Life after fame: When super-rich stars go bankrupt
Cape Town - Seventy percent of people who receive a large windfall of money end up going bankrupt a few years later, according to research.
Former German-born tennis star Boris Becker is a case in point. Once the youngest player to ever win the Wimbledon men's tennis singles championship, 49-year-old Becker was declared insolvent by a UK Bankruptcy and Companies Court at the end of June 2017.
Becker, who according to news reports at one point boasted an estimated personal fortune of over £100m (R1 753m), is not the first nor will he be the last professional athlete to become a victim of poor financial planning.
Henry van Deventer, head of wealth strategy at Old Mutual Wealth, says that when it comes to securing wealth, the principles are universal.
“When you consider their great success, it’s difficult to believe what happens to many pro athletes and their money.
“However, there are no super financial solutions for sport superstars. The principles of securing wealth with sound financial advice still applies – if not more so when earnings escalate drastically.”
Van Deventer says that sports stars are particularly susceptible to bad financial decisions and unscrupulous advice as their earning power tends to peak in their youth, an age group that often has not yet fully developed its financial acumen.
“Sports stars have the buying power to purchase what their hearts desire, but this becomes addictive. Studies have shown that buying ‘fun stuff’ increases happiness levels, but this happiness is short-lived and requires one to keep buying better stuff to maintain this high.
“This is known as the ‘hedonic treadmill’ and is a surefire way to never having enough money to be happy and falling into a bottomless spiral of expenditure.”
But, what many sports stars don’t consider, Van Deventer says, is “life after the fame”.
“If an athlete retires at age 35 after, say, 15 years of making money at their peak, they may have as many as 65 years of ‘retirement’ to fund from just 15 years’ worth of income.
“In a relatively short period, professional athletes need to generate sufficient wealth to sustain their standard of living for the rest of their lives. This lifestyle financial plan is essential, as it takes an individual’s current situation into consideration and then focuses on specific lifetime goals and the steps that need to be taken to achieve these goals.”
Van Deventer stresses that only once this plan is in place and investments are prudently managed, should someone start considering enjoying his or her wealth.
Developing such a lifestyle plan is even more crucial for modern professional athletes, who enjoy multiple streams of income that may fluctuate from month to month.
“They may receive a base salary and performance bonus from their club, as well as revenue from sponsorships and public appearances. And when earnings escalate dramatically over a short period, it’s easy to be tempted to overspend on status symbols.”
However, spending more money than you earn is a universal recipe for bankruptcy, Van Deventer cautions.
“The most important lesson that we can take from financial planning for sports stars is the need for wealth and investment management and financial planning. With this, people can find out if there will be enough money at retirement to secure the lifestyle they have become accustomed to at the end of their career.
“Should there be a shortfall, it is better to know earlier so that corrective steps can be taken to close this gap, even if it means downscaling slightly.”
* It's National Savings Month. Do you have a successful savings plan or story to tell? Share it with us now and help others to also become Savings Heroes. For more on savings visit our special Savings Issue.Read Fin24's top stories trending on Twitter: Fin24’s top stories