How Do Some Highly Paid Athletes Go Bankrupt? They're Risk Takers
Former All-Star point guard Allen Iverson of the Philadelphia 76ers, the story goes, hated luggage so much he used to buy new outfits every time his team went on a road trip. Needless to say, he's had some financial troubles.
And he's not alone among pro athletes in financial profligacy. According to a 2009 Sports Illustrated story, as many as 60 percent of U.S. professional basketball players faced bankruptcy or serious financial hardships within just a few years of retiring.
The leagues have stepped up financial literacy education and other programs aimed at stemming the embarrassing tide of financial ruin, but what if there were a way to figure out which pro athletes were most likely to go bankrupt, so you could try to prevent it from happening in the first place?
Toulouse-trained labor economist Ruby Henry has found that a basketball player's shooting stats may have just that kind of predictive ability. Specifically, his 3-point-shooting frequency.
In a study of National Basketball Association players drafted from 1990 to 1996, Henry found that when controlling for things like a player's shooting percentage, education, age and position, every 3-pointer a player heaved up per 36 minutes of court time increased his odds of going bankrupt by a factor of three.
What's the connection to 3-pointers? It's the confidence a player has to have to take that kind of long-range, low-percentage shot on a regular basis.
Even good shooters need a lot of confidence to take 3s. But taking them even when you're not all that good at them — like, say, Antoine Walker, who declared bankruptcy in 2010 despite earning more than $100 million during his career? Now that takes some real confidence.
Players who shot more 3s also tended to take more entrepreneurial risks off the court, and the riskier the business, the more likely they were to go bankrupt.
"It's the Superman syndrome," says Billy Corben, director of the ESPN 30 for 30 documentary Broke. "These are guys coming from a life of being very good at one thing and constantly being told they're very good, so they think maybe they're just as good at being a businessman, too."
Henry's approach — using workplace statistics to measure psychological factors and predict results in other endeavors — is fairly unusual in the world of sports, or just about anywhere else.
The possibilities are intriguing, but one knee-jerk implication — that signing less confident players will result in fewer bankruptcies — is a clear nonstarter. Shrinking violets usually don't do so well from the free throw line when they're down by a point with two seconds to play.
That being said, someone may want to double-check Josh Smith's investments.