Financial Literacy: Athletes and bad investments!

By Stephanos Gregoriou, APC Sports Consulting, Nicosia, Cyprus

"Financial literacy" has become a very a popular term and concept these days.

It basically refers to having the right set of skills and knowledge that allows an individual to make informed and effective decisions with all of their personal financial resources.

Specifically, it is about spending within your means, investing wisely and saving for emergencies. Although these “rules” sound simple, many people find it hard to adhere to them, especially athletes.

It is hardly surprising to see people, without financial education, go bankrupt. However, it is a surprise to see multimillionaire athletes with financial advisors on their payroll losing all their money, ending up buried in huge debt, due to poor financial and investment decisions.

Some athletes cannot adapt to a simpler way of life: they cannot get away from the ‘sudden wealth’ trap, the “golden investment opportunities” and the extravagant lifestyle that accompanies a successful professional sports career. Statistics reveal that more than 1 out of 3 NFL players and 3 out of 5 Basketball players go bankrupt or fall into severe financial stress within just two years of retirement.

We now take a look at some of the worst investment decisions ever made by athletes, which provide a good lesson for younger generations.

Who said real estate investments are risk-free?

Scottie Pippen, Michael Jordan’s right-hand man, made more than $120 million during his career. Unfortunately, Pippen was not able to preserve the fortune he fairly earned during his outstanding sports’ career. Due to a series of bad investment decisions and poor planning, together with bad timing, it is now estimated that today Pippen is worth around US$20 million. Pippen’s worst investment decisions were the purchase of a $4.3 million Gulfstream private jet which, without his knowing, needed US$1 million in repairs just to get it off the ground. Additionally, he reportedly lost US$27 million in bad real estate investments. Yet, even with all of these terrible decisions, he is still enjoying a comfortable lifestyle.

If it was not fraud, it would probably be a waste of money

Tori Hunter, one of the greatest defenders in the MLB history, made millions of US dollars during his professional baseball career. However, Tori Hunter turned into a cautionary tale of financial mismanagement with his investment in a "too good to be real" opportunity. The product was an inflatable raft that sat below your furniture and could be inflated in case of a flood. For Tori, the idea seemed tremendous, but, in reality, it was a waste of money. Around 2004, Hunter invested US$70,000 into this peculiar invention. After the initial investment, the “inventor” came back and requested additionally US$500,000. At that point, Hunter realized something suspicious was going on. The investment turned out to be a scam with Tori losing his initial investment of US$70,000.

Another day, another business

After an incredible career in the NFL and CFL, Ismail Raghib got involved in business, failing in one after another. These included:

• the never-before-opened Rock ‘N’ Roll Café;
• a series of synergy cosmetics;
• a religious film;
• a COZ Records souvenir shop;
• a plan to create nationwide phone-card dispensers; and
• "It's in the Name" shop where tourists could buy framed calligraphy.

Unfortunately, Ismail lost a lot of money in failed businesses, but, at least, according to him he is still doing alright financially.

Big dreams require time and money and a lot of it

Red Sox legend, Curt Schilling, had the ambition to create the largest video game company that the world has ever seen and to become as rich as Bill Gates. In 2006, three years before his official retirement from baseball, he founded 38 studios. He initially invested US$5 million of his own assets to start the company and, as the company grew, he threw in all of his savings, a total of US$50 million. Other investors contributed a total of US$5 million to US$10 million, but most of the funding came from a US$75 million guaranteed loan from Rhode Island taxpayers' money in exchange for moving the studio to the province and creating 450 jobs by 2013. Mismanagement, inflated wages, no product and no revenue were some of the reasons why the company could not deliver on its promises and ambitious goals. As a result, the Red Sox legend filed for bankruptcy in 2012, losing US$50 million and leaving hundreds of employees without a job.

Younger athletes should be alerted by bad investments made by many athletes in the past, who have found themselves broke later in life. Spending, rather than saving, is a losing proposition. Regardless of your net worth, you must play an active role in the management of your financial affairs.

If you consider yourself to be a bad money manager, it is never too late to change that and seek professional help!

For more information on financial literacy programs and how athletes can become investment prepared and thus avoid bad investment deals, log onto ‘www.apc-sport.com’.