Why do boxers go broke? Part IV of the wide-ranging interview

Another interesting viewpoint. Some people might find this convo boring but I've never heard the topic really addressed before:

Q: A lot of people have talked about the money woes of Robinson, Hearns, Tyson, Holyfield, and even rumors about Floyd's tax problems. It seems most boxers eventually end up broke. You've worked with a lot of fighters in your career. What's your take on why that is?

A: It's a sad thing, definitely. People tend to blame cultural influences on boxers' inability to manage money, and while there's some truth to that, there's a broader answer.

Boxers, as opposed to other professional athletes, have a smaller "peak earnings window" as I call it, where they earn the vast majority of their money. That window is usually only about 4 years, or 15 fights, from 26-30. For most other pro athletes, that window is usually twice as long. It coincides with their physical prime. That, unfortunately, is also when they experience majority of their life changes. They get married, become public figures, get the phone calls from friends and family, have more children. They become what they believe to be stable.

Sadly, a boxer's life is never stable. They're front-earners. That is to say, what they make during their short careers will never come close to meeting what they'll make for the rest of their lives. A lot of them don't think of the longer term, and a lot of bankers, brokers, realtors, and other people don't really know how to structure the financial affairs of a boxer with that front-earning in mind.

Q: So you're saying that they spend all of their money not realizing that there won't be more of it coming?

A: I think it's more than that. You're presupposing that they're irresponsible or wasteful with their money. It's more than that. Even if you're not spending millions on fancy cars and an entourage, your earnings money is likely to run out over the course of your life. Let's do some math. Let me get my phone calculator.

Q: OK

A: I'm back. I'm doing this fast and loose to get some rough figures, so even if the numbers don't match exactly, the point remains the same. For one, boxing earnings aren't taxed as regular salary, they're taxed like a commission or bonus, which is almost 50%. That alone should change the way a fighter approaches his career. That's an automatic 20% hit on the equivalent salary.

Let's say a boxer gets a purse of about $200,000 per fight for three fights per year, which is a rough average of a signed olympian. That's $600,000 per year. 70% of that goes to training staff, expenses, the promoter, and the manager. There's the 20% premium for being in a commissioned job. So that means in real terms, that top level boxer is making the equivalent of a $144,000 per year salary for the first six years of his career. That's pretty good considering what he could be doing, but can you retire off of that?

Now let's say he wins a championship, let's say he becomes a superstar as he hits those four peak earning years. I'm talking a Bradley, or Berto, or Williams level star, about as high as you can get without being Pacquiao, Mayweather, or from a country where boxing has a national following. Let's say he starts fighting for $1.5 million per fight. Just going by rough numbers so I avoid the complicated sanctioning fees math, I'll keep that as 70%. When you reach that level you normally fight 2-3 times per year. That's about $4.5 million per year, but once you factor in all the numbers and the commission hit, that's $1,080,000 per year. For a top level star. For four years.

And here's where the trouble starts. I have a fighter who went through this just the other day until we talked it through. He gets that check, thinks, "It's time to buy a house", and goes to a mortgage broker. He never bought anything worth so much before, and he asks, "How much house can I afford?" the broker says, "Well, our mortgage approval is based on three times your annual salary" and the boxer does some quick math and goes, "Wow! I can afford a $3.5 million home!".

Except he can't. And he can't because $1,080,000 is not his annual salary. It's his commission for that year. But he doesn't realize that because the broker said, "three times annual salary" and suddenly he's bought a 30 year mortgage that he can only afford if he maintains his earning rate for 30 years. But that earning rate only lasts for 4 years on average before it dips again. Are you following?

Q: Absolutely.

A: Then what should he have done?

Q: It sounds like he should have gotten a lower mortgage.

A: No, he should have gotten no mortgage at all. See, I try to teach my fighters that boxing is a cash business. It's a cash business, and you have to conduct your affairs like it's a cash business. He had a check for $1 million, he should have skipped the mortgage broker entirely and bought a home in cash. Ditto with their car, and everything else. I want to strangle my fighters when I hear about them getting loans and mortgages because I know that it's going to come back and haunt them.

Q: Then you would have told that boxer to buy a million dollar home with the money?

A: No, a million would be too much. They could afford to buy it outright, but could they afford the taxes on it? Here in Chicago, a million dollar home is usually about $15,000 in taxes alone. It might be another $5,000 a year in utilities and maintenance. He would need to have a steady salary to pay the equivalent of $1700 a month in home cost, even on a home purchased in cash. Most boxers won't make that kind of money after their career is over, which means it would be coming straight out of savings, which is the worst thing you can do.

Q: What would that fighter be able to afford if not the million?

A: The formula is pretty simple. I mentioned front-earning before. Let's finish the formula. Four years at $1,080,000 a year is about $4.3 million. And then it drops again, perhaps down to $500,000 for another couple of years, and then back to the baseline, which we'll say is $150,000 for the last five years of his career. So that's a total of 17 years. Six years in the beginning, 4 peak years, another two post-peak years, and five years of being a gatekeeper and faded name. During those 17 years, a top level boxer would have only made roughly $7 million, give or take a couple of million if he lucks out. For most fighters, that 17 year period is going to be it for his earnings. For the average person, they work 40 years. So if we calculate that out into what I call "real salary", it's the equivalent of $180,000 a year over the course of an average person's career. Actually less, because there aren't benefits like health insurance. That's still pretty good money, but you can't afford a $3 million home on it. You can't even afford a $1 million home on it. And yet a lot of boxers get that $1 million check and declare themselves millionaires, then run out and get three cars - all loans, two houses - all mortgages. If they do the math, they realize that they're not even remotely millionaires - they're just getting a 30 year advance on their salary.

Q: And that's for the top level boxers in the sport? Meaning everybody else won't even do that well.

A: That's the scary part - most boxers don't make close to $7 million in personal income. Not even close. I run these numbers with every fighter who comes into my gym looking to go pro. Of course I'm a lot more precise about the calculations when I'm having a session like this with a fighter than I am over an impromptu phone call for an interview. But for most of my fighters, when I run the numbers, they max out at about $30,000 in real salary. Even the titleholders I train might get to $60,000 in real salary at most. I have that talk with everybody who wants to go pro, and when I go over those numbers, a lot of them walk out my gym and never come back. It's a great way to weed out the people in this for the love of the sport and the people who think they're on the road to fame and fortune. They're not.

Q: So what can boxers do to be more responsible?

A: Calculating real salary is a start, but then paying yourself a real salary is the second thing. I tell my fighters to pay themselves the way they pay any other employee. Joe Boxer isn't just a boxer, he's an employee of Joe Boxer, Inc. He's got to pay himself as an employee or he'll never be able to cover himself when his earning years are over. There are a lot of financial advisors who specialize in working with boxers, and who teach fighters how to manage their real salary so that they live the way they're supposed to. When they go pro, I always make sure I have one work with my fighter. I'm proud to say that nobody out of my gym has gone bankrupt since we introduced this program a decade ago.