Why professional athletes can end up bankrupt

Time and again we read of athletes who have commanded multi-million dollar contracts, only to apply for bankruptcy after they've hung up their boots.

Yet, avoiding the pitfalls of financial success can be avoided by using the same common-sense strategies used by the rest of us.

Many of the financial problems faced by high earning athletes have to do with the high volume and short duration of their cash flow.

So much money, so little time

"Money exaggerates everything - the lifestyle they lead, the car they drive and the house they live in," says Brendan Turnbull, founder of FrontRow Financial Management.

"When the rest of their friends are spending $50 at the nightclub, young athletes are able to spend $500; instead of punting with $30, these guys can put $5000 through the pokies."

They spend money they have, and also money they don't have.

"It's rolling in like the Mississippi so they run up debt," says Dennis Maddern, executive chairman of Maddern Financial Advisers.

"They rack up debt, and it's easy to do because they're trying to negatively gear or get tax deductions, but they don't understand that at some point you need to repay a principal and interest loan."

Poor financial habits

Nor do the habits that have rewarded them with success in their sporting pursuits necessarily translate to their financial wellbeing.

"You'd think that the training, the discipline, the diet, the concentration, that you'd be able to transfer that to your finances, but that's not the case."

It's easy to dismiss these statements as anecdotal, but it's borne out in research.

A 2015 study by the Global Financial Literacy Center found that 16% of National Football League (NFL) players go bankrupt within 12 years of retirement, while the average retirement income of NFL at 55 years of age is just US$30,000.

High school vs college

Australian athletes are arguably even more exposed than their US counterparts, where the path to professional sport is through the college system.

"The Americans do this much better than us," says Maddern.

"We draft athletes out of high school, whereas America draft out of the universities. With the name they've generated through college sport, and a degree, they'll do very well."

The right team

Avoiding the traps of athletic stardom requires good planning surrounded by the right people.

"You want to give them a beacon on the hill, a goal, to aim for financial independence: what success looks like," says Maddern.

"Property is a part of that, a principal residence, and so is passive income. And the passive income can help you while you retrain."

Much of it is common sense, but common sense can be less than common.

"It's not putting the money into high-risk investments or businesses, it's building a good set of behaviours that include putting money away and not touching it," says Turnbull.

Risky advice

Family and close friends can be equal parts support and danger.

"Sometimes the worst advice can come from the best of intentions," says Turnbull.

On the other hand, there's a higher likelihood of buy-in if a trusted familiar is part of the planning.

"You'll meet them with their parents present. You want to harness a sensible relative who can reinforce what the adviser is saying," says Maddern.

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