Mike Tyson is one of the most famous athletes in the world and at the height of his boxing career, he was worth a fortune.
According to Insider, he earned approximately $30 million for each fight when he was in his prime, giving him total career earnings of around $400 million.
Yet, in 2003, he declared bankruptcy with reported debts of $23 million.
He has since rebuilt his fortune on the back of movie and TV roles, branded energy drinks, and a whole host of other business ventures. However, his financial troubles still serve as a warning to other athletes, because it is a story we hear time and time again, despite the wealth involved in professional sport.
Indeed, many professional rugby players declare bankruptcy shortly after retiring from their playing careers. This is likely because, as an athlete, you have a different pattern of earnings and there are some specific challenges you may face.
Here are five surprising reasons why athletes experience financial difficulty.
1. A different “wealth curve”
If you want to be financially secure in later life, you likely need to consider putting money aside while you are earning a regular income. However, professional athletes have a slightly different “wealth curve” to that of most individuals.
According to government statistics, the average retirement age in 2021 was 65.1 years for men and 64 years for women. Considering you can start full-time work from the age of 16 in the UK, many people likely earn an income of some kind for 40 years or more.
Typically, your earnings steadily increase as you progress in your career, and you may contribute to retirement savings during this time. After retiring, you could then draw from your savings to maintain your income.
However, your “rugby wealth curve” looks much different, because professional athletes often reach their maximum earnings potential at an earlier age.
According to Rugby Dome, the average rugby player retires from playing at age 34. As such, you will typically have a much shorter earnings window in which your income increases dramatically when you are young. This may then tail off when you reach your second career.
This can make it more difficult to build retirement savings and plan ahead for the future.
Consequently, it is even more important for you to make good decisions with your money while you are earning a regular income from playing professionally.
2. Lack of financial education
Often, you learn the fundamentals of good financial management through trial and error. Many of us make mistakes with our budget, or neglect savings when we are young. However, as time goes on, we hopefully learn to live within our means and plan for the future.
Of course, as professional rugby players often suddenly come into a large amount of money at a young age, you may not have had the opportunity to develop these skills over time.
This limited experience of managing your own money means that you may be more prone to mistakes, which could include not considering long-term goals like retirement planning.
Fortunately, working with a financial planner can help young athletes learn the skills you need, right from the start of your career, so you can manage a sudden increase in earnings.
3. Overspending the wealth you have
When you are young, you may be more prone to spending on extravagant luxuries, thanks to your new-found wealth.
The environment that new players find themselves in may exacerbate this because athletes can be driven by status. Making big purchases such as expensive cars, for example, is a way to demonstrate this status. As such, some of the older players may influence their younger teammates and encourage overspending.
Over time, this can become a significant issue because a large percentage of your earnings could end up going towards non-essential spending, rather than saving for the future.
Without a long-term plan in place, you could find that you did not make the most of these earnings when you come to finish playing.
4. Risk of injuries in professional sport
Injuries are a hazard of the job for professional athletes because of the stress that sport can put on the body, particularly an intensely physical sport such as rugby.
A serious injury can easily lead to financial hardship if you are unable to play for a long period. In some cases, an injury could mean that you are forced to retire early if it causes lasting damage.
As such, you could potentially lose your main source of income almost overnight.
While you might receive some financial protection against injury as part of your contract, it may be capped at a certain amount. This means it may not provide enough income to meet your financial obligations over a longer period, preventing you from working towards your long-term goals.
Fortunately, if you have private protection cover in place, it may pay a regular income if you sustain an injury that means you are unable to play. These additional funds could allow you to maintain your current lifestyle, and continue saving for the future.
5. Being targeted by financial scams
When ex-rugby star Ollie Phillips wanted to buy a property, he went to a company called North East Property Buyers, who sponsored his club at the time. As he recounted to This is Money, he trusted them and had even been on holiday with some of the owners of the business.
So, he was shocked to find that, when he returned from his tour with England, they had borrowed £6.5 million in his name and purchased 30 buy-to-let properties. They then planned to sell them on and pocket the profits.
The ordeal caused great distress for Phillips and affected his ability to take out credit for years to come, and many other sports stars have been through a similar experience.
Scammers often target athletes like you because you may have large sums of money that you want to invest, but are unsure where to start.
That is why it may be a good idea to work with a financial planner when making decisions about investments and future planning. They can help you determine your investing goals and attitude to risk, and do due diligence on investments to significantly reduce your chances of being scammed.
Get in touch
Athletes may face unique challenges when managing their wealth. The good news is, we can help you overcome those challenges and plan for the future.
Email email@example.com or call 01625 529 499 to speak to us today.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Buy-to-let (pure) and commercial mortgages are not regulated by the FCA.
Think carefully before securing other debts against your home.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.