Exactly how did Mike Tyson get into such obscene debt?

General Questions
#1

Okay, I’m well aware that stories of athletes who got incredibly rich and then just frittered it all away are legion. Some of them fell in with the wrong crowd, some of them attempted expensive ventures that had no chance of succeeding, and some just spent and spent until there was nothing left. And Mike Tyson was never known for his good reasoning, so it’s hardly a surprise that he was eventually busted.

But over $40 million in debt?? How the freak did this happen?

Okay, probably the biggest source of debt for a millionare athlete is the way-too-expensive home with the big payments. But Tyson lost all his homes and is reportedly sharing an apartment with an old friend. Even if he got nothing back for the money he put into his residences (which is unlikely), he can’t still be making payments on property he doesn’t even own anymore.

He’s also famous for giving away lavish presents to his…er, people. But these had to be bought and paid for with money he had at the time; certainly this wouldn’t put him in debt.

Credit cards and other forms of credit? It’s possible to rack up some pretty impressive debts, but they have limits, and certainly not in the range of millions. Likewise, no bank in the world would lend money to someone who’s in the red to begin with.

He’s severely cut back on his “employees”, which means a lot of severance pay, but that’s a one-time payment. And I seriously doubt that a lot of these employees were just willing to stay on and accumulate back pay that he had no way of paying just on the off chance that he might someday strike it rich and make good on it.

He has a lot of back taxes, but even that’s only about $17 million or so.

Busted, tapped out, and flat broke, I can understand. But for Tyson, the hole just gets deeper and deeper (and this is someone who made $400 million in his career, don’t forget). What’s going on here?

#2

The last numbers I saw were $38MM in debt currently, with career earnings of $300MM. But, no matter.

It all adds up; I’m sure he’s coughed up a bit in legal fees and settlements, in addition to what you mention.

#3

Because Tyson’s a complete idiot. If he couldn’t box he’d be sweeping streets.

#4

In case you haven’t noticed, boxing promoters are notorious cheats. There’s one in particular, who shall go nameless, that has cheated his fighters out of nearly all their earnings. One top fighter won a championship bout and lost money on it due to financial shenanigans.

Boxing has always been corrupt, but since the 1970s it has gone around the bend and over the falls. So a lot of people are tuning it out and the money that could have been made can’t be made anymore. The golden egg laying goose is dying.

As to Tyson in particular. This guy is even dumber than most fighters. I seriously doubt if even a tiny fraction of his “earnings” ever made it anywhere near his bank account. So he goes and wins $20M in a fight, spends $10M of it ASAP and then finds out years later that he never even collected $1M from the fight.

#5

A not necessarily correct assumption. Much of Tyson’s, or more likely the Tyson “posse”'s, prodigal lifestyle would NOT have been paid for with “real” cash-in-hand, but rather with cash obtained through what would be essentially a credit advance against a future inflow of purses. Inflow that, as mentioned before, was very likely reduced to a fraction of its paper value by the time it actually got to Tyson’s bank account; that stopped cold prematurely when he got sent to prison, and that has failed to rematerialize as expected since he’s no longer who he once was. Add to that how the expenses and debts run up by his “peeps”, would have been put on HIS tab. I can also conceive of him taking out overvalued mortgages (thus actually losing money when he sold later) and blowing money on “ventures” initiated by those around him but where the name in the line that says who’s responsible was “Mike Tyson”.

You can also look at it as his being by himself the entire workforce of a “business”, one run very badly so that the workforce’s savings and retirement money got blown, but on top of that, he was personally responsible for all obligations. Imagine if the Enron employees not only got all their savings wiped out, but on top of that were socked with the corporation’s and the Executives’ debts and fines.

#6

He was one of those people that think they have so much money that they will never run out. Then he spent it all and ended up in debt.

#7

It’s possible to borrow heavily on the expectation of future earnings and when those future earnings do not arise, you go deeper and deeper into debt.

#8

The foolish borrowing and shady management that others have mentioned probably went hand in hand - the people most likely to have “loaned” Tyson the money he was wasting was his own managers. By fronting him the money they would have made him more dependent on them.

#9

It might be educational if we had full and complete access to the complete financial records–avowed and hidden–of various boxing promoters and managers such as Don King. I wonder what his actual net worth would be.

#10

In a hypergrowth situation, expectations can rise faster than the reality and the expectations build a momentum of its own, carrying the process far beyond the merits.

At some point in Tyson’s career, the sky was the limit to future earnings. That wasn’t ever the fact, but it was the expectation which continued far too long.

Until the internet, we had to call this the “tulip mania” phenomenon. We now can call it the “dotcom” principle.:smiley:

#11

Thanks for the insights, as always.

Not having been a part of the dotcom bust, I guess I’m just not used to the concept of spending against future earnings. (Unlimited liability…i.e. the posse racking up debts under Tyson’s dime…that I understand.)

Interesting thought: You could make the case that had he gone to prison a little sooner, he would’ve been scared straight at a time when he still was strong enough to win the big fights. Which might…just might…have allowed him to get back to zero, end bankruptcy proceedings with a clean slate, and allow him to walk away from this wretched business for good. Just a thought.

#12

I think the OP understands that, and was specifically asking how it was possible for Tyson to reach a net worth of $0.00, and then continue to spend until he was $40 million in the hole.

My guess is that an A-list celebrity can coast for quite a long ways on his name and face alone. For instance, he could probably walk into a five-star hotel and ask for a suite, and they’ll just say yes sir. They’re not going to run his credit card. When the time comes to settle up, the celeb just gives the manager the name (reputed) of his business manager.

#13

These documents at The Smoking Gun may begin to answer your question.

Here are some highlights: [ul]
[li]The aforementioned $13M owed to the IRS in Fresno, CA[/li][li]A hearty $4M owed to Inland Revenue Service (UK)[/li][li]$173,000 owed to Jewelry, Inc. in Las Vegas, NV (where else?)[/li][li]$308,000 owed to CLS Limo Services[/li][li]Over $1M to various consultants[/li][/ul]

I mean, when Mike Tyson and/or his posse take a limo somewhere, it ain’t free. But, I hardly think the driver asks to be paid at the destination.

“Just put it on my tab”

#14

It’s not just boxers. Writers and musicians (who frequently earn royalties per unit sold) are written advance checks out of expected (future) sales. I imagine it’s possible that their performance contracts may contain clauses to ensure the company makes its money back should sales fall short of expectations.