Athletes Thrown for Loss in Tough Investment Game

Professional athletes make millions, but that doesn't mean they're all rich. Many have lost huge sums in bad investments, one reason leagues are taking steps to protect players.

Fred Taylor had it all 18 months ago. Taylor was 22 years old, a rookie starting at running back for pro football's Jacksonville Jaguars, with a $5 million signing bonus fresh in the bank and a 1,200-yard rushing season ahead. The money is gone now, and Taylor finds himself appearing at autograph shows to earn extra cash.

It wasn't the sports-world cliche of drugs, alcohol and gambling that wiped out his seven-figure nest egg. Rather, it was another culprit, one rapidly becoming an expensive pitfall for pro athletes: bad investments.

The stakes have never been higher. Average salaries in the four major pro-sports leagues -- the National Football League, or NFL; the National Basketball Association, or NBA; Major League Baseball and the National Hockey League -- have doubled since 1994 and million-dollar paychecks are commonplace. Athletes now find handling their money is a risk-filled, full-time job.

"There's just so much bad advice out there being given to these guys now. It's really kind of scary," says Trace Armstrong, a Miami Dolphins defensive lineman and the president of the NFL Players Association. "I think the general population gets plenty of bad investment advice, too. But when you consider the dollars involved now, the visible public profiles and how naive any young kid is about this stuff, it's almost like they're magnets for bad advice."

Jocks losing thousands or millions in a dry oil well, a failed restaurant or a shady real-estate deal is nothing new. Hall of Fame NBA center Kareem Abdul-Jabbar lost $59 million during the 1970s and 1980s when his business manager made dozens of sour investments without his knowledge. But today, the methods of losing a fortune are increasingly creative, subtle and maddening. Taylor, for example, lost the $5 million signing bonus -- $3 million after taxes -- in a Ponzi scheme he claims was set up by his agent, William "Tank" Black. About 15 other NFL players also lost money, roughly $15 million total, in the scheme.

Embezzlement also is becoming commonplace. A San Diego financial planner posing as an agent was convicted last year of stealing $12 million from pro athletes. Dallas Cowboys defensive back Darren Woodson alone lost nearly $4 million.

Leagues and agencies are taking steps to protect players. The NFL Players Association is attempting to register every financial adviser representing a player in the league. The move, expected by the end of the year, will force the legion of small and homebased NFL agents to either get additional training and fully adhere to standard industry ethics or farm out their clients' financial-services needs to other companies.

But many agents, particularly in baseball, hockey and basketball, already have determined the need for help in handling their clients' bank accounts. Each of the large global conglomerates representing pro athletes, particularly Octagon International, SFX Sports and IMG, have certified, full-time, in-house financial planners working to counsel pro athletes. Most of those planners are finding themselves constantly in need of more staffers.

"We try to sit down with the athletes as soon as possible -- even at 18, 19 years old -- and start planning longterm and for retirement," says Jan Plewes, vice president of financial services for Octagon in Vienna, Va. "The aim is to get a habit of saving established as soon as possible."

That, however, also is the greatest challenge. The agencies preach ultraconservative investment principles -- the opposite of most players' wants. Many athletes, in addition to buying luxury cars, houses and clothing, want to invest freely in businesses or ventures run by friends and family that can tap out monthly budgets set by advisers.

"Athletes, generally, are a trusting lot and they want to help out as many people as they can," says Derek Sanderson, an adviser with Boston-based State Street Research, which runs a special mutual fund exclusively for pro athletes. "The guys come in all the time and say their uncle has got a restaurant or driving range or something like that, and they help them out. I tell them to have their uncle or whoever send the financials so I can look at them. I'm still waiting for those financials. I have not gotten a single one, which is a clear red flag."

Sanderson himself is a walking cautionary tale. Like Taylor, he once had it all -- the NHL's rookie of the year in 1968, he signed a $2.65 million contract with the World Hockey Association Philadelphia Blazers in 1972, making him the highest-paid athlete in the world. He was 26 years old, knowledgeable about little besides hockey and an easy target for con men. By 1978, he was out of hockey and out of cash.

"I didn't know any of the terms, the investment-speak, and no one took the time to teach me, like we do now with our guys," he says. "I bought a Rolls and did a lot of the typical things when you strike it rich, but most of the money went into a black hole."