Jack Johnson, a professional hockey player who earned nearly US $20M in his career, just filed for bankruptcy. Johnson’s situation is rather specific, but he is not the first professional athlete to be in the red, and he certainly is not going to be the last either.
We will never, most of us, make millions of dollars per year. Therefore, the complete stupefaction of people is understandable when it becomes known that professional athletes, earning such astronomical revenues, filed for bankruptcy. Merely on the account of envy, one will then often react by blaming them, and by assuming that they were living above their means. However, contrary to common belief, the reasons of the bankruptcy of these millionaires are not always the result of superfluous expenses.
Jack Johnson, a victim of his parents
Jack Johnson, a 27-year-old defenseman, plays for the Columbus Blue Jackets in the National Hockey League (NHL). In 2011, he signed a seven-year contract under which he was to earn US $30.5M. Three years before, in 2008, he had left his agent and turned the control of his personal finances to his parents. Unfortunately for him, his parents would have betrayed his trust, and used his money for their own ends.
Jack Johnson had signed a power of attorney that granted his parents the full management of his finances while he was to concentrate on his hockey career. According to Aaron Portzline, of the Columbus Displatch, Johnson’s parents would have made, on behalf of their son, a string of risky loans at high interest rates, backing these loans on the future gains of the hockey player. They would have used this scheme, always without Johnson’s knowledge, to, amongst other things, acquire cars and a luxurious residence in California, all for their own use.
When he filed for bankruptcy, Jack Johnson claimed assets of less than US $50K and debts of more than US $10M. Since then, he has cut all ties with his parents.
Improper advices and other reasons of bankruptcy
Jack Johnson has been the victim of a financial scam, a danger facing many professional athletes. The main factors bringing such athletes to file for bankruptcy include:
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Frauds and scams
Professional athletes are easy targets for a fraudulent financial advisor. Given their high wages and, in most cases, their limited experience in financial matters, it often happens that such a white collar criminal seeks to gain their trust. When one actually succeeds, he extorts them millions of dollars.
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Responsibilities regarding the family and friends
With their special status, professional athletes sometime strongly feel that they have the duty to provide for their family. The duty to buy a house for their parents and a car for their sisters or brothers. The duty to pay for a holiday for their whole family, including their grandparents, their aunts and uncles, their cousins, etc. The duty to lend money to their friends in need, even when they know that they will probably never be reimbursed. With high wages, they furthermore feel that they must support their social network. Millions of dollars may be quickly lost that way.
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Keeping up with the Joneses
There is undoubtedly a gap when one considers the professional athletes’ wages in the various professional sports circuits. For example, this year, the professional hockey player Sydney Crosby will earn US $12M, while his teammate Zach Sill will make US $550K.
Even though a half a million dollar salary is not to be despised, professional athletes who earn such wages must show considerable restraint. Considering that, day after day, they work alongside multimillionaires, they must resist the temptation to try and have the same lifestyle. Their house needs to be smaller, their car, not as prestigious, their wardrobe, not as flamboyant, etc. Unfortunately, just like the population in general, some professional athletes also try to “keep up with the Joneses”.
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Career length
Generally speaking, the career of a professional athlete is rather short. The average length of a career within the four most important professional sports circuits in North America are as follows:
• 5.6 years in the National Hockey League (NHL);
• 5.6 years in the Major League Baseball (MLB);
• 6 years in the National Basketball Association (NBA);
• 3.3 years in the National Football League (NFL).Financial planning rules are therefore a crucial element that professional athletes should follow to avoid being penniless at retirement. However, since they join a professional circuit before turning 25, saving is obviously far from being at the top of their priority list at such an age.
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Bad investments
Professional athletes are frequently invited to make various investments. Sometimes, it’s to launch a new chain of restaurants, other times, it’s to participate in the development of some invention, for example. However, in the ESPN documentary Broke, the financial planner Ed Butowsky states that, on average, only one such investment out of thirty eventually becomes profitable.
Other reasons of financial problems experienced by professional athletes notably include:
- costly separations;
- health problems caused by activities associated with their sport;
- lack of maturity;
- sometimes, an unbearable lifestyle.
Disturbing statistics
A study published five years ago in Sports Illustrated reveals that 78% of professional football players file for bankruptcy or face debt problems within less than two years after their retirement. It also notes that 60% of the former NBA players become broke in less than five years after they quit their sport.
Disturbing as they may be, these statistics nevertheless lead to at least one good news. The professional circuits, who became aware of this reality, are now integrating means to make sure that their athletes are aware of the situation. Furthermore, they provide them with professional resources in order to guide them and answer their questions.
When considering the cases of Jack Johnson and all other professional athletes who file for bankruptcy, one must also bear in mind that they are, beyond their special status, human beings. Therefore, they are liable to experience, like anyone, financial difficulties. They have the right, in the same way as everyone who goes through such circumstances, to be treated with respect and dignity, without ever feeling that they are wrongfully judged.