SN Magazine: How to blow $110 million

By Dan Robson
SPORTSNET MAGAZINE

On a rainy afternoon in Philadelphia, a young man walked into a Rolls-Royce dealership, curious because he’d never been close to such a pricey and prestigious car. He wore blue jeans and a matching jean jacket over an old sweater, with cowboy boots. His long brown hair settled on his shoulders, matching his moustache perfectly—a standard look for a 26-year-old professional hockey player from Niagara Falls in 1972. Especially for one nicknamed “The Turk.” The Rolls-Royce dealer, wearing a three-piece suit, sniffed at his presence, folded up the newspaper he was reading and got up from his desk. He grudgingly acceded to The Turk’s request to unlock the front door of a burgundy sedan so he could size up the front seat. “Sir, this is a long-wheelbase Silver Shadow limousine,” the dealer snorted. “Perhaps, if you purchased it, you’d be sitting in the back.”

The snooty treatment embarrassed Derek Sanderson, who had grown up poor. It made him mad, vindictive and then foolish. Sanderson went to the bank to get a cashier’s cheque for $78,000 (that’s more than $400,000 in today’s dollars when adjusted for inflation). He returned to the dealership, made sure the salesman didn’t earn a commission and drove the Rolls-Royce right off the lot.

A day earlier, the shaggy-haired Boston Bruins star of the late ’60s and early ’70s signed the richest contract in sports history—a $2.65-million deal with the Philadelphia Blazers of the WHA (surpassing Pelé on the highest-paid athlete list). But signs of trouble developed immediately. For starters, the Rolls-Royce ran out of gas on the way home. Soon his bank account was running on fumes, too. Sanderson played only eight games for the Blazers in an injury-plagued first season. The team grew tired of the contrast between his lack of performance on the ice and his considerable energy off it. He was a notorious partier, living in a constant haze of booze, drugs and women. After signing his contract with the Blazers, Sanderson covered a month-long excursion to Hawaii for seven people on his American Express gold card—a bill of close to $47,000. “It was cheap then,” Sanderson says. “Draft beer used to be a nickel.”

The Blazers bought out his contract by the end of his first season. He returned to the Bruins in the NHL and was traded to the New York Rangers, where he continued to live lavishly. His substance abuse spiralled out of control. In 1977, Sanderson’s attorney informed him that he’d lost everything. “How can I be broke?” Sanderson asked. “I can’t stay awake long enough to spend that much money.” Years earlier, the hockey star had given power of attorney to the lawyer, a long-time family friend. The lawyer had made a string of bad investments, and that, along with Sanderson’s lifestyle, had drained his bank account. His reckless flamboyance left him with nothing more than nagging loneliness and a debilitating addiction to drugs and alcohol. In the winter of 1979, Sanderson showed up in Chicago stoned. His long-time teammate and friend, Bobby Orr, checked him into rehab. In just a few years, he’d gone from being the world’s best-paid athlete to a drunk sleeping on a park bench.

Consider Sanderson a prequel in the ongoing saga of athletes gone broke—Allen Iverson (who made more than $200 million in his NBA career and now reportedly owes $860,000 to a jewellery store), Darren McCarty (who went bankrupt—due in part to gambling and divorce—and was recently seen working in a Detroit pawn shop on a reality television show), Terrell Owens (who recently claimed to have lost the $80 million he made as an NFL star to bad investments and child support payments of $44,600 a month) and former ballplayer Lenny Dykstra (who filed for bankruptcy protection in 2009 after claiming to have a net worth of $60 million). And these are just a few who have grabbed headlines in recent years. By one estimate, 78 percent of NFL players go bankrupt or find themselves in severe financial distress within two years of retirement. Reports also suggest that within five years of retirement, 60 percent of NBA players are broke. The highs and lows of athletes’ bank accounts have become part of the spectacle of pro sports. How can a financial dream turn into a nightmare? It’s easier than you think.

This week’s issue of Sportsnet magazine, hitting newsstands today, aims to shed light on the epidemic of pro athletes going broke. Every week, it seems, we see another headline of a former star who has burned through a multi-million-dollar fortune, and is left with nothing. We seek to answer the question – how does one blow $110-million? And why does it happen so consistently? As part of that package, Jose Canseco — once the highest-paid star in baseball — opened his home to us, to talk about the regret and pain that comes from losing it all (READ IT HERE). Canseco had not let a reporter spend this much time with him for more than a decade. What follows is a portrait of life’s difficult second act, when the cheering has stopped, the money has disappeared, and one has to ask themselves: what am I, if I’m not a a star athlete anymore? We hope you enjoy the story, and that you’ll check out the rest of Sportsnet magazine,on newsstands now. – Steve Maich

“The story is not about dumb guys,” says Ed Butowsky, a renowned wealth management expert in Dallas who works with some of the top athletes in the world. He likens the experience of a young pro to your average Joe being asked to pull a tooth. You know what pliers are and what a tooth is, but you don’t know how to yank it out. Butowsky lays it out like this: If you’ve made it to the pros, you’ve likely spent your young life focusing entirely on one goal. You’ve grown up with people fawning over your abilities—teachers probably gave you a pass. And if you reach the college level with a legitimate shot at going pro, hitting the books takes a back seat to the gym.

But a potential fortune, compounded with fame and expectation, has the stability of quicksand. “Where the hell in their lifetime were they going to learn anything about [money]?” Butowsky asks. “At no point did they learn anything about personal finance—what a mutual fund is, what a municipal bond is, how the equity markets work. None of that stuff.” What most athletes do know are the things we’re all familiar with: restaurants, bars, bowling alleys, homes, cars. Butowsky says many athletes have dumped about 95 percent of their money into investments in which they should have less than five: private equity and real estate.

Christian Laettner sunk the most famous shot in Duke history in 1992, but 20 years later, after a 13-year NBA career, he and a business partner are facing several lawsuits for about $30 million for real estate investments that clanked off the rim. Among those who lent him cash? Former Dream Team teammate Scottie Pippen and former San Diego Charger Shawne Merriman.

Mark Brunell made $50 million as an NFL quarterback, but he filed for bankruptcy in 2010 after real estate and business investments failed to connect, leaving him $25 million in debt.

In 1991, Raghib “Rocket” Ismail signed a record four-year, $18.2-million deal with the Toronto Argos and led the team to the Grey Cup. He left Toronto after two seasons and made more than $18 million over 10 years in the NFL. Still, less than two decades after his pro career began, Ismail had squandered most of his fortune on investments—including part ownership of a Hard Rock Cafe knock-off and a cosmetic procedure touted to help skin better absorb oxygen. He invested in a record company. And a film. And a plan to create phone card dispensers, as well as stores called “It’s in the Name,” where people could buy framed calligraphy of names and sayings. Everything fell through. According to Butowsky, only one in 30 private company investments actually pan out. “What are the chances that your cousin’s best friend has one of those that’s going to work?”

And therein lies one of the major problems that face young athletes: perceived obligation to friends and loved ones. It’s hard to say no, especially when the world knows exactly how much you make. Over the course of losing the $110 million Antoine Walker earned as an NBA all-star, he is reported to have had as many as 70 friends and family on his payroll. Facing debts of more than $4 million, Walker declared bankruptcy in 2010. It’s an extreme case, but Terry Willis, vice-president at T.E. Wealth in Toronto, sees similar tendencies in the young athletes he advises. “Right away they gravitate to family and friends,” Willis says. “That’s probably the last place you want to go.” Many athletes want to repay Mom and Dad, or buy a fancy car, or party with their friends. Sanderson remembers the calls that rolled in after he made it big. “People say, ‘What, are you a big shot now?’” he says. “You don’t want that. So you say ‘Here’s $50,000, here’s $100,000.’”

Willis cautions clients to think long-term and lays out the blunt realities of life: You might get married, get divorced, have spousal and child-support payments. Never mind the need to plan for retirement, when the millions are no longer pouring in.

Another complicated reality, particularly in the hockey world, is the close relationship young stars develop with agents at an early age, often when a prospect is still a teen. “[Agents] have their hands in everything,” says Willis, “from endorsements to insurance.” There’s an inherent conflict of interest when an agent gets paid fees by an athlete, and then double-dips by getting paid to refer and direct the athlete’s investments. It’s important to separate a financial advisor from someone who gets paid to sell you something, says Willis. Butowsky also warns against the perils of putting too much trust in an agent. There are many exceptional ones, he says, but far too often he sees agents taking control of all financial aspects of their client’s portfolio, without having any background in wealth management.

It’s easy to find amusement in the financial train wrecks that many athletes suffer. But Sanderson says it’s important to consider the circumstances from which many athletes have come. It’s often forgotten that they started out from pretty average means, or worse. Sanderson’s ridiculously opulent lifestyle was driven in part by watching his own father work for $26 a week sweeping floors, before becoming a machinist. “It’s not a cultural thing. It’s not a white thing, a black thing, a Hispanic thing,” he says. “It’s a poverty thing.” Money was new and scary for him, he says. “I was intimidated by it. I didn’t understand it.”

Iron Mike made over $400M in the ring. (Illustration by Drew Lesiuczok))

When young athletes arrive in the locker room of a pro team, it’s common for them to forget where they sit. A rookie makes an astounding amount of money, but not nearly as much as the 10-year veteran a few stalls down. Young athletes often spend at the same level as established players. When prospective clients come to Gavin Management Group in Toronto to get a handle on their finances, they often reveal little understanding of their cash flow. The company was founded by Stewart Gavin, a former NHL player, seeking to offer financial guidance to athletes. “You’re a young guy at 22 and you think you have all the money in the world,” says Chris Slawson, a wealth management specialist with Gavin. “But add taxes, agents fees, social security, Medicare…”

Former NFL defensive lineman Warren Sapp recently filed for bankruptcy, owing more than $6.45 million to creditors, including alimony and child-support payments. Among his assets listed in court documents are $6,500 in Jordan sneakers. The biggest problem, Slawson says, is that many players don’t have a realistic grasp of the money coming in and out.

That might mean little for notoriously high earners and spenders like boxer Floyd Mayweather (who makes up to $40 million a fight), but it can be crushing for a rookie. And even Mayweather—with his notorious gambling, oversized entourage and fleet of exotic cars—could stand to learn a lesson from one superstar predecessor. After earning more than $400 million as the world’s best boxer, Mike Tyson filed for bankruptcy in 2003 with debts totalling more than $27 million. Tyson claims he was taken advantage of financially over the years, but he did spend up to $400,000 a month to maintain his lavish lifestyle. Plus $140,000 on Bengal tigers and $4.5 million on cars. “They just spend too much money. It’s that simple,” says Butowsky.

Still, not all stories end up in financial tragedy. For all the Antoine Walkers out there, there’s also Magic Johnson, who is worth an estimated $500 million after years of savvy business investments. Johnson was recently part of the group that bought the Los Angeles Dodgers.

Players will always be susceptible to outside pilfering or self-inflicted splurging, though, and many experts are suggesting that players’ unions do more to educate young athletes about money management. The MLBPA works jointly with the MLB in the Rookie Career Development Program, which invites top prospects from each team to participate in a series of seminars. One of the sessions is on financial management. The players’ association has discussed setting up a more substantial financial program for active players, but nothing specific is in the works. The NFL has a program that refers active and retired players to registered financial advisors. But neither it nor the NHL and NBA players’ associations responded to requests for comment.

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After hitting bottom in the late 1970s, Sanderson managed to pull himself up. He sobered up, got married and had two sons. He lectured about drug and alcohol awareness in schools and worked as a broadcaster in Boston. Along the way, he studied to become a financial advisor. “I wanted to protect athletes from themselves,” he says. “I wanted to make sure they know what they own, why they own it and what they paid for it.” He co-founded a sports wealth management group in 1990. Today, he works in the professional athletes department of Howland Capital, a private investment firm in Boston. Clients often ask him, with a bit of concern in their voice, if he picks the stocks. He laughs: “I don’t.” Instead, he explains basic principles such as compound interest—how the $56,000 an athlete’s brother wants for a new SUV could be worth $600,000 when the athlete is 65, if properly invested.

He also shares his wild, almost unfathomable tales of life in the fast lane. “It changes you,” he says of a young man’s fortune. He tells clients about the lessons he’s learned, about how lonely he felt surrounded by a world he purchased. “You can’t buy friends, you can’t buy respect, you can’t buy talent,” he says. He tells them about a shaggy-haired kid who was once the highest-paid athlete in the world. How he walked into a Rolls-Royce dealership and pulled out in a dream. And about how quickly the gas gauge said empty.

THEY SPENT HOW MUCH?!

Mike Tyson
Won more than $400m, but filed for bankruptcy in 2003 with debts of $27m. Blame cars, pet tigers and a $2m bathtub.

Terrell Owens
Owes $107,000 a month in child support and mortgage. He still had to spend $10,000 a day to drop the $80m he made since ’96.

Lenny Dykstra
Made millions in baseball, now in prison for grand theft auto. The interim was a wild mess of bad business deals, bankruptcy and lawsuits.

John Daly
How does one lose $60m gambling? Bad math. In 2005, Daly celebrated a $750,000 tour win by dropping $1.5m at the slots.

Antoine Walker
Earned $110 million in his career; filed for bankruptcy in 2010, owing $12.7 million. Charged with writing $1 million in bad cheques.

Latrell Sprewell
Turned down a three-year, $21m deal in favour of… never signing another NBA deal. Money sense that gets two homes and a boat seized.

Michael Vick
Made $37.5 million in 2005. Owed $20 million by 2009. Buying his brother a new luxury car every year probably didn’t help.

Allen Iverson
After earning $154m in his basketball career, he was recently ordered by the court to pay a debt of $860,000 to a jewellery store.

Ric Flair
Lived his ring character every day. Blew huge sums on jewellery, clothes and fine dining. And divorce. And alimony. And tax bills.

Rollie Fingers
Grew an $8m fortune in MLB (and a priceless ’stache). Bad business deals (horses! wind farms!) and tax trouble ended in bankruptcy.

MORE MONEY THAN GOD

Roger Penske
The former F1 star has driven his net worth to $1.1 billion as owner of Penske Automotive (and several other car companies).

Magic Johnson
Investing in Starbucks, TGI Fridays and real estate since his playing days, Magic has conjured up a net worth of $500 million.

Greg Norman
The 11th-richest Australian, the Shark is a one-man brand. Worth half a billion from golf courses, wine, real estate and, of course, hats.

Larry Holmes
Restaurants and nightclubs are standard ex-pro money pits, but the Champ does it right—that’s why he’s got a street named after him.

Nolan Ryan
This hall of famer does money Texas-style: co-owner, president and CEO of the Rangers, also owns an organic beef company.

Junior Bridgeman
After 12 years in the NBA, Junior went major into fast food. Owns 161 Wendy’s, 124 Chili’s and is worth an estimated $200 million.

George Foreman
At the height of the Foreman Grill’s popularity, $4.5m a month was sliding into the Champ’s bank account like so much excess fat.

Roger Staubach
Spent his off-seasons working in real estate. Started his own company in 1977. Sold it all in 2008 for $613 million. Nothing to it.

Tony Hawk
So much more than just the video games: endorsement deals, clothing lines, event management—no wonder he’s worth $120m.

Steve Nash
With $120m in career earnings, Nash co-owns a venture capital and marketing firm, a clothing line, an MLS team and a gym. Straight ballin’.