Thursday, August 20, 2015

Is Frugality the New Living Large?

The news that rap mogul Fifty Cent filed for bankruptcy not long ago surely raised a few eyebrows. After all, he seemed the very epitome of living large – but then, living large is something of a fickle illusion. Recent history is littered with examples of entertainers who rocketed to fame and fortune, only to come crashing to earth ignominiously, stunned when the seemingly endless good life abruptly fizzled out: Fifty’s fellow bankrupted celebs include MC Hammer, TLC, and Toni Braxton (twice), to name just three well-known examples.
Athletes too can suffer the same financial fate: boxer Mike Tyson, basketball’s Scottie Pippen, baseball’s Jack Clark, and many more. While players are active the money faucet seems like it will never stop flowing, but in a few years it can dry up – and for shortsighted athletes, who often have no other job skills, their savings dry up just as quickly. In 2008, the NBA Players’ Association claimed that 60 percent of pro basketball players go broke within five years of retirement. That is a sobering statistic.
Or it should be, anyway. But athletes in their prime are living in the eternal now of youth, and feeling invincible. Even when they do have one eye toward the future, most have no conception of how to manage the bucks they rake in.
Vin Baker, for example, spent 13 years in the NBA, playing in four All-Star Games. But alcoholism and a string of bad financial choices such as a failed restaurant combined to wipe out nearly $100 million in earnings.
“When you make choices and decisions and think that it will never end, and then you get into spending and addiction and more spending, it’s a definite formula for losing,” Baker said. Asked what advice he would give other players, he said, “I’d want guys to not take the money for granted. It can be here today and gone tomorrow… As quickly as that contract can be signed, there are a hundred things that can also ruin it.”
When Jets cornerback Antonio Cromartie first came into the NFL, he had an addiction also – to spending money. “I was out of control,” he said. Cromartie blew all the guaranteed money from his rookie contract – about $5 million – in his first two years in the league, on luxuries like nine cars, two homes, jewelry, and hangers-on.
Cromartie now shares his hard-earned financial experience with teammates: “I want to help others learn from what I did wrong,” he said. “I tell the young guys, ‘Don't spend any money the first year and a half of your career. You don't know what will happen after that.”
Baltimore Ravens guard John Urschel reportedly lives on $25,000 a year and even had a roommate last year to keep expenses down. Urschel made $564,000 in salary and bonuses as a rookie in 2014. His deal is worth $2.3 million, but only the $144,000 signing bonus was guaranteed. If he gets cut, the team owes him nothing, so Urschel is keenly aware that he needs to make the money last.
Toward that end, he drives a used 2013 Nissan Versa which he bought for $9,000. His modest ride looks rather hilarious in this tweeted photo of it between the massive, expensive vehicles of a pair of fellow players, but I don’t think anyone will dare ridicule the 308 lb. Urschel about it.
Another example is Detroit Lions wide receiver Ryan Broyles, who was drafted in 2012. His contract was worth over $3.6 million, more than $1.4 million of which was guaranteed. But Broyles had seen other athletes blow through their stash, and he was determined to avoid that. He met with a financial adviser who urged Broyles to figure out his means, set a budget, live within it, and invest the rest.

Broyles says that he and his wife have lived on about $60,000 a year throughout his career so far. Everything else has gone toward ensuring that his post-football monetary future is set. He drives a Ford Focus rental car during training camp and he still has his 2005 Chevrolet Trailblazer from college. “Whatever comes, it's just a blessing,” he says. “But I got the mindset of a businessman off the field, I'll tell you that.”
Broyles now coaches others on finances. Earlier this year he traveled to Washington, D.C. to speak to students about financial planning. He is working with VISA and the NFL on promoting financial security and planning.
Players like these are becoming the new role models for up-and-coming athletic superstars. HBO has even centered a new show, Ballers, on a former-athlete-turned-investment-counselor (played by Dwayne Johnson) who tries to knock financial sense into athlete clients before their dream jobs turn into nightmare unemployment.
My friend Eric Matthews, a wealth advisor and associate vice president at the Beverly Hills investment firm LourdMurray, represents entertainers and athletes. I asked him if he is seeing a trend of budget-consciousness among his clients, or if the temptation to live large is still too great.
“I think the lure will always be there,” he answered:
I have a rookie wide receiver I am working with now. He got back from rookie camp and already wants to own a big tricked-out SUV in addition to the sports car he wants to buy. He's living on the minimum and isn’t even guaranteed a spot on the roster yet. He wasn't talking like this before rookie camp. Now that he's back I saw the twinkle in his eye for stuff. I have to remind him that he didn't work this hard in high school and college to get to this level in his career to blow it all on cars and trucks. We have to think bigger picture. It is starting to resonate deeper the more time I spend with him, but it takes time and education. There is a whole world for these guys to discover still.
But Matthews does see a greater financial awareness, especially among younger clients:
Millennials and the iGeneration want more transparency. Many want to know where others went wrong. I always tell them that we need to focus on what we can control, and the hard part that a client can control is their behavior. A lack of money discipline is what really hurts guys.

The good news is that many young players are wising up to the foolish and illusory nature of living large and embracing the advantages and stability of frugality. As Eric Matthews told me, “What these young players are realizing is that they don’t need to be the next example of a broke athlete.”
From Acculturated, 8/17/15