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A number of high-profile athletes have filed for bankruptcy in recent years (e.g., Vince Young, Michael Vick, Mark Brunell, Lenny Dykstra, etc.). Apparently, they are only the tip of the iceberg: In 2009, Sports Illustrated reported the following facts:
* By the time they have been retired for two years, 78 percent of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.
* Within five years of retirement, an estimated 60 percent of former NBA players are broke.
* Numerous retired MLB players have been similarly ruined, and the current economic crisis is taking a toll on some active players as well.1
These statements have been repeated countless times in other news reports since then, often with qualifiers deleted.2
How can this be? Many athletes earn more money in one year than a majority of the population will earn in a lifetime. In this article, I will try to determine the bankruptcy filing rate for prominent professional athletes and compare it to the rate for the general population. Despite their disproportionate percentage of financial problems, relatively few prominent professional athletes ever file for bankruptcy, far less than the rate for the general U.S. population. My analysis is limited to three of the four major professional team sports in the U.S.: the National Football League (NFL), Major League Baseball (MLB) and the National Basketball Association (NBA).3
These three sports leagues have a total of 92 teams with about 3,000 active players.4 The combined payroll for the three leagues in 2013 was about $8.5 billion,5 which works out to nearly $3 million per player. Of course, certain players with enormous contracts drive up the average salary, so median salaries are somewhat lower. In the NBA, the median salary for 2013 was $2.01 million.6 Similar data is not available for the MLB and NFL, but on most teams in both leagues the median annual salary is at least $800,000.7 The minimum salary for a rookie in each of the three leagues is more than $400,000. My analysis is a bit simplistic, as it ultimately relies on just three numbers:
1. the number of athletes that file for bankruptcy;
2. the number of athletes that retire each year who have achieved...