October 10, 2014
On September 16, 2014 we published in Diario Libre Journal an article entitled “Do they professional athletes face financial problems?”, where we note that, despite the astronomical sums of money received, most professional athletes from MLB, NBA or NFL go bankrupt within the first five years after announcing their retirement. After analyzing a number of factors from studies and reports trying to explain this painful situation, we conclude that one of the main causes is related to how athletes manage their personal finances.
However, although not abundant, there are a number of successful cases of professional athletes who could be classified as “financial gurus” and from we could draw some lessons for the management of our money.
The first case, which we could classify as the most successful of all, is Michael Jordan, who, besides being “the best basketball player of all time” (see his biography in NBA.Com), remains the highest-paid of all athletes, both active and retired. In 2013, Jordan received over $90 million dollars (without throwing a ball!), only from his partnership with the Nike franchise. While not stepping on a basketball court in more than a decade, Jordan has contracts with Gatorade, Hanes and Upper Deck; additionally, Jordan is an active investor in the basketball business, where he recently acquired the Charlotte Bobcats team.
The second case, also from NBA, is superstar LeBron James, who, despite his youth (29 years old), noted for wise financial decisions taken. LeBron, following the footsteps of Jordan, is not satisfied with receiving sponsorship revenue from brands like Nike, Coca-Cola and Samsung, to name a few, but prefer to sign sponsorship contracts for lower amounts than he could receive in exchange to be a shareholder in companies seeking his services. This has led Lebron to having interest in the business of major companies such as American Signature (furniture industry), Cannondale Bikes (sports industry), PureBrands (technology industry), UNKNWN (fashion design) and even Liverpool, the English Premier League team. In 2008, LeBron agreed to promote the famous Dr. Dre headphones in exchange for a stake in the business. When Apple decided to buy the brand in May 2014, LeBron received no less than $30 million dollars because of the sale of the company, a significant sum given that his salary per season in the Cleveland Cavaliers is $20.6 million.
In the baseball field, the last case is the millionaire Yankees-star Alex Rodríguez (ARod). In an interview for the popular New York Magazine, ARod described himself as “a cautious investor” who receives income of about $20 million annually for his investments in businesses such as gyms, car sales and real state (see Fishman, S., “A-Rod in Exile: He Wants to Be a Star Business”, 05/13/2014). In 2006, ARod founded Newport Ventures, a real estate company currently managing over 12,000 properties across the United States.
So at this point we might ask: What do these players have in common in managing their finances and what lessons we could learn from them and apply in our lives?
These stars are well aware of the money value over time and have preferred to sacrifice consumption today in exchange for a higher return tomorrow. In the cases of Jordan and LeBron, both players have sacrificed receive larger sums of money for sponsorships in exchange of actual ownerships in the sponsors’ business. When it comes to putting their money, these players invest in sectors they know, as is the case when Jordan decides to purchase a NBA team. More importantly, these players know their limitations within the business and finance world, and so they have not been shy in seeking sound financial advice. For example, both ARod and LeBron have the privilege of having Warren Buffet, the Oracle of Omaha and the richest man in the world, as its financial mentor. In addition, both stars do not skimp effort to surround themselves with the right people and spend time playing golf or going to dinner with entrepreneurs like Bill Gates, Steve Ballmer (Microsoft CEO), Tom Werner (Hollywood producer), Micky Arison (CEO cruise Carnival), among other “stars” of the business world. Good companies!
Finally, cases of athletes who have been successful in business are characterized by three main elements: (1) the decision to receive less income in exchange for being partners in business, (2) making investments in sectors they have knowledge, (3) searching of appropriate advice and company providing guidance. Having a large fortune is not a determinant element of success, because as we discussed in our first article most of these superstars declare bankruptcy shortly after entering retirement, but the road to financial success is paved by caution and sacrifice. In the words of ARod, this is a process that can be “very slow, very methodical, [sometimes] boring, with one step at a time”.