Once the youngest player to have won the Wimbledon men’s singles championship, 49-year-old German-born tennis star Boris Becker was declared insolvent by a British Bankruptcy and Companies Court at the end of last month.
Becker, who, according to news reports, at one time boasted an estimated personal fortune of over £100 million (R1.7 billion), is not the first professional athlete to become a victim of poor financial planning.
Henry van Deventer, the head of wealth strategy at Old Mutual Wealth, says that, when it comes to securing wealth, the principles are universal.
“When you consider their great success, it’s difficult to believe what happens to many pro-athletes and their money. However, there are no super financial solutions for sport superstars. The principles of securing wealth with sound financial advice still apply – if not more so when earnings escalate drastically.”
This sentiment is confirmed by figures released by Sports Illustrated magazine in March 2009, which showed that 78% of American National Football League players experience financial stress or go bankrupt within two years of retiring from the game. And about 60% of former American National Basketball Association players are broke within five years of retiring from the sport.
Van Deventer says that sports stars are particularly susceptible to bad financial decisions and unscrupulous advice, because their earning power tends to peak in their youth, when their financial acumen is not fully developed.
“Sports stars have the buying power to purchase what their hearts desire, but this becomes addictive. Studies have shown that buying ‘fun stuff’ increases happiness levels, but this happiness is short-lived and requires one to keep buying better stuff to maintain this ‘high’. This is known as the ‘hedonic treadmill’ and is a sure-fire way to never having enough money to be happy and falling into a bottomless spiral of expenditure.”
Many sports stars do not consider “life after the fame”, says Van Deventer. “If an athlete retires at 35 after, say, 15 years of making money at their peak, they may have as many as 65 years of ‘retirement’ to fund from just 15 years’ worth of income.
“In a relatively short period, professional athletes need to generate sufficient wealth to sustain their standard of living for the rest of their lives.
“A lifestyle financial plan thus is essential, as it takes an individual’s current situation into consideration, and focuses on specific lifetime goals and the steps that need to be taken to achieve these goals.”
Van Deventer says that only once this plan is in place and investments are “locked away” and prudently managed should someone start considering enjoying their wealth.
He says that developing a lifestyle plan is particularly important for professional athletes who have multiple streams of income that may fluctuate from month to month.
“They may receive a base salary and a performance bonus from their club, as well as revenue from sponsorships and public appearances. And when earnings escalate dramatically over a short period, it’s easy to be tempted to overspend on status symbols. But spending more money than you earn is a universal recipe for bankruptcy. For instance, research by the National Endowment for Financial Education showed that 70% of those who receive a large windfall of money end up going bankrupt a few years later.”
Van Deventer says: “The most important lesson that we can take from financial planning for sports stars is the need for successful wealth and investment management, as well as sound lifestyle-orientated financial planning. With this, individuals can ascertain if they won’t have enough money at retirement to secure the lifestyle they have become accustomed to at the end of their career. If there will be a shortfall, it is better to know earlier so that steps can be taken to close this gap, even if it means downscaling slightly.”