Even our NFL "heroes" need to budget, conserve, invest wisely and diversify

The Sad Financial Future That Awaits Many NFL Players
Excerpt:

For our research published last year in the American Economic Review, we collected data on more than 2,000 players—all of those who were drafted by the NFL from 1996 to 2003—and followed them until 2013. We were interested in seeing how well football players do, financially, after they leave the game. Because it is very hard to find out how much they earned and spent after they retire, we looked at a simple measure of financial distress that is publicly available: bankruptcy filings. And we found that things did not go well at all. Football players, even those with short careers, usually earn more than what most college-educated workers earn during a lifetime. Because NFL careers are so short, the players’ post-NFL retirements can be long. Many get other jobs, but only a tiny percentage end up with coveted high-salary jobs such as sportscasting. After 12 years in post-NFL retirement, more than 15% of the players we followed had declared bankruptcy. We also found that bankruptcy does not depend on how much an NFL player earned in his career or how long he plays. Amazingly, higher income or longer careers seem to offer little protection against bankruptcy. These findings have been documented, with some variation, by other sources. There are numerous news stories and interviews describing instances where players have lost all the money they earned. Unfortunately, we continue to witness this phenomenon each year.

1 in 6 NFL players go bankrupt
Excerpt:

Studies have shown that a high percentage of NFL players declare bankruptcy after their playing days, and many others suffer financial difficulties. A Sports Illustrated (SI) article from 2009 indicated that after two years of retirement, a whopping 78 percent of former NFL players went bankrupt or suffered financial stress due to joblessness or divorce -- although in fairness, that analysis falls into the heart of the Great Recession. A recently released study by the National Bureau of Economic Research (NBER) focused on the bankruptcy aspect. The NBER working paper studied NFL players who had been drafted between 1996 and 2003. The authors found that bankruptcy filings began relatively soon after retirement and continued all the way through the first dozen post-retirement years. Taken in total, almost 16 percent of the players studied declared bankruptcy during the first twelve years of retirement. The bankruptcies did not correlate with the amount of money made over a career or the length of time in the league. Keep in mind that there are plenty of undrafted players who spend some time in the NFL (just over 31 percent in 2013 according to the Elias Sports Bureau) and most make nowhere near the money that drafted players do. Adding those players could skew the statistics either way -- the undrafted players made less money to save, yet the undrafted player may have a greater sense of how short the NFL experience can be and may be more likely to engage in financial planning. Financial planning, or more precisely the lack of it, is the main point. While the NFL Players Association (NFLPA) started a financial wellness program around the time of the SI article, too many players either do not take the advice or do not fully understand it. It is hard for an NFL athlete to fully grasp the fact that his career is short-lived and that he must plan for the future. The NBER paper points out that NFL players do not follow the "life-cycle model" of savings. In this model, people try to balance their consumption over their lifetime and save for the future, instead of simply consuming more in proportion with their current income. One could argue that most Americans do not follow that model either -- but most Americans do not get annual contracts averaging millions of dollars, especially knowing in advance that the income is short-term

Why NFL Players Are So Likely to Declare Bankruptcy
Excerpt:

In the opening anecdote of the Sports Illustrated story, Raghib (Rocket) Ismail, the Notre Dame superstar who played in the CFL and NFL and earned as much as $4.5 million per year, recalled how impervious he was to financial advice early on in his career. “I once had a meeting with J.P. Morgan,” he said, “and it was literally like listening to Charlie Brown’s teacher.” They get bad advice and make bad decisions. Ismail blew money on a wide range of sketchy investments, including a religious movie, a music label, and various high-risk restaurant and retail endeavors. Many players have sued their advisors after allegedly being scammed out of millions. In one suit filed in 2013, a group of 16 former and current NFL players claimed they were collectively bilked for more than $50 million based on the actions of an advisor who had allegedly invested the money in an illegal casino. “Regulated or not, shady advisors have made quite a mark on the NFL financial scene,” the authors of the 2014 book Is There Life After Football? Surviving the NFL wrote. “Before closer scrutiny was instituted, at least 78 players lost more than $42 million between 1999 and 2002 because they trusted money to agents and financial advisors with questionable backgrounds.” More recently, seven-time Pro Bowler Dwight Freeney sued Bank of America for $20 million, because a former adviser from the bank supposedly defrauded him by (illegally) wiring millions of dollars out of Freeney’s account. In another recent case, it is a former NFL player who is himself being accused of operating a sketchy investing scheme. In early April, the SEC filed a federal fraud complaint against former NFL player Will Allen and a business associate, who together allegedly ran a Ponzi scheme, using money from some investors to pay off others. The operation was supposed to be loaning money to athletes who were short of cash, but the suit claims roughly $7 million raised from investors was used instead for personal expenses of Allen and his associate. They get used to a certain lifestyle. Warren Sapp reportedly had 240 pairs of collectible sneakers, including 213 sets of Air Jordans, which wound up selling for more than $6,000 at auction. Former standout wide receiver Andre Rison famously blew $1 million on jewelry and routinely walked around clubs with tens of thousands of dollars in cash in his pockets, he recalled in the “Broke” documentary. Troubled cornerback Adam “Pacman” Jones has said that he once dropped $1 million in a single weekend in Las Vegas. Extravagant spending is ingrained in NFL culture, insiders say. “Around the locker room, players’ cars, clothes, houses and ‘bling’ are constantly scrutinized. If they’re not up to par, they’re ridiculed,” former Green Bay Packers’ George E. Koonce, Jr. and his fellow authors explained in Is There Life After Football? “Players don’t see their bills or keep track of their payments. They’re in the dark about taxes. They lose touch with their own money.” Once they retire and the millions stop flowing into their bank accounts, many players find it impossible to dramatically shift gears and adapt to life on a limited fixed income. It’s all the more difficult because they’re still relatively young and aren’t anywhere near ready to embrace the sensible, low-key, downsized lifestyle of the typical 70-year-old retiree.

How Dan Marino, Vince Young and Other Broke NFL Players Lost Their Fortunes
Excerpt:

Dan Marino, a former quarterback for the Miami Dolphins with a decorated NFL career, recently suffered a major financial setback after losing big in a major investment. The nine-time pro bowler and analyst with CBS’ “The NFL Today,” has accumulated millions over his career, but he lost a major portion of that money in one investment in a company called Digital Domain from which he purchased 1,575,525 shares. The company is popular for producing the famous hologram of dead rapper Tupac Shakur at the Coachella Music and Art Festival. However, the company soon after filed for bankruptcy, taking Marino’s stock with it. According to reports, the 51-year-old Marino’s investment might have resulted in a loss of $14 million.

There’s A Difference Between Broke And Bankrupt For Ex-NFL Players
Excerpt:

What the NFL did instead was eventually market its own study, published months after my SI article in 2009, with findings that were more pessimistic than the NBER working paper’s but more optimistic than the ones in my article. The league supplied University of Michigan researchers with an even more rarified sample of players: pension-eligible retirees, meaning those who had played a minimum of three years. The average career length among those interviewed was 7.3 seasons, far longer than the NFL average.4 “We had no way to include players with shorter careers,” one of the Michigan authors, David Weir, wrote to me in 2012, “and I would certainly agree that they would be an interesting group to know more about.” That same year, I received an email from an NFL PR person with the following results for me to chew on: “45% (age 50+) and 48% (age 30-49) of retired players said that they have at some point ‘experienced significant losses in business or financial investments.’” None of this was a direct comparison to the number cited in my article, not even close. But said PR person nevertheless included his own note, colored in bright red font: “a far cry from 78 percent.” The NFL has already convinced thousands of men to devote themselves to the pursuit of a lifestyle that is unsustainable at best and fictional at worst. Some of the enablers of this dream include, but are not limited to: the league’s financial literacy programs, which have historically failed to instill basic principles; the NFL Players Association’s certification program for financial advisers, which supposedly vetted a number of moneymen who reportedly allowed players to lose more than $300 million in recent years; and the players themselves, who are pressured to exaggerate the opulence of their existence.

16% of retired NFL players go bankrupt, a report says
Excerpt:

... the 15.7% figure should not lead anyone to conclude that the other 84% of NFL alums are all raking in the money and living high on the hog—many more than 15.7% struggle financially after leaving the sport, and many may go broke or get close to it. But this paper strictly measures bankruptcy filings.

Ex-NFL RB Clinton Portis files for bankruptcy amid $5M debt
Excerpt:

Former Denver Broncos and Washington Redskins running back Clinton Portis filed for bankruptcy last week, saying he has debts of more than $5 million that he can’t afford to pay. Portis, who earned more than $43 million over his nine-year career, listed his creditors on his bankruptcy filing. He owes the MGM Grand Hotel in Las Vegas $287,178.56, and the IRS accused him of failing to pay $401,432.18 in federal income taxes in 2006, and $57,187.61 in federal income taxes in 2010. Portis also owes $500,000 to his mother, $500,000 to “Entertainment Tonight” correspondent and former NFL sideline reporter Nischelle Turner and $412,000 in “domestic support obligations” to four different women, according to reports. Portis is one of a dozen former pro athletes and stars who invested in a now-defunct Alabama casino. Others include world champion boxer Floyd Mayweather, actor Jamie Foxx and ex-NFL wide receiver Terrell Owens.

Comments: I'm a fan, but don't regard them as heroes. For heroes see Hebrews 11! Image is screen grab from final article.

"Consumer advocate" spends big on eve of bankruptcy

Credit card company comes after infuriated Tom Martino

Excerpt:

Bank of America​, says in a filing made Tuesday in U.S. Bankruptcy Court in Denver that Martino charged $13,049 on two credit cards just prior to filing bankruptcy on Sept. 2 and hasn't paid.

Although not at issue, the charges listed in court records show Martino was actually in New York City when his bankruptcy was filed Sept. 2, eating at some of the city's toniest restaurants racking up tabs totaling more than $2,000 in just four days.

Comment: And you know who gets "stuck with bill" for his foolishness ... the very consumers he pretends to protect.

Faces of bankruptcy

Rebuilding Lives After Bankruptcy

Excerpts:

Tamara Ricks of Sunset, Utah, was offered a billing position by the municipal water, sewer and garbage department in nearby Washington Terrace, contingent upon a credit check. Ms. Ricks says she was upfront with the company about her bankruptcy: She and her husband filed a Chapter 7 petition in February 2010 after their ice-cream parlor went under and her husband's construction work dried up. They listed more than $33,000 of debt to creditors including JPMorgan Chase & Co. and Discover Financial Services.

The interviewer, she says, explained that would be a problem; shortly afterward Ms. Ricks received a letter saying she had been turned down. "There's no doubt in my mind it was the bankruptcy," Ms. Ricks says. "I was very surprised. I would've thought that they would've taken the circumstances into consideration."

The city treasurer, Laura Gamon, who also oversees human resources, says Washington Terrace doesn't comment on personnel matters but that its policy is to require credit checks for employees who deal with finances or consumer information. "It's a way we protect our citizens," Ms. Gamon says.

Federal law bars public employers from denying someone a job because of bankruptcy; the laws for private employers are more vague.

Ms. Ricks now steers clear of positions that require credit checks. She is working part-time in a school lunch program and her husband is receiving unemployment benefits. Both are searching for full-time work.

...

Linda Frakes filed for bankruptcy protection in October 2008, listing nearly $310,000 of credit-card debt owed to everyone from American Express Co. to Home Depot Inc. The bulk of it was from the cost of eight Curves fitness centers in which she had invested. After brief stint in a dental office, Ms. Frakes is now unemployed, living on $330 a week of unemployment benefits and odd jobs.

After losing her house to foreclosure, Ms. Frakes began her search for rentals in the Atlanta suburbs. Duplexes turned her down; so did owners of single-family homes. Eventually she zeroed in on a house within walking distance of her teenage son's school. Although the owner was reluctant, Ms. Frakes says she talked him into it, and offered to show his other properties in the neighborhood to prospective tenants.

Apartment complexes sometimes will take into account individuals' circumstances. Archstone Operating Trust LLC, which operates about 70,000 apartments throughout the U.S., uses credit-scoring software that predicts an applicant's likelihood of default based on credit history, income and other factors.

"There are good bankruptcies and bad bankruptcies," says Donald Davidoff, Archstone group vice president. "If someone has a bankruptcy but it's clear he didn't just go on a credit binge, there's still a chance we'll rent him an apartment."

Getting a car presented another, ultimately surmountable, challenge for Ms. Frakes. After her car was repossessed, most dealers refused to finance a new one. Then a local dealership offered to finance a used 2005 Jaguar station wagon. "I ended up buying the Jaguar because they are the only ones that would loan me the money," Ms. Frakes says. "I'm still floored. It was a ridiculous interest rate, but I was happy." She paid about $1,400 upfront and makes $300 monthly payments at an 18% interest rate.

Comment: More in the article. Bankruptcy has dire consequences (as it should).

Chrysler bankruptcy: Attorney rip off!

Chrysler bankruptcy lawyers rack up $12.7M bill in first month

Excerpt:

During bankruptcy, just about everyone involved with the affected company is going to feel the pain in some form. That is, of course, unless you're a lawyer. New York law firm Jonas Day has represented Chrysler during its time spent in Chapter 11 bankruptcy, and Automotive News is reporting that the firm billed $12.7 million for the month of May alone. That figure included 72 partners working on the case, in addition to another 193 lawyers chipping in. About $256,000 of that figure accounts for expenses, and the rest encompasses some hefty legal fees.

We're not all that surprised that it takes over 250 lawyers to execute a Chapter 11 bankruptcy of Chrysler's magnitude in only 40 days, but the figures for the firm's head lawyer, Corinne Ball, are staggering. Ball booked 15 hours a day, seven days per week for the entire month, at a bill rate of $900 per hour! That's $401,310 to you and I. On average, lawyers on the case billed $477 per hour, while paralegals came in at $224.

Comment: Someone is getting rich at taxpayers' expense!

GM Bondholders reject stock swap

Debt Exchange Falls Short; G.M. Moves to Sell Units

Excerpt:

Bondholders at General Motors on Wednesday rejected an offer to exchange $27 billion in debt for a small amount of stock, as G.M. prepared for a bankruptcy filing that could come as soon as this weekend.

...

In a statement about the bondholders, G.M. did not give vote totals for the tender offer, which began on April 27 and expired at 12:01 a.m. Wednesday. G.M. had required 90 percent of bondholders to agree to exchange their debt, said said Wednesday morningthat the notes tendered were “substantially less than the amount required.”

Without approval, G.M. had said it would seek bankruptcy protection. But it made no announcement of its plans. The company said it had withdrawn its offer, and that its board would meet to decide further steps.

Comment: Some have the view that it is only the well-to-do impacted by this. My dear 89 year old Mother has either $ 4000 or $ 6000 in GM bonds. Her broker advised her several years ago to buy these because of the interest rate. The recent GM offer was to exchange bonds for stock at a stock price of $ 4 something per share. Well the stock is trading (right now) at $1.31. We obviously advised her against it. A stock swap would have been a 70% loss.

GM: Pre-packaged Bankruptcy option

Pre-packaged Bankruptcy Is GM's Only Option

Excerpt:

... a traditional Chapter 11 filing could quickly slide into Chapter 7 bankruptcy if GM (or Chrysler or Ford (F) a few months down the road) can't find anyone to lend them the money to keep operations running. That's why Barron's advocates a "pre-packaged bankruptcy" - in which a company enters bankruptcy protection with almost all of its financing in place - in this case backed by the government for a year or so. "In that time, and under the protection of the court, GM could begin to restructure its business with a much higher probability of long-term survival," Mark Bane, co-head of bankruptcy operations at the law firm of Ropes & Gray, says.

Comment: I've also heard this called a GSB (Government Sponsored Bankruptcy).

Big Steel survived and thrived after bankruptcy

Is Steel’s Revival a Model for Detroit?

Excerpts:

... The old saying, “As steel goes, so goes the nation,” was as much a threat as a boast.

...

... steel’s savior was not the government bailouts it ardently sought but exactly what it so long tried to avoid: bankruptcy. Only when the companies failed were they successfully slimmed down and retooled into smaller but profitable ventures. As debate continues over what, if anything, should be done for G.M., Ford and Chrysler, the steel industry may offer a model.

The steel and auto industries are both capital-intensive enterprises that peaked a half-century ago and have been intermittently embattled ever since. Both secured peace with their unions by vastly expanding benefits, a bargain that eventually hobbled them. Both had entrenched layers of management that believed — despite all evidence — they could wish away change.

...
Over the decades the companies had shed employees to stay afloat. Soon retirees greatly outnumbered the actual workers. At Bethlehem, the ratio was six retirees for every worker. All these retirees had good pensions and good health care plans, which they thought were guaranteed. But these costs were a tremendous weight on the companies.

Bankruptcy changed the rules, allowing the steel makers to unload billions of dollars in pension obligations onto the government’s Pension Benefit Guaranty Corporation and to cut more than 200,000 workers from their supposedly guaranteed medical care.

...

Steel’s turn-around was dramatic. The 17 leading companies went from a combined loss of $1.1 billion in 2003 to an after-tax profit of $6.6 billion in 2004, according to an analysis done for an industry trade group. Ross sold International Steel to the Indian entrepreneur Lakshmi Mittal for $4.5 billion in 2005, earning a tremendous return.

...

In a G.M. bankruptcy, the number of product lines would be reduced, the management replaced and the investors wiped out. The enormous costs of its retirees could be off-loaded. It would be painful, just as it was with steel, but in the end someone could come in and pick up the pieces. Perhaps it would be one of the foreign carmakers, looking to expand. Perhaps it would be a distressed assets specialist, like Wilbur Ross.

Comment: A model for Detroit!

Autos: The empty rhetoric of the Democrats

George Will: In Detroit, Failure's a Done Deal

Excerpts:

The answer? Do nothing that will delay bankrupt companies from filing for bankruptcy protection, so that improvident labor contracts can be unraveled, allowing the companies to try to devise plausible business models. Instead, advocates of a "rescue" propose extending to Detroit the government's business model for the nation — redistributing wealth from the successful to the failed, an implausible formula for prosperity.

...

Congress could help the Detroit Three by allowing them, when meeting CAFE (corporate average fuel economy) standards imposed by Congress, to count fuel-efficient cars they import from their overseas factories. Congressional Democrats oppose that because those imports are not made by members of the United Auto Workers. Those Democrats, their rhetoric notwithstanding, really care most about the union. "Saving the planet" comes second and last comes the health of the auto companies.


Some opponents of bankruptcy stress that it might terminate health-care coverage enjoyed by UAW retirees who are too young for Medicare. Think about that. If people want to retire before 65, or 35 for that matter, that is their business. But there is no public interest in protecting the luxury of retirement in the prime of life just because in palmy days a private contract between a union and a corporation established it as an entitlement for all seasons.

Comment: Again the CAFE standards!

Is Bankruptcy in the Auto Industry Really So Bad?

Is Bankruptcy in the Auto Industry Really So Bad?

Excerpt:

But not everyone agrees that a Chapter 11 filing by G.M. would be the disaster that many fear. Some experts note that while bankruptcy would be painful, it may be preferable to a government bailout that may only delay, at considerable cost, the wrenching but necessary steps G.M. needs to take to become a stronger, leaner company.

Although G.M.’s labor contracts would be at risk of termination in a bankruptcy, setting up a potential confrontation with its unions, the company says its pension obligations are largely financed for its 479,000 retirees and their spouses.

Shareholders have already lost much of the equity that would disappear in a bankruptcy case. Shares of G.M. rose 16 cents Wednesday, to $3.08, but they have fallen 90.5 percent over the last 12 months, amid sharply lower auto sales and fears about G.M.’s future.

And as companies in industries like airlines, steel and retailing have shown, bankruptcy can offer a fresh start with a more competitive cost structure to preserve a future for the workers who remain.

“Just let market forces play out,” said Matthew J. Slaughter, associate dean at the Tuck School of Business at Dartmouth. “And if G.M. or one of the other companies files for bankruptcy, support the workers and the communities that would affected by a bankruptcy filing.”

William Ackman, a prominent activist investor who runs Pershing Square Capital, said Tuesday that G.M. should consider bankruptcy. “The way to solve that problem is not to lend more money to G.M.,” he said in an interview with Charlie Rose on PBS.

Instead, G.M. should submit a prepackaged bankruptcy, laying out steps it plans to enact once in Chapter 11 protection, said Mr. Ackman, who is not a major holder of G.M. shares.

“I’d rather the government’s money be used to train people for other jobs,” Mr. Ackman said. “The bankruptcy word scares people. It’s simply a system.”

Comment: Better than a bailout with no restructuring of labor costs.