Better Pay(ment System) for Pro Athletes

Pro-athletes as a group are terrible with money. It’s not merely that they’re bankrupt within a few years of leaving their sport; many don’t save enough cash to make it through the off season.  You could blame the athletes, but the system is really set up to create this problem. You’re taking mostly poor 22 year olds, selected for their ability to take risks and disregard odds, telling them they’ve won their ultimate dream and giving them more money than anyone they know has ever had.  Of course that goes poorly.  I’ve watched programmers from middle class families go kind of nuts their first year working, and that’s a much smaller transition they’re much better prepared for.

The money goes to a few major places

  1. Status competitions with other athletes
  2. Helping out people the athlete genuinely wants to help- his loving mother, the little league he got started in.
  3. Helping out people the athlete doesn’t want to help, but can’t figure out how to say no to- abusive parent, cousin’s former neighbor’s boyfriend
  4. Child support
  5. Terrible investments.  It’s hard to sort out good investments from bad when you’re 22 and everyone you know is in debt.  Also overlaps with 3 a lot.
  6. Being 22.

I have a potential solution: hold back most of their salaries.  Pay each athlete the same amount (say, whatever the lowest paid person makes now), and put the rest in a trust, invested in index funds or even bonds.  After they retire, gradually shift more and more of the money into their control.  Here’s why I think this would work:

Status competition is a zero sum game, so nothing is lost if you handicap everyone equally.  3 and 5 are essentially taxes on people knowing you have money, so they go away if you don’t have access to it.    Child support is here to stay, but the current calculation is stupid: it’s based on current income only, which means athletes pay through the nose while they’re working and then need to go to court to get it lowered when they retire.  Income smoothing for the athlete means income smoothing for the child as well, which is ultimately better for them.  And being 22 will definitely be fixed with time.  After retirement, when they’re a little older, a little more experienced with money, and have the time to learn how to invest, they’ll make better choices.  Turning over the money gradually gives them space to learn without a single mistake ruining their lives.

This will slow down their ability to help the people they love.  OTOH, a few years of largesse followed by a return to poverty isn’t very fun for the recipients either.  We’d get fewer “I bought my mom a house” draft stories but also fewer “athlete’s entire extended family facing foreclosure on 9 different houses” retirement stories.

It would be paternalistic for a league to impose this on athletes, but I see no reason a players’ union couldn’t demand it.  There’s precedent for solving player collective action problems with union demands (no one in the NHL wore helmets when they were optional because they reduce visibility and make you look like a wuss, but their union demanded they be mandatory).  They might even be able to demand some portion of endorsement money go into the trust

Also potentially useful tactic: focus athletes on what they will do after retirement.  Warning them they probably won’t play that long and money doesn’t last forever doesn’t work because people who believe odds apply to them don’t become professional athletes in the first place.  But “there will be time after football” isn’t an odd, it’s a fact.  If we redirected children and college students to view sports as generating the seed money for their real life goal, they’ll develop more skills and think a little harder about spending money.  Bonus: the 99.99999% of aspiring athletes that don’t become pro athletes will have useful skills to fall back on.

2 thoughts on “Better Pay(ment System) for Pro Athletes”

  1. What if people offer them loans on terrible terms to be paid back with their post-retirement payout?

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