The winners of this Sunday’s Super Bowl will have much to celebrate. In addition to their team victory, the players will see substantial financial bonuses, including potentially richer contracts and future sponsorships. Even the players who lose at football will be financial winners. After all, they, too, made it to the Super Bowl, one of the world’s most-watched sporting events.
The 2016 championship game may mark the career finale for some of these extraordinary players. Will Peyton Manning retire after this year? Will anyone else leave football? If they do, sad to say, they may be in for some bad news. Our research shows that a surprising number of NFL players declare bankruptcy not long after they retire.
For our research published last year in the American Economic Review, we collected data on more than 2,000 players—all of those who were drafted by the NFL from 1996 to 2003—and followed them until 2013. We were interested in seeing how well football players do, financially, after they leave the game. Because it is very hard to find out how much they earned and spent after they retire, we looked at a simple measure of financial distress which is publicly available: bankruptcy filings. And we found that things did not go well at all.
Football players, even those with short careers, usually earn more than what most college-educated workers earn during a lifetime. Because NFL careers are so short, the players’ post-NFL retirements can be long. Many get other jobs, but only a tiny percentage end up with coveted high-salary jobs such as sportscasting. Following all the players together as a group, as they retire, players start going bankrupt. After 12 years in post-NFL retirement, more than 15 percent of the players we followed had declared bankruptcy. We also found that bankruptcy does not depend on how much an NFL player earned in their career or how long he plays. Amazingly, higher income or longer careers seem to offer little protection against bankruptcy.
These findings have been documented, with some variation, by other sources. There are numerous news stories and interviews describing instances where players have lost all the money they earned. Unfortunately, we continue to witness this phenomenon each year.
We offer three recommendations that could help keep these professional athletes celebrating financial success long after the Super Bowl. These guidelines apply to anyone who finds himself/herself with a lot of money earned in a very lucrative short-lived career.
First, become financially literate. Exposure to basic financial knowledge helps young people understand not just the workings of interest rates and financial markets, but it also builds healthy habits around money and money management. The opportunity to become financially literate before contracts are signed and large sums of money are earned is probably the best medicine for the financial health of these high-earning young professionals.
Second, learn to manage money. Money-management training could be a key part of contract signings or receipt of bonuses. Athletes are used to the kind of training that requires enormous discipline, and they are very good at it. Comprehensive money-management training could offer information that goes beyond simple recommendations for investments or rookie camps. Players could get training that helps them to figure out how far into the future their money can last, how to build a budget that allows them to achieve their objectives, and how to help their families and friends without putting themselves at financial risk. An extra benefit is that managing their own money well makes them into financial role models in addition to athletic role models. The same traits that make players successful on the field—practice, persistence, and the ability to overcome setbacks—can make them successful in managing their finances.
Third, choose a pay structure wisely. Financial advisors often tell big lottery winners to arrange their winnings to be paid over decades, rather than in one tempting lump sum. How about a system that offers remuneration as a series of payments over a long period of time? This option could generate a stable standard of living for those players who prefer not to engage in complex money management decisions. It also has the benefit of showing how far the money that athletes receive in a single contract can, indeed, go. After all, the income earned by college-educated people who are not professional athletes is distributed over a lifetime. And it is a way to tie ones’ hand and resist the temptation to spend it all. A lot of research has shown that these types of commitment devices work like wonder.
Wouldn’t it be something if the winners in this year’s Super Bowl could wear their Super Bowl ring proudly for the rest of their lives, rather than having to sell it some day to stay afloat?Colin Camerer is a neuroeconomist and the Robert Kirby Professor of Behavioral Economics at the California Institute of Technology. In 2013, he was awarded the MacArthur Fellowship