NFL player bankruptcy

by on September 20, 2009 at 7:32 am in Sports | Permalink

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.

Russ R September 20, 2009 at 8:15 am

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.

Max September 20, 2009 at 8:45 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…

Colin September 20, 2009 at 9:25 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.

anon September 20, 2009 at 9:56 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.

capitalistimperialistpig September 20, 2009 at 10:41 am

Stick that number in your rational expectations/Ricardian equivalence will you?

John Thacker September 20, 2009 at 12:25 pm

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?

anon September 20, 2009 at 1:26 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”.

anonymous September 20, 2009 at 4:40 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.

Jim September 20, 2009 at 8:28 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.

capitalistimperialistpig September 21, 2009 at 12:27 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.

audiokabel September 21, 2009 at 5:05 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.

Floccina September 21, 2009 at 9:08 am

BTW one could conclude from this that poverty in the developed nations is not caused by a lack opportunity, education or money.

John Dewey September 21, 2009 at 12:58 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.

MC September 21, 2009 at 2:10 pm

No, John Dewey, most NFL players do not play for 10 to 15 years. That might be the average for star quarterbacks, but linemen, running backs, linebackers, etc. do not last nearly that long.

Floccina September 21, 2009 at 3:00 pm

PS: A good education is what you got if you made a million dollars or more in 2 years and 2 years later you are broke.

John Dewey September 21, 2009 at 4:26 pm

MC: ” most NFL players do not play for 10 to 15 years. That might be the average for star quarterbacks, but linemen, running backs, linebackers, etc. do not last nearly that long.”

You are missing my point.

If the average “career” of NFL players is 3 years – and many NFL players remain in the league for 10 to 15 years – then the median “career” must be considerably less than 3 years. I’m sure you understand the difference between mean (average) and median.

It is not only star quarterbacks who remain in the NFL for over 10 years. Here’s a few other stars who have skewed the mean to be higher than the median:

Bruce Smith – DE – 18 years
Bruce Matthews – OL – 18 years
Reggie White – DE – 17 years
Steve Largent – WR – 14 years
Randall McDaniel – OL – 14 years
Jack Lambert – LB – 11 years
Tedy Bruschi – LB – 13 years
Morten Andersen – K – 22 years
Trey Junkin – TE – 19 years
Clay Matthews – LB – 18 years

I could find many more. If you understand “mean” and “median”, you will understand how the longevity of these players skews the mean, or average, longevity figure reported by Mark Steckback.

lemmy caution September 22, 2009 at 3:43 pm
joe September 27, 2009 at 9:46 pm

Its amazin how these educated, college graduates (most of them) go on to the NFL to earns a couple of millions and still go broke. How can a college graduate become broke?

ElChupacabra October 26, 2010 at 7:43 am

This is pretty weird.Why take only three years of their career when they can still play a lot more.I wonder why they fail to deal with a million dollars.You can’t say 1 million dollars is a small sum of money.best steroids

fletcherkit March 7, 2011 at 3:31 am

There are many NFL players who go bankrupt after retirement and this is just not right. I remember that in 2002, an ATP tournament organizer wanted Serena Williams to pay for tennis tickets. My point is that NFL should find a way to use the image of the retired players, so that this situation will never happen.

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