by David Byrne and Madelyn Schlesinger
"For the first time ever, it was hard to give my 150 percent focus, time, and energy to baseball...I can't even tell you the mindset I was in from the start of spring training through the season."
- Jake Peavy tells ESPN after being defrauded $15 million.
A Study in Pro Sports Never Done Before
The frauds against professional athletes over the past two decades is well-worn territory. The athlete fails to identify the fraud for years, the fraud then becomes publicized due to a lawsuit or federal investigation, the internet gets their clicks, and no solution is provided. Rinse and repeat.
BrightLights has posted numerous blog posts explaining how athletes can avoid fraud (see: The Fraud Triangle and Professional Athletes; Case Study - How Did Charles Banks Defraud Tim Duncan?; Why Financial Advisors Defraud Pro Athletes), but realized no one has studied the effect of fraud on a pro athlete's statistics and career.
Summary of Findings
BrightLights studied 26 professional athletes across the four major sports who have been defrauded $1 million or more in the past decade. This sample consisted of nine NFL players, nine NBA players, four NHL players, and four MLB players1. In total, the 26 athletes were defrauded $342 million, ranging from $1.2 million to $77 million and a median of $10 million. The average fraud cost athletes $13.1 million.
The average age of the athletes when the fraud began was 28 years old (ranging from 20 to 44 years old with a median age of 28). The average age of the athletes when the fraud was discovered was 34 years old (ranging from 22 to 53 years old with a median age of 32.5).
When the fraud was discovered, 38% of the victims were retired, and only one athlete was younger than 25 years old, but 96% of frauds against all athletes began before the athlete was retired. 69% of the athletes eligible for statistical analysis evidenced a worsening in their statistics during the season they identified the fraud.
On average, these frauds occurred for a period of 6 years before the pro athlete identified it, and these pro athletes lost an average of $2.2 million per year until discovery.
Fraud Negatively Affects A Pro Athlete's Statistics
Due to 10 athletes being retired, two suffering career-ending injuries, and another athlete being defrauded in 2019, the statistics of 12 athletes could not be analyzed in the year the frauds were identified. Therefore, BrightLights reviewed the statistics of 13 athletes2.
While statistics vary depending on sport, position, advanced stats versus traditional statistics, etc., BrightLights attempted to compare the most meaningful statistics depending on each player’s position and sport. BrightLights analyzed and compared the pros’ statistics of the year prior to the discovery of the fraud, the year of the discovery, the year after discovery, and their average career statistics.
The statistics of 69% (9 of the 13 athletes) declined across numerous categories. While 13 athletes is a small sample size to confidently extrapolate a correlation between fraud and a decline in statistics, the high percentage of athletes negatively affected indicates a strong correlation.
Some additional complications to note regarding the findings: There are other variables that may be affecting the statistics as well, such as a decline in production due to age, nagging injuries, and psychological issues like marital stress and depression. These were not accounted for in this analysis.
Below is a sample of the statistics of six of the nine athletes negatively affected by fraud. A pattern shows many of the athletes’ statistics worsening in the year the fraud was discovered compared to the previous year, the following year, and their career averages:
What Does BrightLights' Analysis Tell Us?
1. Teams, leagues, and unions are failing to understand the impact of fraud on the performance of their players.
The main objective for professional teams is to win games. As a byproduct of winning, consumers attend home games, buy merchandise, and the team makes more revenue.
Across the four major sports, teams collectively pay pro athletes $13 billion per year. Despite committing hundreds of millions of dollars to players via payroll, teams provide a few hours of financial literacy to their players each year while the dollar figures of fraud get bigger and bigger.
The most important resource - independent oversight - is not offered or recommended.
Have teams ever thought these money problems contribute to a player’s performance, and therefore, the team’s success? Have they thought of the impact on production if their players were protected from fraud and exploitation? Have they spoken with victims of fraud to understand if it affected their performance?
2. Young athletes are not identifying or suing for fraud against them.
Of the 26 frauds studied, only one athlete was younger than 25 years old when the fraud was identified. That athlete was Lonzo Ball, and his financial advisor identified that Ball’s close family friend had stolen $1.5 million.
You may conclude that young athletes don’t get defrauded and financially exploited, but based on BrightLights’ experiences and all the stories heard from people in the industry, young athletes get taken advantage of all the time, they just don’t identify it or make it publicly known.
Don’t take my word for it, hear the athletes say it:
Carter: Is there one decision business-wise for you at a young age that stuck out to you that was “that was the best business decisions I made.”
Simmons: Probably firing my last advisor...financial advisor.
Carter: Your first advisor?
Carter: Wasn’t the person you wanted around?
Simmons: No, and that was when I realized I really need to get this together before it gets worse.
Vince Carter: So you in your fourth year, let’s say, or your “younger” you: Could you have handled that [being sixth man] then?
Andre Iguodala: No, not if I was younger. Because when you’re younger, it’s easier for others to seep into your world. That’s what I’ve learned more than anything. These young guys, I’m like, “Who the hell is giving you advice?” And all those young guys, they have that one person, where we sit back we’re like, “Man, if you don’t get the hell away from that person…”
Vince Carter: It’s everywhere, and it needs to be heard.
Andre Iguodala: Yeah, and it’s hard to tell a guy bluntly, like, “Stay away from that guy, that’s a bad person” because it could kind of kill their world or mess up that relationship that messes up another relationship. It’s like a domino effect. It’s very fragile. So for me it’s like your agent telling you, “We gotta get paid,” and you got your friends telling you, “Look, you’re better than this guy,” and you got this guy over here, it’s just so many moving parts and people just everywhere. And it’s funny because the older you get the smaller the circle get.
Nnamdi Asomugha: I majored in finance at the University of California at Berkeley, but even that didn’t prepare me for protecting my money as a professional athlete. For athletes, it’s extremely tough to trust people with your finances. It’s so easy to be victimized. It’s crazy. It’s happened to me as an NFL player, to be honest. I think it’s happened to 99% of players in the league. When I hear about a player losing his money, I’ll rarely, if ever, point a finger at the player because I know how difficult it is. It’s not always “Look at this idiot who got paid all these millions of dollars and lost it all.” It may be more like, “This naive kid with a million things going on in his life put his faith in the wrong people.” I know because I was that person. Almost every one of my closest friends in the league has gone through it.
Don Cheadle: Why is that [fraud] still such a deficit though in professional sports? These aren’t new stories.
Lebron James: No, they’re not. This is happening. He’s [Lonzo Ball] telling us about this here tonight, but it’s happening with A LOT of athletes. Right now! And guys are not even saying nothing.
One young athlete told me he didn’t want anyone to know his financial advisor swindled him because he had endorsements and he was in a contract year. He didn’t want his team to think he was stupid or irresponsible.
A financial advisor for pro athletes told me he doesn’t recruit rookies who are first or second round draft picks because they come with so much baggage and corruption around them. He has to wait until those bad people (like Iguodala was talking about) take advantage of the athlete, and then the athlete looks for a real professional who isn’t in his inner circle claiming expertise in something they know nothing about.
Worse, there are agents who like when their players go broke because it makes them “hungrier” to get another contract, which means more money in the agent’s pocket. Pretty nauseating.
Luckily for young athletes, they usually have time to financially recover from the frauds against them by getting another contract, and the potential consequences of going after a fraudster may not be worth it. So they keep mum, and we hear nothing.
By the time an athlete is retired and defrauded, he won’t get another contract and most endorsements are gone, so he just wants his money back.
3. It's taking far too long for athletes to identify fraud because there is no independent oversight in place.
96% of the frauds studied began during the athletes’ careers, yet 38% were not identified until the athlete was retired. It took an average of six years to identify these frauds3, an incredibly long time costing the athlete $2.2 million per year.
Once an athlete is retired, millions of dollars of annual income stop while expenses continue piling up. The retired athlete has an incentive to understand and oversee his finances since he may be spending more money than he earns. This oversight helps the athlete identify wrongdoing.
Additionally, many marriages end in costly divorces including millions of dollars in alimony and child support payments. In frauds like Tim Duncan and Kevin Garnett, divorce lawyers reviewed their finances and identified the frauds because so much money was gone.
BrightLights conducted an audit for a still-active pro athlete who had already earned over $40 million. The athlete did not think anything was amiss and thought his investments were doing fine since his advisor told him so, but some red flags prompted the audit.
After BrightLights’ review of his investments over numerous years, the athlete lost money (primarily due to excessive fees by the financial advisor) while the market’s return4 over the same period of time was 27% and would have earned the athlete $1.4 million!
The athlete didn’t put this together because his account balance was increasing over time. He was earning millions of dollars every year, so the account balance was bound to continue to increase over time assuming the advisor didn’t engage in millions of dollars of outright fraud.
Even in the case of millions of dollars of outright fraud, pro athletes still fail to identify fraud during their playing career. Jake Peavy made $132 million dollars over his career and didn’t identify $15 million stolen from his account over a handful of years.
“I wasn't on top of my finances like I should have been and I trusted somebody to take care of everything for me,” NFL pro, Darren McFadden said, after losing $15 million.
"The biggest regret is trusting people with my money. You shouldn't,” said Clinton Portis after losing at least $11 million.
“I put together a group of individuals and companies that would keep eyes on each other...but I built a trusting relationship with Charles Banks...so I felt comfortable moving forward without replacing the checks and balances,” Tim Duncan said in his victim statement after losing approximately $25 million.
Addressing Why Fraud Continues Against Athletes
Professional athletes are not being provided the resources to financially succeed; instead, the collegiate industrial complex makes billions while failing to provide substantive and practical financial education to those headed to the pros because they’re too busy peeling the dollars off the backs of the players’ jerseys.
These “amateurs” are then expected to choose a financial advisor after declaring for the draft in a window of about three months. This decision is based on first impressions and recommendations from others, choices that will have an impact on the rest of their life. The athlete then gives control of his money to his financial advisor with no independent oversight or monitoring.
Without proper due diligence into these financial advisors (and getting a referral to a financial advisor from another player, agent, or business manager is not proper due diligence as the referral may be based on a quid pro quo agreement, or the individual has no substantive justification why this person is good at his job), the athlete has no idea who this financial advisor is from a business perspective.
It’s close to impossible for a pro athlete to understand the nuances, conflicts of interest, complications, and bad actors floating all around both the financial and sports industries. The vast majority of the financial industry is built upon incentivizing the financial advisor ahead of his own clients.
Athletes are often compared to being the CEO of their fortune. Yet we fail to mention that any competent CEO in the business world running a multimillion dollar company will implement checks and balances over those who control his company’s money. Although the CEO trusts her team, independent oversight of those that handle the company’s money is required to safeguard the company’s assets. It’s called a Compliance Department.
Dear Leagues, Teams, and Unions: Wake Up.
Can you imagine if an employee told his CEO, “I’m not comfortable with anyone overseeing what I’m doing with the company’s money.” That employee would be fired quicker than she can sit down.
Why do you think so many financial advisors, agents, and business managers introduced to BrightLights have never returned calls or emails? They're not comfortable with oversight.
BrightLights has spoken to some of the highest level people at the MLBPA, NBPA, and NFLPA, communicated with league executives, general managers, owners, introduced to numerous directors of player development on professional teams, and absolutely nothing has come from it.
At some point, the players will demand more from their unions who will demand more from the leagues who will demand more from the teams. But we're in a vicious cycle that's lasted decades: Players are financially exploited, their careers end, they no longer have power or a voice in their unions, and a new crop of kids arrive handing money to a stranger.
It’s due time the industry wakes up, even if it’s because the leagues and teams make more money with pros more focused and less financially burdened.
Whatever it takes.
1 - MLB - Jake Peavy, Jorge Posada, Mike Sweeney, Roy Oswalt;
NBA - Charles Barkley, Hassan Whiteside, Jamaal Tinsley, Kevin Garnett, Kwame Brown, Lonzo Ball, Mike Miller, Richard Jefferson, Tim Duncan, Antrel Rolle, Clinton Portis;
NFL - Cory Redding, Darren McFadden, Dwight Freeney, Leonard Davis, Mark Sanchez, Patrick Willis, Trent Richardson; and
NHL - Chris Phillips, Dany Heatley, Sergei Fedorov, Jack Johnson.
2 - MLB - Jake Peavy; Mike Sweeney;
NBA - Hassan Whiteside; Jamaal Tinsley; Lonzo Ball; Mike Miller; Richard Jefferson; Tim Duncan;
NFL - Antrel Rolle; Cory Redding; Darren McFadden; Dwight Freeney; Mark Sanchez; and
NHL - Chris Phillips; Dany Heatley; Jack Johnson.
3 - Based on this study, the athletes only identified the frauds themselves 42% of the time.
4 - Using a portfolio of 50% stock index fund & 50% bond index fund for comparison.
Huge shoutout to BrightLights’ awesome intern, Madelyn Schlesinger, who was an enormous help in researching and writing this study. Thank you so much for your contribution and hard work!