Is Allen Iverson Really Broke?
If Allen Iverson acts like many other professional star athletes, I fear he may be in serious financial trouble. Iverson has made over $200 million (before taxes) in his career according to The Philadelphia Inquirer, but when the Philadelphia 76ers cut him on March 2, 2010, he became unemployed. The Sixers were paying him $650,000 for the rest of the 2010 season (a prorated portion of a $1.3 million salary) after he earned $20 million in 2008-2009 (he also had a $3 million contract with the Memphis Grizzles for 2009-2010, but he left them after playing in only three games and retired). If Iverson can weather this type of dramatic pay cut and unemployment, then he will have planned much better than the majority of his peers and the rest of us.
The March 23, 2009 Sports Illustrated article entitled “How (and Why) Athletes Go Broke” highlighted that pro athletes from the NBA, NFL and Major League Baseball are suffering from a “financial pandemic” despite their increasingly large salaries. The article stated, among other things:
- By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.
- Within five years of retirement, an estimated 60% of former NBA players are broke.
Like many people, most athletes spend above their means and are in debt and in serious financial trouble. For many professional athletes, they have a bigger challenge than the rest of us– they have to deal with relatively sudden wealth, fame, and temptation –just ask Tiger Woods or Kobe Bryant. Sorry fellas, I love your game, but you two messed up big time. Many want to compare these athletes to famous rich people such as Donald Trump, Bill Gates, Warren Buffet, Oprah Winfrey, etc., but sadly the average superstar athlete is probably closer to the instant lottery winner who was not previously rich or famous at all. Becoming rich almost instantly in your 20’s is a tough challenge for anyone. The players have to realize that their careers could be over in only a few short years and they need to budget and make their money last. Look no further than Mike Tyson or Antoine Walker for examples of athletes who earned over $100 million in their careers and were broke in their 30s.
[UPDATED] Financial Advice for Allen Iverson and Other Athletes. For Allen Iverson and other athletes (male and female athletes), I would suggest the following if I was in their shoes:
- Stop gambling if you are doing it. ESPN cited multiple sources indicating that Iverson has a gambling and alcohol problem.
- Practice safe sex or abstinence (see A.C. Green) and commit to one person. Among other things, this helps with disease, unplanned pregnancy, and child support costs. I have no information on Iverson’s fidelity and I am not accusing him of being unfaithful to his wife. Divorce or family break-ups can be very costly, especially if children are involved. See Tiger Woods and Tiki Barber for examples of costly break-ups. Working hard on your relationship and being faithful increases your chances of a happy, healthy, successful, and long term relationship.
- Make a budget based on your known and certain income (i.e. amount in a guaranteed contract) and divide the income over the number of years you expect to live. In your budget, your monthly expenses must be less than your monthly income or you may run out of money. Consider savings, salary, royalties, endorsements, etc. For A.I., hopefully his huge Reebok contract is still paying out.
- Hire a professional to help you with your finances, but get references, including bank references, client references, family references, etc. on the professional you hire. Interview these references and do a separate background check on anyone you hire. Is there a criminal record? What training and schooling has your advisor received? Get evidence of this. Contact the schools. Verify the information on the resume. Check their financial stability. Do it as if your livelihood depended on it. It does.
- Get rid of the posse. This is tough love. Besides mom, dad, spouse, kids and your siblings, don’t help or support anyone else financially, unless you are legally obligated to do so.
- Think like a miser. You may never get another contract again and the one you have might not be guaranteed.
- Save, save, save. Don’t know how much? Click here for help.
- Be careful of your credit card usage. Manage your credit card debt wisely and know what not to do.
- Invest wisely and do not have family/friends manage your money. Find financial mentors with a proven track record like Magic Johnson. Don’t forget the background check.
- Avoid risky business ventures. Many people will pitch “can’t miss ventures” such as restaurants, record labels, clothing lines, new technology. Be careful or better yet, just don’t do it or put it off until after your career is over when you can focus your attention on the venture.
- Visit the offices of advisors at announced and unannounced times to see what is going on.
- Learn industry standards for the services being provided. What should you be charged so that you are not overcharged?
- Get a prenuptial agreement between you and your spouse that determines exactly how much your spouse would get in a divorce. ESPN reported that A.I.’s wife filed for divorce in early March 2010, but I do not know what type of prenup, if any, they had.
- Don’t live beyond your means and don’t try to live like the veteran players. Don’t buy expensive cars or a mansion. You are on the road much of the time. According to the Sports Illustrated article, Shaquille O’Neal spent a total of $875,015 each month, including $26,500 for child care, $24,300 for gas and $17,220 for clothing.
- Know where your money is going. How is it invested? Who is managing it?
Bottom line. Be conservative with your money and don’t invest in risky business ventures or start-ups. After taxes and agent fees, you are left with only about half of your salary. Invest wisely, avoid too much risk, find a good financial advisor, and educate yourself. You may be the only one you can trust in the end. Your huge income is an opportunity to create financial security for yourself, your family, and future generations, if managed wisely.
A.I. is one of my favorite all- time players and I hope that he has planned wisely and is not broke.