I follow sports more than most people, but less than some. One of the most fascinating areas of sport for me is how quickly professional athletes can burn through their fortunes – and end up completely broke after their careers are over.
With most professional athletes, a five year career is all they get. Imagine yourself after you graduated high school or college and knowing up front that your best earning years are coming up. Wouldn’t you be putting something away for the future rather then spending that dough on assets that are devalued the second you buy them, such as bouncy cars and jewelry?
Unfortunately, many, many professional athletes do nothing of the sort – instead they get involved with extra-marital affairs (talk about expensive), purchase enormous houses that are fully staffed, have fleets of expensive vehicles, boxes of jewelry, closets full of the finest clothing and shoes, boats, and on and on.
I don’t feel sorry for these people one bit, but am amazed that the pattern gets repeated over and over into infinity.
But athletes aren’t the only seemingly stupid ones. This is an interesting story about a relatively normal dude that inherited $14mm (he got to keep $10mm after taxes).
Here is what stuck out at me right off the bat:
Their garage held three stylish cars, including a yellow Aston Martin; they owned three horses, one that cost $173,000; and Mr. Martin treated his wife, Kate, to a birthday weekend at the Waldorf-Astoria, with dinner at the “21” Club and a $7,000 mink coat.
All of these things are GARBAGE. The cars were worth half the value the second he drove them off the lot, the horse the same, and the dinner, hotel reservation, and coat are gone.
So professional athletes aren’t the only ones that make stupid choices when showered with a sudden windfall of money. It happens to all classes, all colors. People are just stupid, I guess.
I am not saying you should be a hermit and buy nothing to please you, but spending lavishly all over the world is an insane plan. In today’s world $10mm isn’t a ton of money. Just the stupid horse costing $173k ate up 1.7% of the inherited money right off the bat.
Here is why I am in such a tizzy over this pattern that I witness repeatedly.
When I have a problem with my car, I have to take it in. I know nothing about cars, most likely never will, so I have to pay someone else to do it. If you knew nothing about financial investing, why on earth wouldn’t you want to head RIGHT OVER to a financial advisor (getting an attorney wouldn’t be such a bad idea either with that sort of cash on hand) and PAY HIM OR HER to manage your money? It is painfully apparent to almost everyone that if you spend money at a breakneck pace on bad investments like cars, jewelry, horses and your stupid posse that you will RUN OUT OF MONEY.
It is almost like there is some sort of disconnect between people who inherit or earn large sums of money and the real world. And it seems like they don’t think the party will ever end. Sadly, I read over and over that the party does indeed end – and rather suddenly and in a shocking fashion for all involved.
Another sad side story to this is to imagine what all that wealth could have produced on the charity front. Then again, it is likely that any economic activity would have been more beneficial to society than the quick and ruthless consumption of massive amounts of money on assets that are devalued by over half or more the second they are purchased.
Cross posted at LITGM.
‘this pattern that I witness repeatedly’ – do you witness this personally or through the ‘news’. If through the news, remember it was selected to excite your interest not as a representation of normal outcomes.
Sites like the Smoking Gun and others routinely post bankrupcty paperwork on professional athletes.
This is kind of a worrisome tone. The meta-context savors of socialism or at least paternalism.
Profligate spending on foolishness is a luxury good. OR, what you and I consider foolishness others consider worthwhile ways to enjoy their wealth, or potential investments.
Much as it may offend us to see the decisions others make, as long as they’re not hurting anyone but themselves, it’s not our call.
I guess there’s no call in your post to use the power of the state to enforce but the idea that there is some right use of the money and that deciding what it is should be left to professionals is awfully close to the idea that there is one right price and that state professionals should be telling us what it is.
As I understand it, there are horses which would pay that 173K back very quickly. Knowing which ones is a matter of understanding horse races and horse breeding. Whether it’s a bargain or not, whether it is a reasonable investment or not, is a matter of opinion, information, and a bit of luck. Sure, maybe he bought the wrong one, I don’t know. But merely complaining that he bought a horse is like complaining that he spent 173K on stock in a “stupid computer company.”
While I admit I’ve never personally witnessed it, I’ve read of many newly well-off people who considered themselves expert writers, musicians, actors, etc. who hired professionals and lost everything or nearly everything. In most cases they seem to have been left by the professionals in the unenviable position of being broke AND on the hook for a large bill to the IRS.
As a general case, “leave it to the professionals” doesn’t strike me as a very compelling piece of advice. In my opinion, professionals are very useful and important but need close oversight and management. You can delegate actions but not goal setting. I have many times had to argue with them, over-rule them, and even fire them because they won’t get in line with the over arching goals.
fwiw.
When they go bankrupt with a mountain of debt, it costs you and me John, in one way or the other.
I won’t tell anyone what they can or can’t do, but it just seems like such a waste.
My theory is that one who is already frugal, prudent and used to working for what they get will have all of their good qualities enhanced by coming into a lot of money. But one who lacks those qualities will sink further into a foolish and irresponsible lifestyle. The problem for athletes is they get so much money at a young age before they have learned any of the lessons that life has to teach. They get money before they get wisdom. Of course, some never wise up and money will always present a danger for their future happiness.
It’s not surprising that many if not most world class athletes squander millions and end up broke. It is surprising that some don’t. The sort of family they come from matters although it’s no guarantee.
Speaking of happiness, money may not be able to buy happiness but can work on it for good or ill. An already happy person may have their happiness enhanced by the getting of money, but an unhappy person will likely remain so or sink further in that direction. A big bag of money is a mixed bag, requiring wisdom.
People who luck into large piles of money usually squander it. Winning that money with paper lottery ticket, or a genetic lottery ticket like extreme athletic prowess, have zero necessary correlation with other virtues and knowledge and skills that would allow the winner to use that money in a way that non-winners would consider to be prudent or even sane. But, so what? Easy come, easy go. Their creditors took their chances, and the money bonfire was fun while it lasted for the people at the party. This sort of thing is only relevant to a tiny number if people, who happen to have media visibility. They end up more or less where they would have been if the bonanza never happened.
The ballers are one thing, they are simply following their cultural script. The simply do not have any idea that there might be a different way to handle things, and if one were presented to them, they would reject it out of hand as being from an alien and hostile culture. they were doomed before they were born.
The baleful eye should be cast at the institutions that create and market their “culture”. Their continued existence is inimical to the health and well-being of their in-group and of the larger society. The Legislatures should take action designed to weaken and degrade those institutions, e.g. repeal the DMCA and reduce dramatically the penalties for infringement.
As for Mr. Martin. The sad truth is that he is a moron.
“They managed their expenses for a while, but the costs mounted and mounted some more as they worked at refurbishing the Adirondack property — eventually totaling a staggering $5.3 million, Mr. Martin said. He poured another $600,000 into the Vermont property, he said.”
Forget the horse and the cars, tying up more than half of your asserts in a a vacation house is simply stupid. We all know what a fool is soon parted from.
Reminds me of a bumper sticker I used to see in the oil patch, “Lord, let me have one more big hit and I promise not to piss it away this time.”
Another one said, “I spent 95% of my last million on wine, women and song. The other five percent? I guess I just wasted it.”
Actually, $10 million is a ton of money. Even denominated in ten dollar bills, it’s literally over a ton of money.
16,000 bank notes = 35 lb; 1,000,000 bank notes = 2,187.5 lb.
Hi Dan:
Intriguing post — but I’m not convinced it’s grace they fall from. ; )
the funniest part of that story is how the guy blames “others” for his money problems. seemed like a complete doofus.
Another sad side story to this is to imagine what all that wealth could have produced on the charity front.
Consumption is consumption, and though I feel (sort of) bad for the winners who made themselves poor again in short order, the money would have disappeared just as quickly through charity as through this sort of spending.
And what of the sellers who benefited from those car and horse sales? Are they somehow less deserving than the recipients (or the employees for that matter) of the charities?
A guy I used to know began his career as an accountant at a movie studio in Burbank CA. He found that quite a few actors came to him and asked him to manage their money by putting them on an allowance and making sure the rest of their money was invested in something. Eventually, he left the studio and began a business of managing money for such people. He had a number of professional athletes as clients, usually baseball players for some reason. He also managed a few medical practices although his minimum cash flow was pretty high and not many doctors would qualify. Because they managed large sums of money, they were able to develop some large projects of their own. Their clients, including the medical practices, did quite well. I would think that any agent who did not get his client into some sort of management program could be liable. Of course, if the subject is determined to blow his or her money the agent is in the clear.
An actress a few years ago, got into a bad situation by meeting with some movie producers on her own and she ended up signing a contract. She then tried to back out of it as the movie was awful. She got sued and lost. She had to declare bankruptcy after a $9 million judgement. The moral of the story is that these people should always get professional help. The actress was named KIm Bassinger.
“He had a number of professional athletes as clients, usually baseball players for some reason.”
Baseball players are less likely to be from the sort of cultural groups who follow the “baller” script of the “urban” culture that I refer to above. They tend to be from the sort of suburban and rural North American cultures against which the “urban” culture defines itself.
Baseball players are less likely to be from the sort of cultural groups who follow the “baller” script of the “urban” culture that I refer to
I agree although I had the American League batting champion living next door to me for a while. He was with the White Sox when he had his best years. He was pretty dumb but a nice guy. I’m pretty sure he had a manager.
Baseball players also take a lot longer to get to the big money in most cases, given the relatively long training period (only a tiny fraction make it to the big leagues before they are 21), having to spend their first 3 years with no real negotiating power, and the next 3 in arbitration. Most merely good players sign for a small bonus, slog away in the minors for 3-4 years making nothing (an without the press coverage of college football or basketball players), and only get to the million dollar range when they’re 25 or 26. There is a big difference between getting a $100 million dollar contract at 20 vs 28 or 29, which is the age most baseball stars actually hit free agency.
I’ve always thought that if some person, or body of persons, had the absolute power to seize all the money in the world and then re-distribute it evenly to every man and woman in the world, in a couple of years the distribution of money would be about the same as it is now. Speaking from personal experience with family members and people I have known / stories I’ve heard, a large number of people out there just don’t understand how to create wealth or how to maintain it. And coming into large sums without having that knowledge is most often a recipe for disaster.