Author Topic: $61M total earnings, ends up broke  (Read 4849 times)

big_slacker

  • Handlebar Stache
  • *****
  • Posts: 1358
$61M total earnings, ends up broke
« on: April 19, 2018, 07:26:54 AM »
Another cautionary tale. This guy 'didn't know' he's have to pay substantial taxes on his income, lost money buying and selling mansions and even after the NBA was over was spending $133k/yr on $26k/yr income. Hard to feel bad for the guy at this level of delusion, but at least he got some help....

https://www.cnbc.com/2018/03/13/a-rod-helps-nba-star-joe-smith-who-lost-61-million-and-owed-157000.html?__source=twitter%7Cmain

Rosy

  • Handlebar Stache
  • *****
  • Posts: 1921
  • Location: Florida
Re: $61M total earnings, ends up broke
« Reply #1 on: April 19, 2018, 08:32:11 AM »
Oh wow - $26K income and living expenses of $133K?
He made 61 million during his career but after the tax man and the agent etc got done he only made 18 million - now that is an eye-opener.
They should force every player to have and excel in weekly money management seminars until they "got it":)

There is still plenty of potential and opportunity for him to leverage and live a good life. $153K in debt can be overcome, he still has time and a good life ahead of him if he follows the financial boot camp advice.

I love articles that show no matter what financial dilemma you think you are in, there is always hope as long as you have time enough left and your health is at least decent.


eddie

  • 5 O'Clock Shadow
  • *
  • Posts: 49
Re: $61M total earnings, ends up broke
« Reply #2 on: April 19, 2018, 02:25:43 PM »
That was very well written article.  Simple, objective.  I have very low expectations with those types of articles.

MgoSam

  • Magnum Stache
  • ******
  • Posts: 3642
  • Location: Minnesota
Re: $61M total earnings, ends up broke
« Reply #3 on: April 19, 2018, 02:29:34 PM »
Didn't read the article but if he earned $18M after tax and agent fees and managed to live within those means he could still afford a $133k annual expenses lifestyle. He would need to have about $3.5M invested in  index funds. If he were to use his $26k annual salary, then he would need to have $2.7M.

UnleashHell

  • Walrus Stache
  • *******
  • Posts: 5908
  • Age: 51
  • Location: Florida
  • Chapter IV - A New ... er.. something
Re: $61M total earnings, ends up broke
« Reply #4 on: April 20, 2018, 04:46:35 AM »
these guys are given financial training and advice but most of them still ignore it. but to lose 2/3rds of your earnings to agent fees and taxes?  has the agent delivered about 12m of value to his client? seems steep to me.
way more education needed for these guys.

marty998

  • Walrus Stache
  • *******
  • Posts: 6095
  • Location: Sydney, Oz
Re: $61M total earnings, ends up broke
« Reply #5 on: April 20, 2018, 04:52:37 AM »
Question.

How does one become an agent?

Asking for a friend...

FIPurpose

  • Pencil Stache
  • ****
  • Posts: 890
  • Location: ME
    • FI With Purpose
Re: $61M total earnings, ends up broke
« Reply #6 on: April 20, 2018, 05:57:10 AM »
these guys are given financial training and advice but most of them still ignore it. but to lose 2/3rds of your earnings to agent fees and taxes?  has the agent delivered about 12m of value to his client? seems steep to me.
way more education needed for these guys.

Well on 61mil you're being effectively taxed at the 35% AMT rate, and he was in Arizona so another 4.5% and when he was in Penn., it was probably closer to 10%. his taxes were somewhere around 40-45%. Somewhere around 34 mil post tax. I'm sure agent fee were deducted before that, but his agent would be paying in that bracket as well. So it sounds like he signed for a 50/50 deal?

I tried looking for how much is typical. Usually somewhere in the 5% commission range. So where does the other stuff come from? My guess is that his constant switching teams meant he had to hire out a bunch of lawyer hours that ran up his legal fees. There's also a scandal surrounding his move to the Timberwolves so that might have cost him a few million as well. If he had just stayed with Arizona from the beginning, he wouldn't have blown so much money on moving and selling mansions, and honestly would have made better contracts there as well. He just didn't play the political game well in the NBA.

It sounds like he has enough name recognition to do private tutoring and group lessons. So at least he has skills to still make probably 120-250k per year I'm sure. He's not hurting like some other less famous athletes might have been.

patchyfacialhair

  • Handlebar Stache
  • *****
  • Posts: 1121
  • Age: 29
Re: $61M total earnings, ends up broke
« Reply #7 on: April 20, 2018, 02:10:55 PM »
http://www.espn.com/nba/story/_/id/20715128/nba-player-salaries-take-home-pay

This article has some pretty good insight on professional athlete take home pay. There's a lot more to it than just agents fees and taxes. Athletes are taxed for each location they play in, and other money is held for various reasons (pensions, union/collective bargaining stuff, etc.)

Had I stumbled upon a windfall like that at age 18, coming from a below average income family, I would have  probably squandered a good portion of it. It wasn't until I was maybe 20 or 21 that I really started ramping up the whole LBYM and early-retirement mindset.

Some of these kids getting huge professional athlete money are from really disadvantaged backgrounds. No amount of help, advice, classes, whatever will stop these kids from buying fast cars, houses, and women. By the time they mature a little, the money and career are gone.

But, since this is the wall of shame and comedy, I agree that we can shake our heads in superiority for these guys that squander multiple millions in a very short period of time.

Kimera757

  • 5 O'Clock Shadow
  • *
  • Posts: 91
Re: $61M total earnings, ends up broke
« Reply #8 on: April 20, 2018, 03:58:54 PM »
I saw the money commentary film, Broke By 30, which covered the same themes (but with multiple athletes).

I understand that things would be more complex, but after the first year, getting a nasty surprise on taxes, they should hire an accountant.

Spending tends to go up because every friend (and people who barely knew you) from your childhood suddenly becomes a hanger-on and form a permanent entourage. Athletes who have retired, can't make money, and have been disgraced, like OJ Simpson, still have entourages. (Simpson still had an entourage when he was accused of robbing someone.) It's fine to hire servants, if they actually do things for you, but these entourages just make you buy them stuff.

I honestly think getting rid of these entourages is more important than trying to live like baseball sta rDaniel Norrris (who I think spends less than $800 USD per month despite making multiple millions per year.)

Link: https://en.wikipedia.org/wiki/Daniel_Norris_(baseball)#Personal_life

I recall reading about a married athlete who decided to be less nonconformist and lived off a more reasonable $60,000 USD. Presumably he would live even cheaper if he didn't have a spouse.

Laura33

  • Handlebar Stache
  • *****
  • Posts: 2215
  • Location: Mid-Atlantic
Re: $61M total earnings, ends up broke
« Reply #9 on: April 25, 2018, 08:25:26 AM »
http://www.espn.com/nba/story/_/id/20715128/nba-player-salaries-take-home-pay

This article has some pretty good insight on professional athlete take home pay. There's a lot more to it than just agents fees and taxes. Athletes are taxed for each location they play in, and other money is held for various reasons (pensions, union/collective bargaining stuff, etc.)

Thanks for that article -- it's nice to see actual numbers broken out.  I'd really be interested in seeing how it breaks down for the "lower"-paid players, like Joe Smith -- looks like he made between $1M - $6M/yr.  See https://www.basketball-reference.com/players/s/smithjo02.html.  I think it's like what you said, a lot of guys with no experience with money see figures like "I have a $16M contract" and immediately think they are set for life.  Except that $16M is over 5-6 years, and some of it is going to be incentive money that you may not get, and then you pay all the taxes and fees, so if it's a $2M year, maybe the guy brings home $900K.  Which, again, doesn't suck AT ALL. But the problem is he thinks he's rich, so he buys the house and the car that $900K/yr can buy you, and he doesn't know enough to do the math and realize that if he wants to live on $900K/yr forever, he needs $22,500,000 in the bank, which is more than his entire salary over the next 5-6 years!

I think most of us here who had a, say, $16M windfall would figure out, ok, I'm going to lose half to taxes and fees and such, so now I've got maybe $7-8M left, and $7M will provide me a @$280K lifestyle, so I'm going to buy the house and the car that I can afford forever on $250K/yr.*  But to expect kids to do this at 18 or 21, just at the time when they think they are immortal and the gravy train will continue forever, and with no background or education in finance -- and certainly no experience with that kind of money -- well, it's just never going to happen.  You hope most of them wise up and realize how short their career may be and how much they need to save to sustain their lifestyle while there is still time to change course, but, yeah, not holding my breath.

With respect to the hangers-on, I think that is largely cultural.  When you are poor, you have no financial capital, and so you rely on social capital.  When someone needs help, you help them, and when you need help, they help you.  And that also means that windfalls are shared.  There is a real poverty mindset that says that good times never last, and if you try to save something for tomorrow, it might not be there, so better enjoy it while it lasts.  So put all that together, and when someone hits it big, the very natural response is to share the wealth with everyone within their social network who has helped them in the past, and to live large while the getting is good.  And it unfortunately takes years and a lot of hard work (internally) to change that scarcity mindset.  So it's not just "hangers-on" who are sponging off their friend; you'd have to change the entire value system that these guys have lived by their whole lives.  And really, who is even going to tell them they need to make that change, since everyone around them benefits from their continued largesse?

*Well, most people here would probably live on a small fraction of that and figure out something else to do with the remainder.  ;-)

pecunia

  • Pencil Stache
  • ****
  • Posts: 882
Re: $61M total earnings, ends up broke
« Reply #10 on: May 20, 2018, 09:43:50 AM »
Quote
Laura:
There is a real poverty mindset that says that good times never last, and if you try to save something for tomorrow, it might not be there, so better enjoy it while it lasts.

I don't know if that's always true.  When stuff is in limited supply, the natural inclination of many of us is to make it last.  I mean, look at all the stuff people have presented herein about budgets.

You'd think there would have been at least one wise voice that would have pulled him aside and pointed out the reality of his situation.  Maybe when you're on the top of your mountain, you just can't hear people down slope.

Laura33

  • Handlebar Stache
  • *****
  • Posts: 2215
  • Location: Mid-Atlantic
Re: $61M total earnings, ends up broke
« Reply #11 on: May 20, 2018, 04:22:51 PM »
Quote
Laura:
There is a real poverty mindset that says that good times never last, and if you try to save something for tomorrow, it might not be there, so better enjoy it while it lasts.

I don't know if that's always true.  When stuff is in limited supply, the natural inclination of many of us is to make it last.  I mean, look at all the stuff people have presented herein about budgets.

Right.  That's why I referred to it as a "poverty" mindset -- because it's something that many people who grew up in poverty learned.  Read White Trash Can for a really good explanation.  You can also read about the revisit of the marshmallow study, where they actually concluded that the poor kids were likely acting rationally given the world they lived in. 

Obviously, it's not everyone; I mean, I grew up poor and learned instead to hoard everything.  But it is a real thing with a particular group of people.  It can be unlearned, but it tends to take a lot of solid guidance and experience for that to happen (something that doesn't always happen with pro athletes, who are surrounded by people encouraging them to spend more).  Sometimes you have to live the mistakes to learn that there is another way.

LiveLean

  • Pencil Stache
  • ****
  • Posts: 721
  • Location: Central Florida
    • ToLiveLean
Re: $61M total earnings, ends up broke
« Reply #12 on: May 21, 2018, 08:20:37 AM »
As sad and uncommon as this story is, it's even sadder that CNBC, Shark Tank, Fox and others continue to give work to Alex Rodriguez, a steroid-using, no-account, narcissistic cheat of a baseball player who over a long career lied, cheated, and otherwise showed himself to have no moral character wherever he played.

Yep, this is exactly the guy I want giving me financial advice and investing in my company. Good grief.

talltexan

  • Handlebar Stache
  • *****
  • Posts: 2233
Re: $61M total earnings, ends up broke
« Reply #13 on: May 21, 2018, 09:14:50 AM »
I agree the last few years have been terrible for A-Rod's reputation wrt the steroid thing.

If it were me, I'd spin it as part of the brand: I was young and had a lot of people influencing me in different ways, and it meant I made some mistakes. But I was also making enough money that I could have put myself on a permanent 4% rule right then if I'd been sensible. Instead, I tried and gambled on different things, fortunately being able to overcome mistakes with earning power. I'm here today to share what I've learned with almost every athlete.

Because no athlete in the NBA has earned more than A-Rod, so he has a unique position to help them.