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It would seem inconceivable if it didn’t happen so often: highly paid celebrities and athletes going broke.
Despite having one of the most lucrative careers in show business, Michael Jackson reportedly died $400 million in debt. Ed McMahon narrowly avoided foreclosure on his home before he died last month.
Actor Stephen Baldwin, former baseball slugger Jose Canseco and former basketball star Latrell Sprewell all lost their homes to foreclosure recently, and boxer Evander Holyfield is heading that way.
Pro athletes seem even more prone to financial loss.
Sports Illustrated estimates that 78 percent of former NFL players, within two years of retirement, are bankrupt or “under financial stress because of joblessness or divorce.” Within five years of retirement, an estimated 60 percent of former NBA players “are broke.” And at least 10 major-league baseball players fell prey to alleged fraudster Robert Allen Stanford, the magazine says.
For each failure, there is usually a reason: a lawsuit, illness, injury, divorce, unexpected tax bill or bad investment. Those are the same things that throw ordinary folks into bankruptcy, but celebrities face challenges most of us don’t.
One is that their careers are highly uncertain and often brief. In the business world, it’s fairly easy for someone with a seven-figure income to guesstimate future earnings, says Ken Naehu, a managing director of Bel Air Investment Advisors in Los Angeles.
“In the entertainment world, you can be very hot and then not. You can’t spend like you will have a 20-year career at that type of earnings. Part of what an adviser is supposed to do is tell them what they don’t want to hear: You have to invest and protect this money because it might be all you have.”
Not all celebrities heed that advice.
“Some people are not willing to accept the bad news: You can’t live at this lifestyle. They say, ‘I’ll make money some other way,’ ” says Ken Anderson, a director in Los Angeles with wealth-management firm Aspiriant.
Sometimes they can.
“I know firsthand some celebrities in this town go on tour because they have to, not because they want to,” Anderson says. “I’ve dealt with some athletes. When they ran out of money, they went to a baseball park and sold autographs for $10 or $20 a pop and that kept them out of the newspaper for being destitute.”
Along with their outsize incomes, celebrities also have enormous overhead: large homes, agents, managers, publicists, bodyguards, assistants and others who may or may not have their best interests at heart.
