much put all of his salary checks in the bank and lived off of the per diem the players got on road trips, LOL. I guess after his career was up he had just shy of a million bucks saved up, in addition to a free college degree. Nice little safety cushion to start your career with, if you're smart.

 

[bko32]

A guy I know has a friend who played for 2-3 years in the NBA as a 12th-man type player. I think he was a third-string PG for the Hornets back in the 90's.

But this guy pretty much put all of his salary checks in the bank and lived off of the per diem the players got on road trips, LOL. I guess after his career was up he had just shy of a million bucks saved up, in addition to a free college degree. Nice little safety cushion to start your career with, if you're smart.

Unfortunately, there aren't more of guys like this in pro sports and life in general. Matt Bonner used to take public transportation everywhere he went when he played in Toronto for the Raptors. I don't even think he owned a car at the time.

 

[Ouchie-Z-Clown]

i disagree with that completely - if properly managed it's much easier to live off that early lump sum

say a guy makes $1M per year, loses 40% due to taxes and wants to live a comfortable lifestlye at say $200k per year

that gives $400k they put in the bank that year. Say they get a minimum return of 3% per on this (which is the lowest end of the bucket and there is no reason to pull this little interest on such a large sum.........) - they are now at $412k from that year

next year they do the same thing - now they add another $400k to that $412 giving them $812k - add another 3% to this and they are sitting at $836,360 in the bank.

They get a 3rd year in the deal - once again they pay a large portion of taxes, live off $200k and put $400k away. This now gives them about $1.236M in the bank - another 3% earned jumps this up to $1,273,450.

This guy isn't that great of a player and only has one more year in him. Same scenario. So now there is $1,673,450 in the bank. Add another 3% and he retires with $1,723,654 in the bank.

Let's say he's really terrible at investing and only continues to get 3% per annum. This would give the player a salary of $51,709 for the rest of their lives without diluting their base cushion. Capital gains taxes would eat that away at let's say 20% leaving a haul of around $41,300.

So with that cushion they are already living better than most. Not to mention they'll have some level of NBA pension to supplement this.

Now at the ripe old age of 26 (because you weren't good enough to stick, you obviously took advantage of that whole free college thing and got a degree ,right?!) you can start your professional career

Basketball is in your blood so you teach PE and coach. This will start you out at a little over $40k per year.

So now you are living like everyone else - just trying to chase an income - but you have a combined salary of $80k - $100k per year for just teaching gym and coaching at the HS level (this is combined with the minimal rate of return mentioned earlier)

i'd much rather be in that position

lol, though that's a great examination of the power of compounding interest, and COMPLETEY relevant to the conversation at hand, i think many nba players would consider $80,000 to be "broke" and would likely fritter that away "making it rain."

 

[Ouchie-Z-Clown]

WHat do they consider broke? Dont the NBA players who retire get a retirement check from the league just like the NFL?

if it's a "retirement check" from a tax qualified plan they may be able to get the cash immediately, but if they're younger than age 59 1/2 they will not only be incurring ordinary income taxes on the distributions, but also an additional 10% excise tax. so i would hope most would not break into their nba pension/401(k) until they reach 59 1/2.

 

[KloD]

WHat do they consider broke? Dont the NBA players who retire get a retirement check from the league just like the NFL?

I'm pretty sure no.

 

[Gaddabout]

A lot of these players provide for their entire families. They buy houses or provide considerable support for their parents, siblings, extended family. We can talk about all the silly, garish stuff players spend their money on, but I think the bigger reality is a lot these kids have a huge financial burden on their shoulders before they even get into the league. Add to the fact that so few can even fathom how thinly a million dollars can be spread in the real world -- no concept of housing prices, depriciating value of non-durable goods, safe investment vs. wild speculation/gambling.

Then again, if they go to school on scholarship and graduate they've already been handed $100,000 to $400,000 they better learn to appreciate.

 

[KloD]

I had an long time NBA player living temporarily in a house above my apartment (my apt. was the ground floor and the house was floors 2-4). He and his pals were loud and often I could hear their conversations from my living room. I'll never forget when some of the team was over there and they came up with this plan to play the powerball together (it was over 200mil I believe). All of them pitched in $2500 and would share the winnings (if there was any). A few days later I heard a couple of them bitching about how they didn't win squat. With retirement ideas like that, no wonder some of them are broke.

 

[nowagimp]

"A fool and his money are soon parted". The NBA sure does seem to have its share of fools, many with a college education(apparently). I certainly dont feel that these athletes have actually earned their money, certainly not that much. Its just like those overpaid hollywood/entertainment types, they dont deserve the money they are paid either. Its also hard to feel sorry for a guy that wins the lotto and blows the money. Should the lotto commission be required to educate lotto winners about financial planning? Really hungry children(not sprewells), now thats different, there is something to worry and be concerned about. These guys have plenty of money to get legit financial advice, I dont hold the NBA responsible for their plight.

 

[mathbzh]

i disagree with that completely - if properly managed it's much easier to live off that early lump sum

say a guy makes $1M per year, loses 40% due to taxes and wants to live a comfortable lifestlye at say $200k per year

that gives $400k they put in the bank that year. Say they get a minimum return of 3% per on this (which is the lowest end of the bucket and there is no reason to pull this little interest on such a large sum.........) - they are now at $412k from that year

next year they do the same thing - now they add another $400k to that $412 giving them $812k - add another 3% to this and they are sitting at $836,360 in the bank.

They get a 3rd year in the deal - once again they pay a large portion of taxes, live off $200k and put $400k away. This now gives them about $1.236M in the bank - another 3% earned jumps this up to $1,273,450.

This guy isn't that great of a player and only has one more year in him. Same scenario. So now there is $1,673,450 in the bank. Add another 3% and he retires with $1,723,654 in the bank.

Let's say he's really terrible at investing and only continues to get 3% per annum. This would give the player a salary of $51,709 for the rest of their lives without diluting their base cushion. Capital gains taxes would eat that away at let's say 20% leaving a haul of around $41,300.

So with that cushion they are already living better than most. Not to mention they'll have some level of NBA pension to supplement this.

Now at the ripe old age of 26 (because you weren't good enough to stick, you obviously took advantage of that whole free college thing and got a degree ,right?!) you can start your professional career

Basketball is in your blood so you teach PE and coach. This will start you out at a little over $40k per year.

So now you are living like everyone else - just trying to chase an income - but you have a combined salary of $80k - $100k per year for just teaching gym and coaching at the HS level (this is combined with the minimal rate of return mentioned earlier)

i'd much rather be in that position

You forgot that even a terrible NBA player will find a contract somewhere in Europe (he would never have been an NBA player if he was that bad) and let his money untouched for 5 more years. I think about players like Moiso who is playing in one of the best European team or even to Larry Stewart who is playing in my hometown Quimper in a 2nd division of the french league 11 year after his last NBA season (and it is not for free).

 

[Black Jesus]

i wonder what percent of that 60% is from out of high school players...

 

[sly fly]

lol, though that's a great examination of the power of compounding interest, and COMPLETEY relevant to the conversation at hand, i think many nba players would consider $80,000 to be "broke" and would likely fritter that away "making it rain."

Lol... making it rain "Pac-Man-style".

 

[BeeBeard]

What a tragedy. If these guys had just dumped HALF of an annual salary into something super-conservative, like tiered CD's, then they could live large off the interest alone for the rest of their lives. I guess throwing some D's on your Caddy is sexier than prudently investing and budgeting your money, but this is just unreal. Thanks for the link.

 

[devilalum]

 

[Bufalay]

lol, though that's a great examination of the power of compounding interest, and COMPLETEY relevant to the conversation at hand, i think many nba players would consider $80,000 to be "broke" and would likely fritter that away "making it rain."

if you're gonna blow all your money, that's the way to do it.