Last week a number of young men have moved into an expected sudden wealth financial category based on their draft status with the NBA and NHL. While this is good news for them, it also comes with a number of strings attached.
Because these guys were expected to make big money, I am sure that tons of "lost" relatives have come calling. In addition, some of them will have collected best buds faster than Facebook friends.
What some of these people will not do is protect the long term investment. The average NBA career was just under 5 years. If we apply the average (mid level) exception salary for the past 5 years (2004-2008), we get about $26 million. HOWEVER, the NBA pays its stars very well and most players on a roster make LESS than the average salary. The more acccurate number to use is the MEDIAN salary. (You get this number by ranking the salaries from smallest to largest and stopping in the middle.) For this past season it was just above $3 million. If we assume that the median salary and the mean salary have grown in similar percentages over the past 5 years, then the median salary over an average 5 year career is actually $14,213,779.
Take the rookie scale for draft picks. In 2005, out of 30 first round draft picks that are given automatic raises annually, their first option year is the 3rd year of the contract. At that point, only the top 4 picks exceed the median. So 26 rookies are actually trying to get above the median on their 2nd contract, which many may never see as it comes after their 4th year in the league.
Anyhow, take that almost 3 mil/yr and subtract federal taxes (34%) and a standard agent commission (4%). We will skip over the variety of state and local tax possibilities and look at the average player as a person with $1,762,509 annually for 5 years. After that time it is likely that the salary will drop significantly for the remaining work years.
By the time the player gets a place to live and spreads some of that money around to the "friends & family" just how much will really be left to live on when you retire in your mid 20s?
To all my newly rich "friends" that were drafted, be careful with your money and don't collect an entourage...unless it is the DVD box set!
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