Sports and finances go hand in hand, but are only rarely discussed together. Oregon Sports News has covered some aspects of team financial planning and future strategizing, and today’s article takes things a step farther by evaluating actual player accounting and future planning. According to Emma Collins, a higher ed editor who just completed work on the MBA Online 2012 Rankings Report, what pro players need more than anything is some savvy financial training and guidance.
As a business, American football beats baseball, basketball and ice hockey, according to The Economist, football has the highest total revenue, firmest grip on its labor costs, and is the most popular in almost every measure, from opinion polls to television rating, and all this has translated into rising profits for the industry. Despite a weak economy, the football industry appears poised to continue its meteoric growth over the next decade. The structural characteristics within the industry (i.e. the long term nature of television contracts and sponsorships) continue to act largely as a buffer against economic downturn.
In December 2011, the NFL signed a record setting television rights deal with the three major networks, Fox, NBC, and CBS that will result in the networks paying approximately $28 billion in fees over a nine year period (2013- 2022). The new deal goes into effect in the 2013 season. The average $3.1 billion fee per year represents a substantial 63% increase over the $1.9 billion paid annually currently. This deal comes on the heels of an eight year agreement (2014-2022) signed with Walt Disney Co.’s ESPN that has the network paying $1.9 billion annually for its NFL TV rights. The report points out that if we factor in the approximately $1 billion per year that DirecTV pays for its Sunday Ticket package, it means that the NFL will soon be taking in roughly $6 billion per year in television rights fees alone. The report further highlights that from 2000 through 2011, the average NFL franchise value increased by 145%, and an 8.3% CAGR over the last ten years. It also reveals that according to the 2011 Forbes Valuation report, the NFL has 15 franchises worth more than $1 billion and another nine franchises worth over $900 million.
Given the popularity of NFL, salaries of the NFL players seem almost constantly on the rise. As of 2011, the highest paid players made over $20 million. The average salary of an NFL player works out to be considerably less when compared to the top earners, but these players still make hundreds of thousands of dollars each year. Bloomberg Businessweek says the average salary of an NFL player in 2011 was $1.9 million. The median salary was $770,000. When factoring in a typical signing bonus, these numbers can go up well into the $2-3 million range.
Despite heavy cash flow, many NFL players wind up broke. As a recent USA Today 30 article points out, “There is no shortage of current and former NFL players stung by financial distress.” According to some reports, 60 percent of former NBA players are broke within five years of retirement. By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress. Sucked into bad investments, stalked by freeloaders, saddled with medical problems, and naturally prone to showing off, many pro athletes get shocked by harsh economic realities after years of living the high life. As NBC Sports reports, “Every few weeks another story pops up about a former NFL player who made millions of dollars and has now lost all of it.” For the management of their finances the players generally turn to a friend or a family member, many of whom have little or no knowledge of how to properly invest millions of dollars. Many also get sucked into gambling, drug addictions, and generally reckless living — buying sports cars, lavish vacation packages, and the like.
As players accumulate more wealth, it is important to alleviate this unruly spending. The NFL Players Association has initiated a certified financial advisory program in order to help transition retiring players, but this may be but one piece of a much larger puzzle.
Jack Bechta in his National Football Post article emphasizes on the importance of preventive conversations and talks about the safeguards and disciplinary mechanisms that can help a player from not going broke. He gives practical suggestions to the players, The NFL, the NFLPA and the agents conducive towards better management of the players’ finances The National Football League Financial Education Program also provides players with valuable knowledge to manage their personal finances and improve financial decision-making. The non-credit seminars teach players about cash management, insurance, tax planning, estate planning, investments, retirement planning and other related topics.
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