Chapter 2: Athlete's Life Cycle
“I went from an old man in baseball to a young man in life.”
– New York Yankees future hall of famer Dereck
Jeter on his retirement from baseball.
Contracts and the Athlete’s Life Cycle
Although most athletes don’t think about the day their career will end, the overwhelming majority of professional athletes will not play past their 40th birthday. Interestingly, it is well known that the body of a NFL running back typically breaks down in its late 20’s. Even more interesting and perhaps brutal is the fact that a women who competes at the Olympic level as a gymnast is at her prime at 16 years of age! The added weight and height that the “puberty fairy” delivers serves as a hindrance to a gymnast as she gets older. On the opposite end of the spectrum, Julio Franco, a professional baseball player in Japan is currently playing as a player-manager at age 56. In a 2015 USA Today article he said, “I don’t see myself out of baseball... I want to play until I’m 66. That’s the goal.” Franco, who played 23 seasons for teams in Major League Baseball, Japan, and South Korea, is a rare example of an athlete who can perform professionally into his fifties. Needless to say, the overwhelming majority of athletes in every sport have a finite life cycle and must be prepared for life after their professional athletic career.
In this next section I will demonstrate how three individuals with vastly different contracts will end up making roughly the same amount of money later in life. I’ve selected three famous, fictional professional basketball players: Carmichael Adams, Debron Jones, and LeKobe Brooks. Carmichael, a 4 time NBA All-Star, recently signed a 10 year $100 million contract. Debron received a modest (by NBA standards) three year, $3 million contract while LeKobe, an undrafted free agent, inked a deal for the NBA’s minimum, about $500,000.
Before I begin, I want to categorize professional sports contracts into three basic categories: Retirement, Head Start, and Comfortable. A Retirement Contract allows an athlete to not to have to work for the rest of his/her life. When a player signs a Head Start Contract it means that he/she will be provided with the financial resources to, for example, buy a house or invest in a business. However, he/she will have to work after their career is over. A Comfortable Contract pays more than the average good paying job, but not by much. Just like those that sign Head Start Contracts, players who have a Comfortable Contract will have to work after their careers are over.
The graph below provides a snapshot of each athlete’s life cycle. It demonstrates how Carmichael will make less money than Debron and LeKobe later in life. Now you may be thinking, “How could this be? Carmichael signed a Retirement Contract while Debron and LeKobe each have Head Start and Comfortable contracts.” Well, let’s see how this can happen!
The first observation to note in the graphic is that Carmichael, Debron, and LeKobe have all completed their professional careers by the time they’re 40 years of age.
Carmichael Adams - (Retirement Contract)
In the case of Carmichael, the $100 million man, by the age of 42, will have lost all of his money and have filed for bankruptcy protection. He can no longer pay his bills. At age 50 he will emerge from bankruptcy and live off of his NBA retirement check for the remainder of his life. While his NBA retirement check provides a comfortable lifestyle in retirement, Carmichael is only limited to this income because after his career he never increased his employment and/or business skills and never networked or socialized outside of his social circle. He has limited marketable skills and no meaningful network of business associates that can help him in business ventures. In the next chapter I will discuss further how someone like Carmichael Adams can easily lose $100 million.
Debron Jones (Head Start Contract)
In the beginning of his career Debron signed a three year, $3 million contract. At the end of the three year contract, Debron is cut by his current team and decides to play basketball in Europe. From age 25 to 35 he earns roughly $250,000 a year playing in the top professional basketball leagues in France, Greece, and Spain. Debron saves about 10% of his money and invests in apartment buildings. By the time he is 40, Debron owns five apartment buildings that produce $18,000 a month in net income (Apartment rents minus mortgage expense). By the time Debron is 62, his apartment buildings are free and clear (he doesn’t owe any more money) and his monthly income jumps to $50,000 a month.
LeKobe Brooks (Comfortable Contract)
At age 22 LeKobe signs an NBA minimum contract and plays in the NBA for two-years. At the end of that period he decides to end his basketball career and attend law school. After finishing law school he works as a corporate attorney for a Fortune 500 corporate. With his experience as a corporate attorney and business connections, he decides to branch out on his own. At age 33, LeKobe buys a restaurant franchise. By the time he is age 52 he owns 20 restaurants that pay him a salary of over $500,000 a year. At age 60, with business flourishing, LeKobe makes a total of $750,000 a year off of his restaurants. At age 65 he is offered and accepts $30 million for his restaurant empire.
Despite playing the least amount of years as a professional athlete and making the smallest amount of money during his professional basketball career, LeKobe ends up earning more money in his post career than both Carmichael and Debron.
These scenarios demonstrate the following: