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How to go from earning $100 million a year to bankrupt

8/26/2014

7 Comments

 
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The best paid athlete on this green and warming planet of ours is a boxer by the name of Floyd Mayweather and he’ll be bankrupt within five years of retiring.

I want to be wrong, I really do want to be wrong, unfortunately that is highly unlikely as the bankrupt former top athlete is a cliché and the bankrupt world champion boxer is pretty much a rule set in stone.

First let’s just get a grip on how much Floyd “Money” Mayweather is earning so you can fully comprehend the downfall when you eventually do read about it. Oh and by the way, that nickname “Money”, I didn’t invent that one, it’s what he likes to call himself.


Charming fellow that he is, he does not hide his money, he flaunts it, lavishly and constantly. His whole image is based on showing large stacks of cash and all the trappings of wealth he spends it on; Houses, cars, jets, jewellery and so on and so forth (see video below at end of article)

For his last two fights he earned a combined $ 72 million, not bad for a year’s work. On top of that, with assorted sales of “The Money Team” knick-knacks and what-nots it is reported that his overall earnings for that year were over $100 million. Compare that to the likes of top tennis pro Novak Djokovic for example who earned a measly $ 33 million in comparison.

As for Mayweather’s career earnings, they are reported to be in excess of $350 million. Not bad for an illiterate kid who dropped out of high school to pursue a career in the Sweet Science. Make no mistake Mayweather is a phenomenally talented and hard working fighter, he's earned every dollar, but you're not interested in his pugilistic prowess are you? What you really want to know is how is he going to lose all that moolah.

It's pretty simple, the main reasons for any major sports star losing their money is: 

  1. Business incompetence
  2. Lawsuits
  3. Gambling
  4. Women
  5. Cars
  6. Entourage

Since I'm not writing a book on this subject let's just concentrate on the big one, numero uno:

Business incompetence

Nothing drains an account like bad investments and poor money management, which is exactly where Mayweather has some previous form. 


What follows is probably the most important tidbit of information regarding the myth around Money Mayweather and his business skills. It was widely reported in the boxing press at the time, but since it was the sporting media, no one really paid any attention to the financial details of it. So you’ll be the first to read about this. Here goes:

In February of 2007, according to ESPN, Mayweather bought a Maybach car for $528 000 (he likes cars, a lot! He has fleets of them) and he borrowed around $ 415 000 for this particular car at 16% annual interest from JP Morgan. 

Nothing wrong with taking a loan, often it can be a prudent business move, even for the wealthy, but why is a man who has just earned $8 million dollars three months prior having to pay a ridiculously high annual interest rate of 16%? (As a comparison the prevailing Libor rate at the time was about 5.1%) 

This tells you one of two things A) His business acumen and negotiating skills are non-existent or B) JP Morgan knew that he was a risky client and therefore it warranted the massive interest rate of 16% pa.

So what happened to the loan? “Money” Mayweather stopped paying the $9 000 monthly instalments for the car a year later and JP Morgan had to repossess the car, sell it for $196 000 and sue Mayweather. 

Does this sound like a prudent and capable money man to you?

Wait, there's more. You'll like this.

In 2007 Mayweather retired from boxing, only to return 21 months later. Was it the draw of the ring and the accolades of the crowds that drew him back to the squared circle? Could be, but immediately after his very short retirement he started having money problems with the taxman. Big surprise that, eh? Puuuuuuuuure coincidence, right? Nothing to do with the IRS you understand. He was just coming out of retirement because of his love for the sport of boxing.

In June of 2007 Mayweather announced his retirement, in October of 2008 the IRS put a tax lien of $ 6.1 million on Floyd Mayweather for unpaid taxes in 2007. In May of 2009 it was announced that Mayweather would fight again (7 months after being slapped by the IRS lien). Nothing to do with the IRS you understand. He was just coming out of retirement because of his love for the sport of boxing.


Mayweather ended up forking over to the IRS over half of the $10 million that he made from his comeback fight which had nothing to do with the IRS you understand. He was just coming out of retirement because of his love for the sport of boxing.

Inflows and outflows in the sports world can be irregular, so a one off issue with the taxman is easy enough to understand, but prior to the $6 million tax ticket Mayweather received for 2007 he had failed to pay taxes on time in 2001, 2003, 2005 and 2006. If that wasn’t enough there have been rumours that he didn’t pay his 2009 taxes and was left owing $3.4 million.

I guess what I’m trying to ascertain is, does anyone else see a pattern here, or is it just me? The Money Team's money management skills appear to be rather sub par.

There is one thing about Mayweather, you can't fault him for is his ability to enjoy his money (while he still has some). This little video puts it all in perspective.

Enjoy.
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7 Comments

BBC Travel Selling Day Trading Advice

8/19/2014

9 Comments

 
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Ever heard of those learn to trade the financial markets seminars? The internet is full of them, promising you a lifestyle of sitting on the beach, trading the stock markets from your laptop while a lap dancer massages your shoulders softly and serves you tall drinks with umbrellas on top.

You would lap that right up, wouldn’t you? Who wouldn’t?

I’ve written about these types of seminars before in “Learn to trade seminars. What’s the point?”. It’s an age-old business model that plays on people’s desire for independence and freedom from office politics. The problem is that many of these seminars are scams. They aren't that highly thought of, on the respect scale of the financial industry - an industry already well respected amongst the masses - they come in rubbing shoulders with Bernie Madoff.

This brings me to an article I noticed on the BBC Travel site titled “How I Quit My Job to Travel: The Banker”. For rather obvious reasons I clicked it and began to read. Well you can imagine my surprise when it turns out that the article’s content is in fact a blatant advert for day trading poorly disguised as a travel article. Read it for yourself and see.

This particular firm offering these seminars might just be fine and dandy and full of the vodka of financial know how. Going to one of their classes might really help you realize your dreams of Vegas, Veyrons and Vixens. I honestly don’t know, and can't say because I haven’t used their services, but what is suspect is how the BBC has gone about it. They have published, under their own name, an advertisement without making clear that it is in fact an advertisement.

I can only come to two conclusions why the BBC has done this:


  1. It is a paid for article by the writer
  2. The BBC has lost all editorial integrity and control

If it is the first, there’s nothing inherently wrong with that, the BBC needs to make money too, we all have to put food on the table and put iPads in the hands of our children.


It’s the way the world works.

But one thing is for sure. It should be clearly marked as advertising. What the BBC has done may well be legal, but it doesn’t take a law degree to understand that allowing the use of the BBC brand to advertise financial “education services” that are outside any form of regulatory supervision and not stating clearly that it is advertising is not only misleading but also unethical.

Then of course there is the second choice. The BBC simply has very lax editorial control. Somehow their editors got offered this article and without proper due diligence or checking just put it out there. This would then support a theory of incompetence.

Whatever the reason for publishing such an article it is clear that the BBC has been naughty, very naughty, and if this was an English boarding school and the BBC a pupil, they would be getting their very own dose of BBC: A Big Bottom Caning. And rightly so!

It should be noted that the article remains popular. Nearly two weeks after publishing it is still the second most read article on the BBC Travel website. It was even mentioned by BBC World News! Yes, hang your head in shame BBC World News.



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I did try to get an answer from BBC Travel on Twitter, but surprisingly enough they have chosen to ignore my tweets and not reply.

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So what do you, dear reader, do with this knowledge? If the venerable BBC is willing to sell its brand to advertise day trading seminars then you can no longer trust their content or their ability to report fairly. When it comes to their content it is now difficult to differentiate the promotional material from the real material. That should be a serious concern for all.




9 Comments

Finances with stars. Robin Williams.

8/13/2014

6 Comments

 
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Robin Williams is dead so let’s talk about money. Big money, global celebrity money, because entertainers are rolling in it after all. Or are they? 

Immediately after the death of Robin Williams, reports started coming out about his financial woes. Apparently he was close to bankruptcy. How do you go from being a top major film star earning millions of dollars per movie to bankruptcy. The answer is: Easily.

Celebrities have a huge challenge in keeping their money. Particularly musicians, film/TV stars and athletes. Right from when they score their first big pay check the odds for financial survival are stacked against them. There are a few simple reasons for this.

  1. Education
  2. Personality type
  3. Prey

The famous faces in the entertainment industry - in general - tend not to have a business education. The artist types studied, if they ever got to college that is, artsy things, you know, like English literature and drama, hippy stuff like that. They were more interested in sitting around in a circle discussing Proust and puffing on some ganja than a banking internship at Goldman Sachs.

Which brings us to personality types, actors and writers are artists, to start with, they weren’t in it for the money. They couldn’t care a less about the ins and outs of a balance sheet. They wanted to read poetry, be in touch with their feelings and cry on their girlfriend’s lap.

As for the athletes, they didn’t go to college much either, they were too busy training and then working in WalMart trying to pay the rent. As for those athletes that did go to college they were too busy training and having sex with cheerleaders. These people weren’t business orientated, they didn’t set up companies, build budgets, write business plans. 

Then we come to why they are prey. Many come from a background where there wasn’t much money around and all of a sudden they are sitting on what feels like a massive bundle of dollars, which it is. But then comes family commitments, mum needs a new house and dad needs a new car. Old friends need handouts and so do the sudden group of new friends (of which there are a lot). It is no wonder then that the athlete/entertainer feels a little overwhelmed. 



No problem, there's a solution to that: The likes of us bankers and financial advisors, selling well minted entertainers all kinds of financial possibilities. Services that will take away the stresses of handling their own finances so they can snort cocaine from a Playboy bunny’s silicone cleavage without fear of running out of cash.

To put it in simple terms a wealthy celebrity is beset on all sides by people who want something from them. Unfortunately it's not a vocation that attracts the best of the human element.

All of these financial demands starts to add up, there are so many money holes to fill that it becomes impossible to keep track. What started as a trickle of cash outflow becomes a torrent. A few years down the line, hey presto, there’s no money left. All gone. Pockets empty.

Just consider this one statistic as proof: Nearly 80 % of NFL and nearly 70% of NBA players file for bankruptcy within 5 years of retirement. Within five years!!! You only need imagine what that number is for ten years and twenty years after retirement.

It’s harder to find or make statistical data for entertainers, musicians, actors and the like, but perhaps these examples will convince you:


Here's one from the UK. Here's another from the USA (I can't believe I just used Fox News as a source. I shall go shower now)

Robin Williams was a comic genius, his passing is truly sad, unfortunately he won’t be the last entertainer to be burdened with financial troubles. Holding on to your hard earned money in the entertainment business isn't just hard, it's nigh on impossible.



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