In the fall of 2009, I began researching why so many people fail at managing financial windfalls. A Sports Illustrated article titled “How and why athletes go broke” provided the best examples I could find detailing the mindset of athletes in the position of managing large sums of money.
After reading about many athletes and lottery winners failing to manage windfalls, I’m rarely surprised when I hear of another case. Having said that, as the owner of the “blckngld” vanity plate, I was disappointed to see that Dermontti Dawson, an ex-Pittsburgh Steelers lineman, had filed for bankruptcy.
A Wall Street Journal bankruptcy blog post lists most of the financial details. Even though he played for thirteen seasons in the NFL, and at the time, was the highest-paid offensive lineman in Steelers history, at $4.2 million per year, he couldn’t manage his earnings into retirement.
The two details that stand out in his bankruptcy filings are his total debt, and monthly expenses. At that time he filed, he only listed assets of $1.42 million, and debts of nearly $70 million.
Seventy. Million. Dollars.
His monthly expenses total more that $19,000 a month, and his income is roughly $17,400 per month.
The Lexington Hearld-Leader, his home town newspaper, reports that much of his debts are real estate business related. Ventures such as shopping centers, and single family home developments that have gone south.
Although I’m not privy to all of his financial affairs, it does appear to be another example of someone making two classic mistakes that lead to financial ruin. The most basic, of course, is living above your means. Deficit spending of $1,600 per month won’t work for long for most people, let alone those with debts the size of his.
The second is what the Sports Illustrated article called “the lure of the tangible.” Investing in things like real estate, restaurants, or products exclusively over more traditional investments such as stocks, bonds, and cash. The theory is some people are more comfortable with tangible assets because you can touch or manage them.
Unfortunately, when you don’t diversify your investments across multiple assets classes, spend above your means, and have an enormous debt to asset ratio, you leave yourself vulnerable to this situation. One can only hope that this year’s class of maximum contract NBA free agents are paying attention.
photo by steelcityhobbies
