Professional Athletes and the Prevalence of Bankruptcy

This news is about NBA players and bankruptcy is from a few years ago. Now comes even worse news regarding NFL players and bankrupt.

The 78 percent number (i.e., 78% of NFL players go bankrupt within two years of retirement) is buoyed by the fact that the average NFL career lasts just three years. So, figure a player gets drafted in 2009, signs for the minimum and lasts three years in the league: He will have earned about $1.2 million in salary. Factor in taxes, cost of living and the misguided belief that there will be more years and bigger paydays down the road, and it becomes a lot easier to see how so many players struggle with money after their careers end.

If this data is correct, the probability of a high school athlete making it to the professional level is about 1 in 12,000. (I've heard that the probability is far more remote.) Baseball offers the most lucrative potential as well as the likelihood of having the longest career. But even that is estimated to be just three years for MLB. Doing the math, and discounting $400,000 per year for three years, beginning at age 17 and entering the big leagues at age 21 (not likely), the expected value of a career in baseball is about $86. Who's likely to pursue that?

Now, certainly it's not the average high school athlete who considers himself pro material, but It's still predominantly those with low opportunity costs of their time that pursue the professional athlete track. Even if we changed it so that a particular high school athlete was ten times more likely to make it to the professional level than the average high school athlete, the expected value is only about $860. That is total, not per year.

Making to the pros for many athletes is like the person winning the lottery who lives in a trailer - they've never learned how to handle the wealth.  

Comments

[J]

Have you factored in minor league pay? I've had a few friends who know they can't make it in the bigs, but can play for a few years in their early twenties in A and AA ball. This results in a low salary, but some money to live on during the 6-8 month season.

[Chris A.]

@J: Yes, some guys are paid well enough in the minors, but they often do so at the expense of a college education, and/or they'll have to start at the very bottom of the ladder when they begin their professional life after sports. This means postponing, if not permanently reducing, their post-career maximum income potential.

[phwest]

Actually, I wonder if baseball players might not do better. Having to spend 6 years or more in the minors, working in the off season to pay bills, might actually give you some appreciation of money. (The typical 3 year vet is a someone who hit the bigs at 26 or 27 - the guys who make it at 21 are the stars)

The NFL kids in particular are chewed up and spit out right out of school. They go from a school environment where everything is paid for and they aren't allowed to have money, to a professional team where they are suddenly handling $100,000s, and then poof.

Add to that the sense of invulnerability young men have, further enhanced by having survived a brutal winnowing out process to get to the pros - it's amazing any NFL players avoid bankrupcy.