One in Six NFL Players Goes Bankrupt Within 12 Years of Retirement, according to Caltech researcher Colin Camerer, as reported by WSJ
Adam Rifkin stashed this in Personal Finance
Their findings are different from what the life-cycle model predicts:
Despite big paydays, many National Football League players run into financial trouble after they retire and nearly one in six files for bankruptcy within a dozen years of hanging up their cleats, according to a new analysis.
“Players with median-length careers earn about $3.2 million in a few years. If they are forward-looking and patient, they should save a large fraction of their income to provide for when they retire from the NFL,” Kyle Carlson, Joshua Kim, Annamaria Lusardi and Colin F. Camerer wrote in a working paper released April 2015 by the National Bureau of Economic Research.
Instead, the researchers found that 15.7% of players file for bankruptcy within 12 years of retiring from the league, with little difference based on career length or earnings. “Having played for a long time and having been a successful and well-paid player does not provide much protection against the risk of going bankrupt,” they wrote.
The four researchers collected data on roughly 2,000 players drafted by NFL teams between 1996 and 2003, then looked at earnings data and bankruptcy court records. Career earnings data were available for roughly 900 players.
They found few players file for bankruptcy while playing in the NFL. But filings gradually increase in the two years after retirement, “likely due to a combination of players rapidly drawing down limited savings and having leveraged investments.” The bankruptcy rate increases over time.
The rate of NFL retiree bankruptcy filings was similar to or higher than estimates for similarly aged people in the general U.S. population, they wrote.
(The researchers noted in the working paper that their findings are “quite different” from a 2009 Sports Illustrated article that said 78% of ex-NFL players have gone bankrupt or face “financial stress” two years after retirement.)
The authors wrote that they were seeking to test the theory of consumption smoothing, that people will save more when their income is high to help cover future expenses when their income will be lower. NFL players, they wrote, offer an extreme example of people with large but short-lived income spikes.