Sunday, September 20, 2009

High time preference & windfall earnings   posted by Razib @ 9/20/2009 12:14:00 PM

Tyler Cowen points me to this article from last spring about the profligacy of professional athletes. Here are numbers which seem constructed for the sake of plausibility more than anything else:
* By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.

* Within five years of retirement, an estimated 60% of former NBA players are broke.

It shouldn't be that hard to track down a large number of former players and try and make the sample representative, and assess what their financial situation is. This looks like a "natural experiment" waiting to be mined for data (perhaps someone already has, if so, pointers in the comments welcome). Here's the part which shows time preference inclinations most starkly:
Given all the pressures on a pro athlete's marriage, one safety valve might be the prenuptial agreement-something "very strongly" recommended by agent David Falk, who surged to prominence representing Michael Jordan (who did not have one). "The percentage of prenups amongst athletes is appreciably lower compared with nonathletes at the same economic level," says celebrity divorce lawyer Raoul Felder, who has represented the ex-wives of Patrick Ewing, Jason Kidd and Mike Tyson.

In 1994, when NBA center Dikembe Mutombo was engaged to Michelle Roberts, a med student, Roberts refused to sign a premarital contract the day before the wedding. Five hundred guests-including a large party from Mutombo's native Democratic Republic of Congo-had begun flying in to Washington. "[Roberts] never signed," Falk says, "and Mutombo never married the girl." Calling off the nuptials reportedly cost him $250,000.

It's no coincidence that the woman a pro athlete often chooses to marry-and often at a young age-is his hometown sweetheart. For that reason he can't envision a ruinous divorce. "That was how you could tell if she really liked you, if she knew you before you made it," says West. But when a player does make it? "The question [for the athlete] becomes, When you get off the farm and see Paris, so to speak, can you really go back to the farm?"

Children almost always complicate the issue. How to limit paternity obligations is a challenge for pro athletes. Former NBA forward Shawn Kemp (who has at least seven children by six women) and, more recently, Travis Henry (nine by nine) have seen their fortunes sapped by monthly child-support payments in the tens of thousands of dollars. Last month Henry, who reportedly earned almost $11 million over seven years in the NFL, tried and failed to temporarily reduce one of his nine child-support payments by arguing that he could no longer afford the $3,000 every month. Two weeks later he was jailed for falling $16,600 behind in payments for his child in Frostproof, Fla.

Mutumbo as an exceptional case is informative, he was not recruited as a student athlete initially, and managed to complete a degree in linguistics and diplomacy at Georgetown (David Robinson, who scored a 1320 on the pre-recentered SAT and received a degree in math from the Naval Academy, is probably an even better example).