David Hasselhoff is broke... how the hell?

[actualliberalnotoneofthose]

@Patch

There’s a great episode of the ESPN show 30 for 30 entitled Broke. It’s all about how the majority of professional athletes, who earn millions a year, are broke only a few years after they retire. As Icarus points out, if you spend more than you make, you’re going to go broke, and it’s real easy to let that money slip though your fingers.

The majority of pro athletes make less than a million a year and are out of the game within a few years.

I won’t nitpick too much and just assume you only mean guys in the "majors: and not minor league baseball players (as low as 4 figure yearly incomes), NBA D-leaguers, NFL practice squaders, the MSL guys who make 30 grand I see at the Olive Garden, etc.

Right now there are 90 guys on each NFL roster, over 1000 of those guys will get cut before the regular season and make $0 this year, outside of training camp per diems and other negligible money. Sure some of the undrafted rookies get 5 grand, maybe even as high as 20 to sign, and some of the late-rounders get a little more. But their salaries are only paid on a prorated basis for games they are on the roster. Ex, a guy who makes $850,000 (still not millions), but gets cut after week 1 actually makes around 50 grand for the season. Sure a few will pick up practice squad or single game checks here and there, and some had significant bonuses or other guarantees, but not many. Most of the guys on the fringes of the rosters are minimum salary payers (all below 1 million) and the pay structure and salary cap encourages using younger lower salary guys at the less-flashy positions.

There was a guy drafted in the 1st round of the NBA a year or 2 ago who agreed to spend the year in the D-League for around 30 grand. Most 2nd round picks are not offered guaranteed contracts and start out well under $1 million.

Major League Baseball players are team-controlled for the first several years and the team just gives them whatever contract they feel like, usually a little over $500,000. Sometimes the teams will make an empty gesture- like if the minimum is $500,000 and the guy had a good year they will tender him at $507,000 or something a little higher. Many players refuse to sign their contracts as a symbolic protest.

The big money is in free agency. Most players in all sports never make it there, unless they are cut. And then, as mentioned, NFL contracts are pretty much made up numbers that are never earned. I don’t think there has ever been a long-term big money NFL contract that has been earned without a restructure. Maybe if Drew Brees plays out this year without an extension but I’m not sure. Even guys who aren’t cut before the end of the contracts usually are forced to take paycuts or do the team a favor by restructuring to smooth out the cap hit. Even Peyton Manning had to take a $4 million pay cut in guaranteed money to be allowed to come back to the Broncos last year. Tom Brady restructures his deal frequently, though this year it will save him money if he’s suspended.

Unless the guaranteed money is structured in an unusual way that makes it impossible to cut a player at any point after year 1 and before they end, All NFL deals are essentially 1 year contracts, and the only guaranteed money is the guaranteed signing bonuses. You always hear the reported contract amount and a few days later an NFL blogger will find the details and the real numbers. It’s always crazy, but usually something like “So and So signed for up to $40 million over 5 years, with 20 million guaranteed for injury,” but then the actual deal is $8 million bonus and salaries of $1 million, $2 million, $9 million, $10 million, $10 million (this guy is getting cut after year 2 no matter what, if that isn’t obvious) with some date every year when the guy can get cut without being owed anything else. So the 5 year , $40 deal is at most a 2 year $11 million deal with a team option to pay an over the hill player $10 million a year on the decline.

[astorian]

We’re wandering pretty far from Hassellhoff, but for a moment, consider a young athlete who has just signed a 3 year $8 million contract. Let’s say that after taxes, he has $5 million.

Now, if he just put that money in CD’s, he’d get at least $100,000 a year- plenty to live a middle class lifestyle for the rest of his life. But even if he’s NOT a wastrel, he’s likely to have other priorities. Not even BAD priorities necessarily.

He wants to take care of his Mom, so he buys her a nice house. Say that costs $500,000. He has to buy a house for himself. Then he has all kinds of friends and relatives who surround him, needing help. If he’s a nice guy, he treats them as generously as possible.

That doesn’t leave much, does it? And IF (as is usually the case), he has a short career and never gets another big contract… well, he’s screwed, isn’t he?

Oh, to be sure, MANY athletes blow big bucks on all kinds of stupid things. On that*** 30 for 30 ***special, a mind-blowing number of star athletes impregnated multiple women and were on the hook for big child support payments to mothers who were just one night stands.

But even if you DON’T live a wanton lifestyle, it’s easy to run out of money fast JUST by trying to take care of family.

[RickJay]

@Arcite

I’ve always assumed that the fundamental problem with all these athletes/actors/musicians who go broke is that they’re not investing it, they’re just spending it as it comes in during their heyday. You and I might think that it’s intuitively obvious that if you come into a multi-million dollar windfall, the first thing you do is set up a conservative investment portfolio to provide yourself with a steady income for the rest of your life, and you don’t touch your principal. But we’re not the kind of people who become pro athletes and rock stars.

Perhaps quite pertinently, a common characteristic of famous athletes and rock stars is that they become very rich very young. Pro athletes usually hit the jackpot before they’re 30 and often younger than 25, while rock stars peak around what, 25? 26?

A person with little life experience isn’t going to realize the different risks inherent in the whims of income and stability of savings.

Obviously, there is a big difference between a professional athlete who gets just a few big paydays and pockets maybe $3 million total - an amount that he probably never sees half opf, given taxes, agency fees, etc and someone like Mike Trout who is guaranteed to make hundreds of millions of dollars. $3 million - no, it’s $1.5 million - is not going to last you forever, and that guy is unemployed at 30 and has spent his entire working life practising a skill he can no longer profitably rent out.

I’d be interested in knowing how many REALLY successful athletes and rock stars blow it all. As much as we do hear about the MC Hammers and Lenny Dykstras who end up broke, the superstars mostly seem to live very comfortable lives with little fanfare.

[Bridget_Burke]

Hasselhoff’s divorce settlement was not handed down by a judge. The agreement was hammered out by teams of lawyers on both sides. Perhaps he ought to have included provisions for a possible future decline in income.

[Shodan]

Another factor at least about pro football players is that those $100 million dollar contracts are reduced not only by injury, early retirement, and taxes, but other factors as well.

I have a relative who plays pro football, and his contract was for some ridiculous amount of tens of millions. He got a signing bonus, but a lot of it is paid out only under circumstances that aren’t likely to occur. For instance, he gets a bonus for every touchdown he scores. He is a left tackle - he has never scored a touchdown in his whole career. OTOH he gets a bonus every time he makes the Pro Bowl, and he has collected that nine times IIRC.

I doubt he is ever going to be broke - his undergraduate major was business, he did an internship with some large investment firm, and he takes after his father, who is a more-than-successful business man. And he doesn’t piss his money away on cocaine or women or divorces or overpriced cars.

A lot of pro athletes never had any money growing up, and have no concept of managing money for the long term.

Regards,
Shodan

[Arcite]

@RickJay

Perhaps quite pertinently, a common characteristic of famous athletes and rock stars is that they become very rich very young. Pro athletes usually hit the jackpot before they’re 30 and often younger than 25, while rock stars peak around what, 25? 26?

A person with little life experience isn’t going to realize the different risks inherent in the whims of income and stability of savings.

Well, what I meant by “we’re not the kind of people who become pro athletes and rock stars” was not that we’re older, it’s that even at age 15 I was a nerd, fantasizing not about sleeping with models and driving Ferraris, but about winning the Publisher’s Clearinghouse Sweepstakes, conservatively investing the principal, and having a guaranteed comfortable income allowing me to sit around a quiet house in the suburbs reading books and watching movies for the rest of my life.