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Millions in regrets
Unscrupulous advisers, bad investments, lavish spending leave many athletes bankrupt
By Melissa Isaacson
Tribune staff reporter
December 18, 2004
If he had ended up playing out his option, Scottie Pippen would have become a free agent and a significantly richer man in 1993. But with a sore back and a history steeped in hardship, he was intent on one thing when he pushed for and eventually signed a five-year contract with the Bulls worth about $18 million in 1991.
"I knew it was a bad deal, but it was all about security for me," he said years later.
Security, Pippen later learned, is a relative and elusive proposition.
Last month Pippen won an $11.8 million judgment against a prominent Chicago financial adviser who was entrusted with $17.5 million of his money and guided him into questionable investments that cost him close to $7 million. Now Pippen and his attorney say they are looking into "other avenues of recovery," which is a nice way of saying Pippen might never see that money.
"It's a situation that goes on every day," Pippen said. "There's always a crook out there."
Pippen made $19.7 million in 1999, his first season with Portland, as part of a six-year, $65.8 million deal that wound up being worth close to $78 million with incentives. He made upwards of $100 million during his 16-year career. Even so, he still is concerned about his financial future.
Pippen is far from alone, even among athletes whose wages defy the common man's understanding. If statistics were kept for every athlete duped by a sure thing, misled by unscrupulous financial advisers or just plain careless with his money, you could stock several leagues and a Hall of Fame.
"People would be shocked," said agent Ron Shapiro, who has 30 major-league clients. "A significant number of professional athletes are de facto bankrupt, meaning their debts outstrip their assets.
"I consult teams in the NFL and the NBA, and one of the teams recently introduced me to a brilliant young quarterback about to lose it all."
The bigger the athlete, as the saying goes, the harder he seems to fall, from Mike Tyson to Kareem Abdul-Jabbar. From Bjorn Borg to Willie Mays. Harmon Killebrew. Brooks Robinson. Johnny Unitas. Tony Gwynn. Jack Clark. Bryan Trottier. On and on goes the roll of former stars who have suffered the indignity of bankruptcy.
Many other athletes have encountered financial problems without having to resort to Chapter 11. In the late 1990s, White Sox slugger Frank Thomas saw his sports marketing company go belly up and his record company fail.
Two months after the NBA lockout began in the summer of 1998, Kenny Anderson told the New York Times he had to sell some of his cars and mutual funds and borrow against stocks. Why? To keep investing and support a lifestyle that included:
A five-bedroom home in Beverly Hills.
$7,200 in monthly child support for two of his daughters.
$3,000 a month in mortgage and other expenses for his mother's house.
Agent, legal and accounting fees of more than $400,000 annually.
$10,000 a month in "hanging-out money."
Anderson also said he had to stop regular handouts of $3,000 to $5,000 to friends and relatives. Fans who read of his "plight" offered more ridicule than sympathy.
Coaches are not exempt. Joe Gibbs told the Washington Post that shortly after becoming coach of the Redskins the first time in 1981, he lost $1.2 million to bad investments and poor judgment and nearly went broke.
Tyson, sports' poster child for fiscal irresponsibility, had earned about $400 million over 20 years as a boxer when he filed for bankruptcy last year, citing more than $27 million in debts he could not pay. More than one observer has tried to figure out what happened to the rest.
Why this seems to happen so often to athletes is a matter of some debate.
"It's analogous to the story of the person who hits the lottery, and a year later you inquire, 'Where are all those dollars you acquired?' and they say, 'It's gone,'" said Bob Cummins, Pippen's lawyer. "It's one of those quirks of life. Or, as the saying goes, 'When you lie down with dogs …'"
Quirks, bad advice, lavish spending, can't-miss business propositions pitched by friends and relatives, gambling—the losses come in all forms.
Shapiro saw them all in his former position as securities commissioner for the state of Maryland. An examination of tax shelters led him to believe that nearly half the professional athletes from the '70s and '80s—before the advent of truly huge money—were left with nothing at the end of their careers.
"The reason it affects athletes is they face great visibility in terms of the amount of funds they come into, so, therefore, they are pursued vigorously by everyone they ever knew with the latest can't-miss scheme," Shapiro said. "More often than not it's people they know and people connected to people they know. The schemes are astounding.
"Enough fraudulent schemes have been exposed that some athletes are learning from other's mistakes, and there's a slightly higher level of sophistication now, so the loss rate is not as high. But you name the scheme and it's out there. It's still a severe problem."
Pippen remains wary.
"It has happened before; why not again?" he said. "You can wake up one day, and someone can decide to take everything you have. It could be your best friend."
On the flip side of the investment-loss phenomenon is the earning-spend phenomenon. NBA players might not be any more susceptible to financial ruin than other professional athletes, but stories of extravagant spending are legion.
"I'm terribly worried because guys are so young now," said the Bulls' Antonio Davis, vice president of the NBA Players Association.
"The perception is, 'I'm an NBA player, so I have to have certain things like a nice car, house, clothes, jewelry.' These things are not cheap. I tell them if it costs 'x' amount, they have to make twice as much to afford it.
"I always try to scare rookies. I tell them they can end up like this guy and that guy. There are tons of examples. But that's the toughest part for guys who are 19, 20, 21 and making some money. You tell them to start planning now, and they look at you like, 'What are you talking about?'"
The NBA and NFL players associations include financial planning advice as part of their mandatory rookie orientation.
Longtime Chicago-based sports agent Herb Rudoy has seen more money managers getting involved with athletes in the last five or six years. The NFL Players Association licenses those it approves, just as it does agents.
Like many agents, Rudoy no longer handles his clients' finances. Neither does Mark Bartelstein, another Chicago-based attorney and agent with dozens of NFL and NBA clients. Bartelstein said would-be financial advisers call his office peddling their services and often offer him a percentage of potential deals.
"But once we do that," he said, "we're not advising our guys anymore, we're profiting off of them."
That's not to say Bartelstein, Rudoy and others do not offer advice, particularly when they believe their clients are making poor spending decisions.
Bill Zito, whose primary clientele is hockey players, is typical of many agents when he says: "I have numerous fights—'No, you can't get it. No, I'm coming to get you.' But it doesn't correspond to how much money they have. Probably our wealthiest client is the most conservative and the youngest.
"When he got his signing bonus I said, 'What are you going to get?' I meant what kind of car, a big Mercedes? And he said, 'Oh, there's this cool leather jacket I want. Do you think I can get it?'
"It could be a car, it could be a plasma TV, it could be a dog. There are so many different life decisions. But for the most part it's not telling them what to do, it's discussing things with them and asking them to reflect about whether it's necessary."
Davis said he often has those discussions with his younger teammates.
"Don't get me wrong, you sign a big contract and you want to buy your mama a house, get a big car, great," Davis said. "Just do it in moderation. You don't need three cars, three houses, eight watches and all those friends hanging around. But they just laugh at me.
"I walk in the locker room and I have like two nice watches and the young guys are like, 'Man, you've been in the league for all these years and you don't have cars and jewelry?'
"Then again, they may laugh at me, but Jamal Crawford called me saying, 'OK, I signed this contract, what do I do?' I said, 'Get yourself a consultant. You're in New York now, so you have to know the New York state tax laws. Is it better to have a condo in Florida or establish residency? And always remember you have to make twice as much to afford what you want to buy.'"
As the Blackhawks' union representative, goaltender Jocelyn Thibault wanted his teammates to prepare for the NHL lockout, now in its third month. That's three months without paychecks, and no end in sight. But Thibault believes most are managing because hockey players, by nature, are a conservative lot.
"It probably comes down to the culture where we come from," he said. "The way to get to the NHL is very tough.
"It's funny, because compared to other sports like football and basketball, pretty much everyone goes to college. You don't see that with hockey, and yet guys do better with their money.
"It's a paradox. Guys make mistakes, but you never hear stories about hockey players losing all the money they have earned. Maybe guys are more street-smart."
Thibault agrees with Davis that educating young players is the best way to avoid trouble.
"A lot of guys send their bills to agents or financial advisers," he said, "and the first thing you know, you're not keeping track of where it's at."
Though athletes have a much smaller earnings window than the average businessman, their financial plans are not necessarily much different. Often athletes are guided into what Shapiro calls "the triangle of risk."
That is, invest the most funds, or the base of the triangle, conservatively, perhaps in mutual funds or bonds intended to help conserve the clients' money and keep pace with inflation. A smaller portion may be invested in somewhat riskier ventures, like real estate, and the smallest amount—the tip of the triangle—is used on "fliers," like riskier stock purchases or small business investments.
John Richter, who handles several athletes for UBS Financial Services Inc., said athletes typically become more involved in their own finances in their 30s "on their second contract, married with a child or two. In general, looking at my client base and other athletes I know, they're looking to do something after they retire.
"I know some people say, 'I want to throw a fishing line in the water,' but I think more are driven, disciplined people, and that has to be channeled in some way, and fishing or staring out the window is not going to be enough.
"Most people feel they can parlay some of their earnings into some other dream they have, assemble a real estate portfolio, go back to their own town or country to start a business with friends and family.
"I hear more of that than, 'I want to make a lot and sleep late for the rest of my life.'"
Bulls guard Chris Duhon may be typical of the new young athlete. He doesn't pay his own bills, but he can trust the person who does—his mother. And he pays attention to where his money is going.
"I usually meet with money people every month and go through every penny so I know everything that's happening," Duhon said. "And then my mom is on top of it while I concentrate on basketball."
Duhon said he is not "a flashy guy" but he is "a giving guy," which can be just as dangerous.
"There are times I have to watch myself and I have to be the bad guy [with friends and family]," he said.
Almost without exception, pro athletes talk about having to learn to say no with friends and relatives.
"You're perceived as the friend who can always lift them up," Pippen said. "I still try to be the same person. I'm just not as giving anymore. At the end of the day, no one is really concerned about you other than yourself."
Though athletes' increasing use of money managers theoretically should cut down on instances of financial ruin, Davis does not necessarily think they are the answer.
"Are they good?" he said. "Not just reputable, but are they doing what you need them to do? I don't believe bigger is always better. I don't want my accountant and financial planner all under the same umbrella of a large firm."
Pippen's former financial adviser, Robert Lunn, was a managing director at Lehman Brothers before opening his own Chicago firm in 1996, Lunn Partners LLC. Neither Lunn nor his attorney returned telephone messages seeking comment for this story.
"I don't think there's any advice you can give anybody who places his trust in someone and that someone then decides to breach their duties, or worse, steal someone's money," Cummins said.
"Mr. Pippen did not ask his lawyers or accountants or financial advisers to make jump shots. He could take care of that. But just as he was always the quintessential defensive ballplayer, it is not unreasonable for him to think that others he paid a lot of money to would defend and protect his interests.
"I guess the answer is that before you undertake a relationship, you do your very best to investigate the credibility and integrity and competence of the individual who you're trusting to handle your affairs."
According to Pippen's lawsuit, more than $7 million of the $17.5 Pippen handed over to Lunn's firm went toward real estate ventures with a developer with whom Lunn had extensive business dealings, a relationship he did not disclose to Pippen. Nor did he tell Pippen the developer had filed for bankruptcy in 2003, the suit said.
"I tried getting my assets away from this guy for a couple years," Pippen said, "and he's still walking around a free man, able to do whatever he's doing to others.
"I expect this to go on for the next four to five years, and in the meantime I'm paying attorney fees trying to get it back. Good money chasing bad."
After being referred to Lunn by people he trusted, Pippen said he doesn't know where to turn.
"I see it continuing to happen [to athletes] because the opportunity to take advantage is a lot more common because of the big money players are bringing in," Pippen said.
"It's a lot of money to look over and try to take care of. I really haven't moved on yet. I'm kind of in limbo as to what I want to do with my investments."
Thibault recommends athletes take control of their own finances, but as Pippen and Davis can attest, that requires knowledge and awareness of a complex set of responsibilities that can be intimidating.
"When I was in Toronto," Davis said, "I had to file 13 different tax returns. That can easily confuse anyone, particularly a player just out of college or, as the case may be, high school."
Davis said he holds his business manager in high regard because "he doesn't just send me stuff and tell me to sign off on it; he explains things in layman's terms."
Agent Ralph Cindrich, whose 50 pro athlete clients are mostly football players, believes athletes tend to be too trusting.
"I have good guys who make dumb choices and I can say, 'Look, I disagree,' and here are examples of guys [who handle their money wisely]," he said. "But ultimately it's their money, and you don't have that control."
Cindrich said athletes most often get into trouble investing in small businesses like restaurants or car dealerships where they have unlimited liability.
"A lot of times it's family and friends," he said. "They're not always being swindled. But a business idea is something that is just that—an idea. If not properly researched, if you haven't done your homework, you get into trouble. The percentages are greater of failing than succeeding."
Leonard Armato was hired to represent Abdul-Jabbar after the Lakers star suffered huge financial losses in the mid-1980s.
At that time, most athletes trusted their agents to pay their bills, invest their money and control their business and financial affairs. Abdul-Jabbar, along with Ralph Sampson, Alex English, Terry Cummings, Brad Davis and other clients of Thomas M. Collins, gave Collins power of attorney.
It was estimated Abdul-Jabbar lost close to $5 million on failed hotel and restaurant ventures as well as investments in Arabian horses, oil wells and gold coins.
"When I first started in this business [in the early '80s], athletes couldn't make enough in their first contract to ensure lifetime stability," said Armato, whose clientele has included Ronnie Lott, Oscar de la Hoya, Hakeem Olajuwon and Shaquille O'Neal.
"That lends itself to being risky because some say, 'This can be a big score for me and set me up forever.' Often they'd end up penniless."
Armato, an attorney and a former college basketball player, still owns a sports management firm but devotes most of his time to his role as commissioner of the AVP, the professional beach volleyball tour.
"An athlete has to look at his financial plan differently because his peak earning period is very short and comes very early on," Armato said. "With most successful businessmen, their peak earning period increases in time.
"[An athlete's] career is very finite, so you have to make the money while you can and preserve it while you can because you probably won't have an opportunity to make that kind of money again. It's a little scary, a little unsettling."
Pippen said it would be hard for him to advise an athlete just coming up because he's still not sure how to avoid the sort of trouble that has befallen him.
"There's not much advice I can give them that's going to make them invincible," he said.
"If they have a long career, they have an opportunity to make a lot of money. Along those lines, there's going to be a lot of opportunity for somebody to steal their money."
Pippen's final contract with the Bulls was for $10 million. He said he's not in danger of having to alter his lifestyle dramatically.
"I'll be fine," he said. "But I planned my future for where I wanted to be financially, and that's what's really wiped away."
Asked whether it would affect his own financial security or the financial stability of future generations, he replied, "Probably a little of both."
In the meantime, he has not settled on a new financial planner.
"I guess I'll find another money manager and get taken again," he said. "There's nothing out there that tells me I'm bulletproof."
