The sudden wealth phenomenon, financial setbacks and coping with family and societal pressures

Key topic

This lesson discusses the implications related with the sudden wealth of professional athletes and how they can deal with such a situation in order to avoid financial risks. We explain how athletic traits can be utilized to safeguard financial stability and sustainability and we also offer suggestions on how to deal with outside pressure and financial expectations from the athlete’s close circle.

Learning objectives

• Understand the concept of the “sudden wealth phenomenon”
• Realize that you can use your sports skills to deal with financial setbacks
• Discover how to cope with outside pressure and financial expectations from others

Sudden wealth

Today’s subject has to do with a situation most athletes have to deal with when they sign their first professional contract. Despite the odds of just a few high school athletes making it to the pros, we feel that this is a subject that athletes need to be aware of so that they know how to handle it, if and when it happens.

A large number of athletes with modest financial backgrounds and means, come to “sudden wealth” when they turn professional. Their decisions on how to handle this sudden wealth are influenced largely by their financial beliefs, their background, their immediate environment and the expectations of society. Financial beliefs and society pressures exert a high degree of power over the athletes’ financial behavior and lifestyle choices. The good news is that with proper guidance and support, athletes can modify their financial beliefs and formulate winning financial strategies that can lead them to financial independence.

Young athletes and the people who surround them make lots of sacrifices, for many years, in order for the athlete to gain professional status and be able to play sports for a living.

Becoming a professional athlete can bring athletes fame and money. Athletes usually make a great effort to prepare themselves physically and mentally to perform at the top level in their sport. In contrast, the effort they put to prepare themselves for dealing with the emotions associated with the changes in their financial lives when they turn professional, is almost never equal to their athletic efforts.

Sudden money or sudden wealth is a phenomenon connected to individuals who suddenly come into large sums of money; perhaps they have won the lottery or they have inherited money or they have signed their first sports contract. The phenomenon is magnified when these amounts are six, seven, eight digits or more. Scientists have even created the term “Sudden Wealth Syndrome” to describe the adjustment problems faced by individuals who suddenly come into large sums of money. Sudden wealth can be a great opportunity for anyone to create a better life for them and their friends and family, if they manage their money properly. If the athletes are not ready or don’t take the right measures, they might end up even worse off than prior to signing their first professional contract; meaning for example, that they may get into debt.

So how can the sudden wealth phenomenon affect an athlete? Many become overwhelmed and start to overspend. Athletes who tend to spend too much money on themselves, will often spend money on others too. Pressure for money, from family and friends, can weigh heavily on anyone. Being overwhelmed is the simplest of the psychological effects that an athlete who suddenly comes into money might face. There are other symptoms of the sudden wealth syndrome which we want athletes to be aware of:

• Increased levels of anxiety or panic attacks that may lead to obsessive thinking and may affect the athlete’s daily life and on-field performance.
• Sleep disorders, such as insomnia or early morning awakening and irritable mood.
• Feeling guilty about having money or being overly self-confident, which leads to acting on impulse, over-purchase things, or do things that undermine sound money management.
• Athletes may face getting stuck in feelings of confusion and uncertainty as to who they are and what is important to them which can lead to denial of real choices and being passive in managing their money.
• Excessive concerns about being exploited or hurt by others.  There is no trust in others and there is fear, which may lead to bad decisions.
• Increase in feelings of depression. Feeling empty, gloomy, not enjoying ordinary pleasurable activities.

Sudden wealth is not a problem of professional athletes only. The challenge is the same for anyone, trying to turn sudden wealth to lasting wealth.  All life changes, including sudden shifts in finances can be traumatic; therefore, when athletes sign their first big contract, they should take things slowly and not rush into any big decisions. They should take time to  adjust to the changes and think clearly in order to make the decisions that will serve them well in the long run.

To help them with these decisions, athletes should make sure to surround themselves with trusted financial professionals who can teach them how money can create options; that they can facilitate their dreams by creating a financial life plan and a budget based on their core values and lifestyle. This process helps them set their priorities and makes the adaptation to their newfound wealth easier. It’s a process of identity change to a person who accepts having money as a resource, that can make all the difference.

If you want to find out about how this phenomenon has affected famous athletes in the  past, all you have to do is go online and search for athletes that have gone bankrupt. Of course, it’s not just the sudden wealth phenomenon, but it’s also the fact that these athletes failed considerably at following the simple steps we discussed in previous lessons on how to set a financial plan, how to set financial goals, how to live within their means and follow a budget.

Here is a short video of a great example on the issue:

How Shaq spent $1 million in a day

If you think this is the life of professional athletes, here is another short video that hopefully will change your mind. Same protagonist, same conditions, different plan, DIFFERENT OUTCOME:

Shaq gives financial advice to NBA players

Action steps – Exercise 1 (5 minutes)

• Let’s say you have just received your first sign up bonus of $500,000. What do you do with it and why?

Dealing with financial setbacks

Financial setbacks are part of life and all of us at some point or another have to deal with them. Rights now your financial responsibilities are quite limited, since your financial burden mostly falls on your parents’ shoulders. It is good however, to know how to act and react in situations of financial pressure. As an athlete, you acquire certain skills which can be utilized to your benefit, if you find yourself in a financially pressing situation.

To be able to deal with challenging financial situations, you should utilize your experiences and strengths in order to bounce back as quickly as possible. You are still at a learning curve in your young life, but remember that soon enough you will be more experienced and will have acquired specific traits of character that only sports can offer, which you can transfer to real life situations. Let’s take a look at these transferable skills and how they can help you in situations of financial distress.

1. Resilience – Throughout their athletic career, athletes must have failed more times than they have actually won.  They realize that this is how life is and they always get up and keep going, because very soon, there is another game or another competition to be won. There is no time for self-pity; they have a situation and they need to deal with it immediately and move on! Resilience is one of the important traits in situations of financial difficulty as it gives the person the strength and the insight needed to move on quickly; athletes have an advantage because they have already cultivated and possess this trait, so they can get a head-start due to their ability to bounce back quickly.
2. Focusing on the target – Also, particular to athletes, is focusing on a target. Because athletes have been winning and losing their entire life, they have learned to eliminate external influences and focus on the target so that they win the game. In consequence, they do away with all the negative emotions associated with momentary setbacks and failing fast and they focus on how to win the next game. Drawing on this strength can help athletes minimize the negative emotions arising from financial distress and focus on devising a recovery plan.
3. Self-reflection – For athletes it is common practice to reflect on the results of the performance during game breaks and after the end of the game, to assess what was done right and what went wrong. Self-reflection can help athletes reflect and analyze the financial challenge they are faced with, in order to assess what went wrong and how to prepare themselves to do things differently so as to turn around the situation.
4. Collaborating and following instructions – Most athletes are part of a team. As team members they have learned how to receive tough feedback from their coaches and how to follow instructions. These skills are important when faced with a financially challenging situation because in most cases, you will have to create a team of professionals with whom you will collaborate and whose instructions you will have to follow in order to get out of the rat-hole!
5. Getting into an effective state of performance – When under pressure, elite  athletes make sure they get the performance they want by being able to shift their body and mind into an effective state of performance. How do they do that? They tip the balance in their favor by visualizing past and future successes to increase self- confidence, they develop consistent pre-performance routines in order to increase (perceived) control and they make sure their goals are set towards success and not against avoiding failure.  All these are learnable techniques and they can be applied to a multitude of stressful situations including financially challenging ones.
6. Self- Control – Research shows that self- control is a decisive factor that enables athletes to transform their workout intention into actual workout behavior. Regularly exerting self-control strength in one situation can have a positive self- control effect in various different situations. The self-control that athletes cultivate by training throughout their entire athletic career can be applied when they find themselves in a negative financial situation, in order to restrain their spending and change their spending habits.
7. Work Ethic – The best athletes have become the best because they have perfected their skill by perfecting their work ethic. They know that in order to be successful, they need to work long and hard. The effects of financial failure can be devastating and along with resilience and devising a plan to come out of it as soon as possible, a lot of hard work is required from the athlete’s part. Having a strong work ethic helps athletes put in the hard work necessary to overcome financial failure.

In addition to the transferrable athletic strengths identified above, there are many more athlete unique traits that athletes can draw upon when faced with financially challenging situations. These traits include persistence, attentiveness, organization and so forth.  All these strengths, skills and traits, inherent to and as a result of athletic training can be transferred and utilized by athletes in all sorts of challenging situations and they give the athlete the tools to deal with such situations more effectively and come out a winner!

Action steps – Exercise 2 (10 minutes)

• Name two of the above athletic strengths where you rate high
• You are in a situation where you are facing bankruptcy.  How do you use the above strengths to cope with the particular situation?

Coping with societal and other external pressures

We all know that professional athletes live a unique life because of the status and visibility they enjoy, especially nowadays when they have millions of social media followers. They show unprecedented athletic skills and expertise and compete either in professional leagues like basketball, football, hockey and baseball or in elite tennis, golf, the Olympics and so on. Many end up making millions of dollars and are drawn to an extravagant lifestyle, living for the moment, and reveling in their fame and fortune. What athletes don’t realize though, is that they can be luxurious in their lifestyle and have control over it at the same time by not resorting to reckless spending. It is common for young athletes to let their athletic successes and sudden wealth affect their financial decisions, despite the fact that their earnings window is very small and their earnings are extremely volatile.

A common mistake that a number of professional athletes make, usually as a result of peer pressure, is the extremely high spending of their newfound wealth, to support their new extravagant lifestyle which society expects them to follow. It is very important for athletes to set and follow their own lifestyle that may be similar to the lifestyle they followed before becoming famous. Keeping up with the healthy habits of daily life and their regular routines, spending time alone, eating well, resting and keeping up other responsibilities will keep them grounded and protected from external pressures.  Societal expectations in connection with the lifestyle of professional athletes, may indeed lead athletes to financially harmful behavior.

Athletes may be expected to provide for their family, friends, and others who have helped them succeed.  Usually, it is not easy for athletes to say no as they feel an obligation towards these people. The athletes need to have strong professional support to guide them in handling these types of pressures in a rational, yet diplomatic way. Not to say that athletes should be ungrateful or hesitant to share some of their earnings with their immediate  family, yet exercising good judgment and good control should be a priority.  Athletes have to make sure that they don’t allow their circle to overstep and feel privileged towards the money. It’s the athlete’s money and it’s their decision whether to help friends and family, give them presents, help them start a business, and so on.

Society views wealth as a life goal and a solution to all problems. At the same time, there is great disparity in the way money is distributed between the population, creating hostility and mistrust towards people who have money and causing people of all income levels to view one another with mistrust. Critics and media voices can launch all sorts of opinions, regarding the lifestyles of athletes and the way they spend their money. Athletes should accept that people will have different opinions on their athletic skills and their character; this is the reality of being a pro athlete. Accepting criticism and not internalizing it, can help athletes cope with it.

Athletes should also be careful not to start using money as a substitute for intimate connections and for creating instant gratification emotions. They need to keep a tight inner circle of people or friends with whom they have created real relationships, which are not based on their athletic and financial success. This inner circle can assist athletes in nurturing their emotions and stay grounded in their life and money management. Athletes have to realize that they can cope with all the stresses that come with their expected lifestyle by using smart money management to overcome possible lifestyle traps.

Lesson wrap-up

Today we focused on three themes: the sudden wealth phenomenon, using athletic strengths to deal with financial setbacks and coping with societal and external pressures. The “sudden wealth phenomenon” is what we label the effects on individuals when a person receives vast amounts of money all of a sudden. We also explained how athletes can use the athletic traits they have developed from competing, when in financial distress. Finally, we listed certain societal and external pressure that athletes may face and how they can deal with them.

At this point we will wrap up today’s lesson. First, we will go over the learning objectives of this lesson and we want your feedback as to whether they have been achieved and then we will address any questions you may have. Please feel free to ask anything you’d like in relation to today’s lesson and we would love to hear how the concepts we discussed today relate to you and your life!