An extremely irritating article that tries to tie in supposed athlete stupidity to the current financial mess:
Ismail played two years in Canada and 10 in the NFL, estimating that he earned $18 million to $20 million in salary alone. He made an abortive NFL comeback attempt in 2006, never getting beyond workouts with the Redskins, and then navigated the reality-TV circuit (Pros vs. Joes, Ty Murray's Celebrity Bull Riding Challenge). Today he does a Cowboys postgame show on Fox Sports Net. As cautionary tales go, Ismail's could've been worse: He has his Notre Dame degree, and he never filed for bankruptcy, had legal trouble or got divorced. Yet he lost several million dollars, he admits, through "total ignorance."
It began in the winter of 1991 when he sank $300,000 into the Rock N' Roll Café, a theme restaurant in New England designed to ride the wave of the Hard Rock Cafe and Planet Hollywood franchises. One of his advisers pitched the idea as "fail-proof, with no downsides," Ismail recalls. He never recouped his money and has no idea what became of the restaurant.
Lesson learned? If only. After that Ismail squandered a fortune funding not only that inspirational movie but also the music label COZ Records ("The guy was a real good talker," says Rocket); a cosmetics procedure whereby oxygen was absorbed into the skin ("We were not prepared for the sharks in the beauty industry"); a plan to create nationwide phone-card dispensers ("When I was in college, phone cards were a big deal"); and, recently, three shops dubbed It's in the Name, where tourists could buy framed calligraphy of names or proverbs of their choice ("The main store opened up in New Orleans, but doggone Hurricane Katrina came two months later"). The shops no longer exist.
You might say Ismail had a run of terrible luck, but the odds were never close to being in his favor. Industry experts estimate that only one in 30 of the highest-caliber private investment deals works out as advertised. "Chronic overallocation into real estate and bad private equity is the Number 1 problem [for athletes] in terms of a financial meltdown," Butowsky says. "And I've never seen more people come to me about raising money for those kinds of deals than athletes."
The article goes on to imply that the supposed higher rates of failure for athlete financial investments is that they are trying to hit a homerun:
Hunter, who in November 2007 signed a five-year, $90 million contract, has been able to absorb the loss. But innumerable other athletes have not been so lucky. Former (and perhaps future) NFL quarterback Michael Vick filed for Chapter 11 bankruptcy last July and recently put his mansion in suburban Atlanta on the market. That's partly because he is unable to repay about $6 million in bank loans that he put toward a car-rental franchise in Indiana, real estate in Canada and a wine shop in Georgia. "It's always so predictable," Butowsky says. "Everyone wants to be the next Magic Johnson."
But Johnson is the rare, luminous exception of tangibility gone right. In 1994 he started a chain of inner-city movie theaters and diligently built a business empire. Today Magic Johnson Enterprises includes partnerships with Starbucks, 24 Hour Fitness, Aetna and Best Buy, and its capital management division has invested over a billion dollars in urban communities.
And that's the theme of the entire article. The basic premise being that athlete's are too stupid to handle their own money and piss it all away due to the stupidity. I find this premise annoying for a couple of reasons:
The rate of failure for athletes in ventures is no higher, I'd bet, than the general rate of failure for all ventures. In fact, private equity pros (the funds that invest in everything from startup Google to bankrupt Newspapers) don't hit at a higher rate than athletes.
I know many "educated" professionals from healthcare, technology, and finance that have lost money on everything from real estate, to private equity, to even public markets and bonds. Does that make those guys idiots as well?
The purpose of this article is, basically, to paint athletes with the brush that they are stupid and the few that are successful are geniuses. It's no different, I suppose, than the majority of articles in the Financial Times profiling business luminaries that made money when the rest of the world was losing it.
There are some valid points about divorce and wasting money on tangible toys. But, again, this is no different than the 30-year old banker that makes a couple million bucks, gets divorced, and pisses away his fortune. The case of excess capital dissolving is common across all industries and types of people. The last decade is an example of excess capital (credit-driven, but still excess) that led to massively wrong investments and stupid decisions.
The author could have made a broader point that making money with new ventures and investments is hard. It's a rare skill with a whole lot of luck, and most of the world just can't do it. Instead, we have another "stupid" athlete article.