Finance Uncategorized

Why some athletes go bankrupt

Why do NBA and NFL players go bankrupt more often than those in the NHL and MLB?

(Steve Mitchell, USA TODAY Sports)
(Steve Mitchell, USA TODAY Sports)

The value of professional athlete contracts and endorsements continues to rise, yet so do the number of athletes who go bankrupt: 78 percent of NFL players are facing serious financial distress within two years of retirement, while 60 percent of NBA players face the same conditions within five years.

The Fields of Green spoke with Glen Bayless, a financial advisor with RBC Wealth Management a U.S.-based subsidiary of the Royal Bank of Canada. Bayless’ Duluth-based office is one of many that makes RBC Wealth Management the NHL’s most successful wealth management bank, with at least 25 percent of active players as clients.

The Sports Professionals Group is RBC’s network of athlete-focused advisors, meeting once a year during the NHL Draft. Athletes are a good target for wealth management programs because they are young high net-worth individuals who are in a concentrated market, increasing the likelihood of client loyalty and easy expansion among players via word-of-mouth.

(John E. Sokolowski-USA TODAY Sports)
(John E. Sokolowski-USA TODAY Sports)

Bayless’ primary focus with new athletes is “setting up spending discipline and sticking to it. If they don’t have the money for something,” he explains, “I’m the guy they have to get through, and they better have a good reason for it.” He also relies on RBC’s Canadian roots which provide a seamless account and currency transfer program, an important tool for players traded to or living in Canadian cities.

Bayless represents NHL, MLB and NFL athletes, and has a clear explanation for why hockey and baseball leagues have decreased rates of bankruptcy: “guys in the NHL and MLB pay their dues” through the minor and development leagues. “They come out of [a development] league having made nothing. It’s a good wage, but it’s kind of a ‘normal’ person’s wage,” meaning they simultaneously develop their budgeting and athletic skills.

(Steven Bisig-USA TODAY Sports)
(Steven Bisig-USA TODAY Sports)

A quick look at the athlete landscape today proves this. Mike Trout made only roughly $500,000 during each of his first two seasons with the Los Angeles Angels of Anaheim despite finishing as back-to-back AL MVP runner-up. As this season’s presumptive MVP, Trout is doing only slightly better: one year, $1 million. Some NHL players even have two-way contracts, where they receive a significantly lower salary should they be designated to their respective minor leagues, making conservative budgeting even more important.

Financial advisors like Bayless are only one cog in the athlete advising machine, but while agents and trainers may leave post-retirement, advisors are in for the long-haul. As Bayless tells his clients, “my job is to make you as successful after your career as you were during it.”

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