When Big Money Contracts Cause Big Problems...

Last week it was reported that current Columbus Blue Jackets defensemen and former University of Michigan player, Jack Johnson filed for bankruptcy. Believe it or not this is a huge growing problem in professional sports, even with all the high dollar contacts that are being signed in this day and age.

Photo of Jack Johnson courtesy of detroitnews.com 

What’s a bit different in this case is that is wasn’t Johnson, who is currently under a $30.5 million contract, who made poor financial decisions, but his parents. That’s right, his own parents who he had trusted to manage his finances after signing a 7 year deal with the Los Angeles Kings in 2011. It was during this time that Johnson, for whatever reason, signed away his power of attorney to his parents Jack Sr. and Tina Johnson.



Yahoo Sports reported that Johnson, prior to the filing, had claimed assets of under $50,000 with debts as potentially high as $15 million. Bad advice from financial advisor Simon Vo, who convinced the parents that borrowing against future earnings, otherwise known as “monetize,” was a good idea.  Johnson has now cut off ties with parents and has surrounded himself with his own financial advisory staff. This unfortunately, is a move that was made a little too late.

Photo courtesy of yahoo.com

Johnson will learn a lesson from this as he’s added to a long list of professional athletics who have had to file bankruptcy. The most notable on the list is former heavyweight champion Mike Tyson, who aside from his successful boxing career that earned him $400 billion, is infamously known for his bizarre purchase of three white Bengal tigers, who cost him over $500,000 for one year. Besides these types of foolish purchases, bad investments, lavish lifestyles, and not understanding how taxes work were additional reasons for bankruptcy filings as  outlined by the 2012 ESPN 30 for 30 documentary titled “Broke.” This film included a startling fact that “By the time they have been retired for two year, 78% of former NFL players have gone bankrupt or are under financial stress. Within five years of retirement, an estimated 60% of former NBA players are broke.” This is amazing to me.


So how did all happen? Well first and foremost, most high schools aren’t required to provide any type of personal finance education. Most young adults just don’t understand personal finance. Add that to the fact that the minimum NFL salary for example is $420,000 and that’s all you need to know. The NFL is attempting to fix this problem by offering a financial education program by providing p with unbiased financial advice. Still even with this effort, it’s hard to see this problem going away anytime soon.

 

References

https://www.youtube.com/watch?v=TSOAwNSv8EM

http://espn.go.com/30for30/film?page=broke

http://www.accessathletes.com/blog/blogdisplay.cfm?/Education-is-Key-for-Pro-Athletes-596

http://www.sportingcharts.com/articles/off-the-charts/50-biggest-athlete-bankruptcies-in-sports-history.aspx

http://www.therichest.com/sports/boxing-sports/the-most-ridiculous-purchases-mike-tyson-has-ever-made/

http://www.pacificawealth.com/professional-athletes-sudden-wealth-the-nfl-financial-education-program/

http://sports.yahoo.com/blogs/puck-daddy/jack-johnson-files-for-bankruptcy-thanks-to-parents--loans-against-contract-154348457.html;_ylt=A0LEVx.0E3FUdkMA3sRXNyoA;_ylu=X3oDMTEzZWc0cGhpBHNlYwNzcgRwb3MDMwRjb2xvA2JmMQR2dGlkA1ZJUDUyMV8x

http://www.detroitnews.com/story/sports/nhl/2014/11/20/blue-jackets-jack-johnson-files-bankruptcy/70026196/