Why Are 40% Of Football Players Going Bankrupt?
Almost every week the same story hits the press – a mega-rich celebrity, musician or premiership footballer has declared bankruptcy. Recently both Scary Spice (net worth of over $50 million) & Boris Becker ($126 million net-worth) both ended up bankrupt.
But perhaps most disturbingly is that a reportedly 40% football players now declare bankruptcy post-retirement.1
Are ex-players simply squandering their millions? Or do similar threads exist throughout each story, that we can learn from?
So we dived in, researching a host of bankruptcies to discover why and what lessons we could learn…
Aggressive career earnings before financial wisdom
Most footballers earn in a year what many earn in a lifetime then slam into retirement a few short years later. It is as if their entire financial life is compressed into the same time it took us to graduate from university.
Good financial habits and decisions need to be made as early on as possible. However many of us are five years into a career before we consider reviewing our own financial health – pensions, investing into an ISA or even living in a surplus increasingly doesn’t start until our late twenties.
If a footballer were to follow the same timeline he might well find himself in retirement before he’s even started.
Lesson 1. Create good financial habit’s early
As pointed out in several popular personal finance books such as How To Own The World and Why Wasn’t I Taught This at School? decisions to live in a financial surplus and investing need to be made early. This is no better proved than the tale of the two investors.
Jack began investing £500 a month at aged twenty for ten years (a total of £60,000), at thirty he then never invested a penny again. Thirty-five years later (at retirement age) at a return of 10.99% (the average return of the FTSE All Share) he ended up with £5,136,211 (yes 5 million!).
Compare this to the Billy who began investing at age 30, again £500 every month, yet this time for 35 years (a total of £210,000), yet despite achieving the same rate of return at retirement age would only end up with £2.5 million, 51% less than the Jack, despite investing 250% more.
Even if you have £10 to start with, simply setting up accounts, direct debits and getting into the habit enables you to know exactly where to put your cash once it arrives and sets you up for the future.Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it - Einstein Click To Tweet
Keeping up with the Jones
‘I saw wealthy players buying their designer wash bags and new cars and felt I had to keep up with them.’ Danny Cadamarteri (ex-premiership football player) told FFT. ‘It’s easy to get caught up in it all.’2
A silent force seems to exist imploring many to match material wealth to those closest to us and when you’re keeping up with fleets of exotic cars and mansions, debt can sometimes be the only way to keep up.
This creates an ugly situation when earnings being to decline yet car and house costs continue to grow. A perfect financial storm appears on the horizon.
Examples include Eric Dejemba-Djemba who reportedly owned 10 4×4 cars yet declared bankruptcy in 2007. 3
Lesson 2. Don’t get afflicted with lifestyle creep
Investors call it ‘lifestyle creep’ you or I might refer to it as ‘keeping up with the Joneses’. But does it actually make us happier?4
The University Of Bristol ran a research project reviewing the happiness levels of 9,000 people between 1994-1999 and found no correlation between happiness and income level relative to that of neighbors. 5
So if keeping up with the Joneses brings us no additional happiness – why do we keep trying?
Vices that cripple – a culture of gambling
In 2014 a study by the Professional Players’ Federation found footballers are three times more likely to have gambling issues than the average population. 6.
So what’s behind the high rate of gambling?
Doctor Henrietta Bowden-Jones a consultant psychiatrist in addictions for the Nightingale Hospital whose patients include elite sportsman spoke to Four Four Two on the issue:
‘Early life events which were serious enough to make a player want to escape them are also common in players with gambling addictions. Then you’ve got a confident individual who believes that he will be successful in predicting the outcomes of sporting events, combined with a surplus of cash – and that’s a dangerous combination of factors.’ 7
Graham Law a post graduate researcher at the University of Chichester interviewed 34 current and former professional players as part of a PHD in how gambling was affecting performance on the pitch.8
Graham found players were enticed by both a betting culture and as a way to pass time when away from families.
‘Players choose to gamble as a way to relieve boredom on journeys to away matches and after training sessions on pre-season tours.’
Furthermore, one premiership player told him: ‘It’s the culture to gamble in football and it can get dangerous when it grips you.’
Michael Chopra’s (former Newcastle United, Cardiff City, and Sunderland striker) lawyer via the Independent told a court 9:
‘He started gambling when he was 17 and would often wager up to £30,000 in cash with other players on the team bus on the way to matches.’
Furthermore, Dietmar Hamann admitted losing £288,000 on a single cricket match bet, after he took up gambling for a distraction from personal life problems.
Finally, Eidur Gudjohnsen said he lost £400,000 over five months after boredom crept in following an injury.
Lesson 3. Watch your vices
There seems to be an almost endless supply of footballers who’ve been overtaken by alcohol and gambling. Even popular Sky Sports Pundit Paul Merson lost £5m went on gambling, alcohol, and drugs and went bankrupt in 2011.
Often betting can be confused with investing and the high-risk nature of overstretching yourself with huge investments are often the reaction of a gambling mindset.
By keeping investments to a clear routine, getting help for your vices and avoiding cultures of gambling we can hope to avoid the same fate.
Terrible investment advice
Without a clear understanding of how to invest, aggressive career earnings and very public income levels, footballers become a clear target to agents acting on behalf of unscrupulous investments, often copying teammates by sinking large amounts of cash to investments which later come back with a bite.
Whereas an eighteen-year-old might sink his life savings of £2,000 in Cryptocurrency, see his investment plummet and then cash out at preciously the wrong moment. With such a long future ahead of him his chances of recovery are incredibly high, yet if a footballer were to do the same the result could be catastrophic as the money needed to support himself for the next 60+ years could vanish in an afternoon.
Part of the issue is no rules seem to exist around agents who take charge of players money and invest on their behalf, no formal credentials are needed and it’s often the decisions the agents make that the players are unaware of that comes to haunt them.
Dean Windass – Former Hull City Striker declared bankrupcy following HMRC tax bills of £164,000 based on an investment he made which never paid him a penny.10.
Rio Ferdinand, Andy Cole, Robbie Savage, Martin Keown and Danny Murphy were also rumored to have invested in investments schemes by Kingsbridge Asset Management which earned millions in commissions before turning sour.11
The scale was astonishing with the firm admitting to having advised more than 100 players.
Lesson 4. Learn personal finance for yourself – even if using advisers
With such huge wealth footballers often become honeypots with flies all buzzing around them in the form of agents, financial advisers and estate agents who all see footballers as easy pickings.
Even using recommended advisers can become hazardous as players see them as close friends and struggle to fathom whether their advice is genuine or not.
So what can we take from this? Even if you plan on using advisers a basic sense of personal finance can safeguard yourself from bad investments.
I used to be under the assumption footballers were the lucky ones but with a reportedly 40% becoming bankrupt, a divorce rate of 33% within one year of retirement (another assassination of wealth that came up again and again) and a 80% rate of osteoarthritis, I’m starting to feel my terrible football skills were a blessing in disguise!.
That’s before you combine a lack of financial knowledge, often little transferable skills and half the country wanting your cash.
But things are looking up, as charities such as Xpro have been set up to provide a safety net for player upon retirement.12
Tax advisers such as Peter Fairchild has visited in excess of 35 teams, providing teenage academy players with basic advice to lay the foundations for a sound financial future:
“I tell them what they see on their contract isn’t what they’ll see in their bank accounts,” he tells Four Four Two before adding: “They live inside the bubble of an academy, so they’re shocked to hear they might only get half of their wage after tax and national insurance contributions.”13
Finally, even the Professional Footballers Association has now created a commercial arm linking up with Pro Sport Wealth Management, to provide independent financial advice.14
So with these combined networks emerging, we hope the present and future footballers will have a better financial chance than their predecessors and by analysing where they went wrong we too can hope for a more prosperous future.
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Gordon Taylor, OBE writing for The PFA added:
The PFA has always provided financial advice to all our members and provides a non-contributory pension scheme of over £5,000 per year for every member plus death benefit of 4 x earnings up to £600,000.
We also advised AGAINST ‘film schemes’ from the outset and are looking to provide with the Premier League, a savings scheme for all young professionals.
We also financially support the Sporting Chance Clinic and have a 24-hour helpline to assist all players with addictive and mental welfare issues and provide debt advice through a specialist lawyer.