• Making millions can lead to financial disaster
    April 22,2012
     

    Looking at former NFL star Warren Sappís bankruptcy filing, itís hard not to focus on the Florida mansion he owns (18,000 square feet, according to property records) or the number of pricey athletic shoes heís purchased (240 pairs, many still in the box unworn).

    Sapp lists assets of nearly $6.5 million and liabilities of $6.7 million. That makes him broke.

    As I combed through Sappís 59-page Chapter 7 filing, there was no question that heís not a good money manager. Heís become yet another example of highly paid athletes and entertainers who go bust after earning more money than most people will ever see in their lifetimes. Sapp, who now earns money as a sports broadcaster for the NFL Network, listed an average salary of nearly $116,000 ó a month.

    I donít have to tell you the lesson of this case. You already know it. Yet, Iíll say it anyway. You can go broke making millions if you live above your means.

    But thereís another cautionary tale: You can also go broke trying to become rich ó or richer ó by investing in risky ventures you know little or nothing about. I call it the entrepreneur syndrome. Itís a disease in which Americans believe they arenít truly successful unless they own a business of some kind.

    I used to cover the bankruptcy courts in Maryland, and I saw case after case of people failing financially because of bad business deals. In 1991, I broke the story that former Baltimore Colts quarterback Johnny Unitas had filed for bankruptcy protection. The Hall of Fame playerís bankruptcy was largely due to a bad business investment. Unitas and partners had nearly $4 million in defaulted loans stemming from the purchase of a circuit board manufacturing company. Unitas had personally guaranteed the loans.

    Sappís financial downfall was real estate. He told The Tampa Bay Times that he wanted to build low-income housing in Florida. Whatís interesting about Sappís filing is he wouldnít be broke if not for his business debt. He has considerable retirement money that canít be touched by creditors.

    Reportedly, Sapp grossed at least $60 million playing football. Even allowing for taxes, agent commissions and various expenses, he wouldnít have had to invest a penny or earn any more money to be financially set for life. At least I could easily make $20 million or $30 million last my lifetime.

    For a few years, I gave financial responsibility presentations to NFL rookies. Looking out at those young men, I knew that many would go broke from overspending. Many, sadly, would also squander their wealth foolishly investing in restaurants (one of the most difficult businesses to make money in), car dealerships, record labels or real estate ventures. They would realize too late that they could run plays but not businesses.

    Why couldnít they be satisfied with the decent returns you can get investing long term in a well-diversified investment portfolio?

    I guess that type of investing isnít sexy enough.

    Several years ago, Sports Illustrated published a revealing article on how and why a high percentage of pro athletes end up financially ruined. The magazine calculated that by the time they have been retired for two years, 78 percent of former NFL players have gone bankrupt or are dealing with financial issues. Within five years of retirement, an estimated 60 percent of former NBA players are broke.

    NFL veteran quarterback Mark Brunell, who has played for five teams, filed for Chapter 11 bankruptcy protection in 2010 in part because of failed real estate deals. Brunell also provided personal guarantees. Former New Orleans Saints running back Deuce McAllister filed for bankruptcy protection because of debts owed for a car dealership he owned.

    During my early reporting years, I also covered small business. There were plenty of success stories. But it was eye-opening to see how many more of them failed. I interviewed a lot of disheartened owners who lost their homes, couldnít afford to take a salary or had to work twice as many hours per week than they did when they worked for someone else.

    Sure, you can strike it rich as an entrepreneur or increase your wealth investing in a business. But donít become so infatuated with being an entrepreneur that you fail to do your homework and develop a good business plan, go into a business for which you have little experience, borrow too much or, as Sapp and others did, put too much of your personal resources on the line. Be careful you donít succumb to the entrepreneurship syndrome.

    Readers can write to Michelle Singletary c/o The Washington Post, 1150 15th St., N.W., Washington, D.C. 20071. Her email address is singletarym@washpost.com. Comments and questions are welcome, but due to the volume of mail, personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writerís name, unless a specific request to do otherwise is indicated.

    MORE IN World/National Business
    NEW YORK ó Corporate earnings season got off to a positive start Wednesday, helping lift the... Full Story
    Alcoa helps lift market after 2 days of decline
    NEW YORK ó Turns out, being a one-hit wonder is risky. Full Story
    Crumbs shows dangers of focusing on single product
    More Articles
  •  
     
    • MEDIA GALLERY 
    • VIDEOS
    • PHOTOS