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From 8 Figures to Broke and No Freedom

Anyone who’s made tens or even hundreds of millions of dollars during their working days should expect to enjoy a retirement free of worry and freedom to go and do what they please, right? Not always.

What do the following athletes have in common?

  • Mike Tyson
  • Allen Iverson
  • Diego Maradona
  • Terrell Owens

Besides being at the top of their respective sports during their playing careers, these athletes also have the distinction of going broke after their time in the spotlight. Collectively, these athletes made and lost over $600,000,000.

What can we learn from these high-paid athletes who end up broke? High earnings guarantee nothing.

How do athletes or anyone who suddenly comes into a lot of money (i.e., lottery winners) lose it all?

Here are some adjectives that have been used to describe athletes who have lost it all:

Spoiled.

Out-of-touch.

Entitled.

Irresponsible.

Greedy.

Flashy.

Plain dumb.

Plain dumb may be harsh criticism, but when you find out an athlete like Vince Young once bought up every seat on a commercial flight to get some privacy, you realize dumb doesn’t even begin to describe this type of behavior.

For many athletes who were brought up poor, a lot of their financial behavior can be attributed to a lack of education. But what about the athletes who were raised in similar circumstances but were able to rise above the bad habits to develop healthy financial behavior? What was the difference?

The first step towards avoiding the fates of the Mike Tysons and Allen Iversons of the world is desire. An athlete or anyone else has to want to make a change or educate themselves to avoid the bad decision-making of the thousands of bankrupt athletes who came before them.

The NFL is very proactive in its financial education programs – even requiring rookies to attend mandatory financial literacy meetings early in their careers through its Rookie Transition Program.

Unfortunately, after their rookie seasons, many athletes don’t go any further to improve their financial literacy. One athlete who avoided the fate of many of his peers, former Arizona State and NFL quarterback Rudy Carpenter, had this to say about many of his former teammates and their attitudes towards financial meetings the league offered. “I would say, on the two (NFL) teams I was on in those three years, probably 30 meetings or so, there were maybe four to five guys on the entire team that would show up.”

Mistake #1 many athletes commit is failing to educate themselves. Mistake #2 is to leave it all in the hands of a so-called “professional” or “advisor,” many of them family members or family acquaintances who end up robbing the athletes blind or involving them in bad investments.

Carlos Dias Jr., a wealth manager who works with various professional athletes, believes mismanagement is a problem. “They don’t know how they’re invested. They don’t know what they’re doing. They don’t know if they’re being overcharged on fees. They have no clue,” Dias said. ‘They just have somebody that’s ‘their guy.”

Avoiding Mistake #1 by educating themselves would have helped many athletes avoid Mistake #2. Understanding investments is key to avoiding getting ripped off.

The first list of athletes is in the hall of fame for their playing careers, but the following list of athletes are in the hall of fame of their respective sports and the hall of fame of money management.

  • Roger Staubach
  • Magic Johnson
  • Shaq
  • Emmett Smith

What is special about these athletes?

Roger Staubach realized early on in his career that he would not be able to play forever. He would have to do something else that could generate income even as he continued playing quarterback for the Dallas Cowboys. During the offseason, Staubach decided to dive into commercial real estate development by interning with seasoned, successful investors. Eventually, he gained enough knowledge and experience to go out independently – even as he was winning Super Bowls. In his second career as a commercial real estate developer, he was so successful that he recently sold his company for $680M, making him the wealthiest NFL player ever, past or present.

With a net worth of $600 million, Magic Johnson has grown his wealth through his investment firm, Magic Johnson Enterprises, with holdings in a wide range of ventures over the years, including real estate, coffee shops, record labels, movie theaters, and sporting goods stores.

In March 2012, he became a partial owner of the Los Angeles Dodgers. In 2014, Johnson took part in the purchase of the Los Angeles Sparks of the WNBA.

What sets the Magic Johnsons apart from the Allen Iversons of the world?

Additional income streams are the key to financial independence, and ultra-wealthy investors like Roger Staubach and Magic Johnson gravitate towards cash-flowing investments with underlying assets that appreciate over time to create, grow and maintain wealth. Real estate and productive businesses like movie theaters and coffee shops are how financially independent athletes sustain their incomes after the music stops.

The biggest problem with athletes who go broke is they spend their salaries on the wrong assets. Mansions, Lambos, fur coats, exotic pets… these are all assets that only deplete wallets and not pad them. The successful athletes put their money in productive assets – assets that put money back in their wallets.

By investing passively – either by delegating day-to-day operations to someone else or leveraging the expertise and time of knowledgeable experts through an investment fund – successful athletes are able to generate multiple streams of income while achieving the financial freedom everyone desires and living their best lives now. The same can’t be said about the athletes who go broke and are forced to move back in with mama. Gone is the money as well as the freedom.

MIKE AYALA

MIKE AYALA

Mike Ayala has owned and operated mobile home parks since 2007, and has been active in construction and management since he was 15 years old. He graduated from the Associated Builders and Contractors 4-year project management program at age 22 and then became a licensed instructor. He is also the host of the Investing for Freedom podcast.