5 Investment Lessons: ESPN’s “Broke” Documentary

Have you seen the ESPN documentary Broke? ESPN's Broke tells the stories of athletes, some famous, all rich, and the colossal ways they blow their money. Whether it’s the lost fortunes of NBA player Antoine Walker ($100 million) or boxer Mike Tyson ($400 million) the numbers are simply staggering. Studies show that over 60% of players both in the NFL and NBA are broke within five years of retirement.

I’ve seen Broke on ESPN a few times and find myself drawn to the parallels as a wealth manager. Let’s face it: There are plenty of people who blow through money like it has an expiration date, make poor business decisions, don't do their homework or receive bad investment advice. 

There are five lessons for investors from Broke on ESPN:

1) They don't plan. The athletes in Broke felt invincible; never seeing the day when the cheers and money would end. Most were impulsive and driven by short-term goals. The same can be said for business owners I have known through the years who don’t (or refuse to) think about the day they will walk away. Sadly, only 30% of family owned businesses transition to the next generation.

2) They over leverage and under diversify. The athletes in Broke lost control of their finances trying to “squeeze blood from a turnip” in an effort to keep up. 

I got a call one afternoon from a “representative” of an NBA player who wanted to know if a bank could lend against guaranteed contract earnings. Apparently his client had “chosen some poor advisors” in the past which left him with zero net worth. In the next breath he wanted to know what his cut would be for the referral. 

3) They fall into their comfort zone. The athletes in Broke were heavily invested in “tangible” assets like real estate, restaurants and car washes instead of securities like stocks and bonds. Being able to “touch” an investment like a restaurant or bar is tantalizing and easier to understand than covered calls or yield spreads. I once dealt with a potential client, an engineer, who spent six months researching dish washers but left his entire financial future in the hands of a neighbor who “seemed nice.” In this case nice guys finished last.  

4) They rely too heavily on friends and family. The athletes in Broke couldn’t say no. Most funded extended families and relied on friends to guide them down the path to financial ruin. The saying rings true; you should never hire anyone that you can't fire.  An independent, objective advisor can serve as the “bad guy” when friends and family come calling to “get theirs.” Money doesn’t change people, it just exposes them.

5) They don’t do their homework. The athletes in Broke did little due diligence when it came selecting advisors or investments.  

The best client relationships are partnerships; clients are actively engaged, not simply vested with me as an advisor. Questions and dialogue are welcome. As a former journalism student I live by the adage, “If your mother says she loves you, check it out.” 

Do you see any parallels between the athletes on ESPN’s Broke and the “real world?” Thank you for reading and I would enjoy hearing form you either in the comments section, by phone at 630-545-3653 or by email at wlg@trustcoil.com