Learned from Mike Tyson

Lessons from Mike Tyson:

1) Independent review of any new contract you sign.

2) Independent and regular reporting of financial performance.  Strong tax and financial plan to prepare for short and long term.  Plan to maintain a lifestyle long after retirement.

3) Independent annual audit and attention to "red flags".

 

What happened?

Mike Tyson earned about $400 million throughout his career as a pro boxer.  Great job by his managers, promoters, and other professionals that helped him get this amount of work!  However, the pros that helped Mike manage his money were worthless…  Of course it’s easy to say this without knowing all sides of the story.  Mike could have had an excellent plan and great tax preparation team and just did not want to follow their advice.  But this seems an unlikely scenario since he clearly accepted professional help from the folks that helped his career.

He earned money through boxing, endorsements, and cinema.  His long time manager and promoter happened to be abusive and unethical.  News reports indicate that Tyson’s law suite against Don King indicated a number of fraudulent charges that were not reviewed during the athlete’s career but were only reviled after the athlete hit hard times.  Amongst many categories, the fraudulent charges included renovations to the manager’s home billed to the boxer.  Don King’s relatives were put on the boxer’s payroll at inflated salaries. There appeared to be looting of the athlete’s earnings with charges paid to the manager that were disproportionate to the industry standards.

Additional details revealed that Tyson employed two of his friends who had no experience in athlete management or negation.  This cost him not to have any real check and balance system when it came to overseeing his financial situation.

It is interesting to note that the case also had emphasized that the athlete might have been aware of the “skimming” by King but according to the testifying accountant he didn’t mind it given his $20+ million deals.

Another issue with huge earnings was that the athlete spent millions of dollars expecting the earnings to continue.  This is an unfortunate approach because at the end his contracts were not renewed and he reportedly was $12 million short on his IRS obligations.

 Another piece of the story was about the athlete’s demand for financial statements, which turned out to be just numbers typed up on paper, nothing comprehensive or official.

When Tyson contacted an attorney and requested an independent review of his contracts he again found problems.  The attorney informed him that the contracts were grossly unfair but at that point it was too late to go back...

In 2013 Mike Tyson is not engaged professionally and will never have the lifestyle he could have had if he addressed his finances with more care.

What have we learned?

1. Most of us are not lawyers.  If you are worth millions and have the potential to earn more spend the money and get independent reviews of each new contract. Do not have friends working for you.  It is one thing to develop a project together and see it through.  It is another to be the earner and “pull” a bunch of people because you like them.


2. Get and review your current financial records.  Make sure they reflect projected tax obligations and that you are setting money aside for these obligations.  Separate a fraction of your earnings to maintain a lifestyle for your lifetime.


3. Most importantly get a third party for example a CPA firm to perform an annual audit to make certain professionals involved in your career and financial management are correctly representing information to you and are acting in line with your expectations.