Bankruptcy Rates among NFL Players with Short-Lived Income Spikes

摘要

One of the central predictions of the life-cycle hypothesis is that individuals smooth consumption over their economic life cycle; thus, they save when income is high to provide for when income is likely to be low, such as after retirement. We test for consumption smoothing in a group of people whose income profile does not just gradually rise then fall, as it does for most workers, but rather has a very large spike lasting only a few years. These people are players in the National Football League (NFL). A career lasting six years (the median length) will provide an NFL player with more earnings than an average college graduate will get in an entire lifetime, plus a modest pension (Figure 1). However, earnings are risky because an injury can cut a player's career short. Even healthy players' careers usually end by their mid-30s. Players' typical post-retirement income is much lower than the income they earn while playing, and NFL retirement benefits are modest (Weir, Jackson, and Sonnega 2009). These features of income level and uncertainty are presumably known to players. To maintain a smooth level of consumption after the predictable post-NFL income drop, a rational, patient player should therefore save a large portion of his NFL earnings and enter retirement with a high net worth. It is difficult to measure the ups and downs of the consumption and wealth of NFL players. Therefore, to test whether NFL players have adequate savings we measure how many retired NFL players file for bankruptcy. In simulations not reported here, benchmark forecasts of optimally-saving individuals with income spikes, calibrated to what the NFL players actually earn, yield essentially no simulated bankruptcies (based on Livshits, MacGee, and Tertilt 2007). However, NFL players may not save enough because of optimism about career length, poor financial decisions, or social pressures to spend (factors we will consider in ongoing work). Indeed, we find that initial bankruptcy filings begin to occur very soon after retirement and continue at a substantial rate through at least the first 12 years of retirement.