What Would You Do With Millions In Bonus Money?

Imagine for a moment, what would happen if the general manager for your company walked in today and announced that 32 lucky employees would be selected to receive millions of dollars in bonuses.

Bedlam, right? Uncontrollable excitement. People so wired that their energy is zipping through the room in 1,000-watt bursts. Every employee in every cubicle guessing where they stand in the pecking order and how much they stand to make when the bonuses are handed out.

That is the scene April 30 at the workplace known as the NFL. General managers select 32 players in the first round of the NFL Draft and hand them signing bonuses that range from $14.5 million for the first pick to $3.3 million for the last pick in the round. Dollar amounts go progressively backwards on a scale for those in between, but nobody goes home poor.

Meanwhile, millions of fans watching this fantasy play out in the living rooms, join the players, their families and friends in asking the one question on everyone’s mind: What would I do with all that bonus money?

Think Long Term With Bonus Money

“The key word here is ‘bonus’, which means something extra,” Matt Kelly, Vice-President of Wealth Management at Morgan Stanley said. “Every one of those guys is going to make a decent salary during the season that they can easily live off so that’s not a problem.

“The problem is what to do with the ‘extra’ money and the smart thing to do is put it all into investments and don’t touch it until your career is over. Believe me, even if your career only lasts a few seasons, you could build up a pretty nice retirement fund if you invest that bonus money and leave it alone for 10 years.”

Pooooooof! That is the sound of air – and excitement – going out of 21-year-old dreams. Someone just handed you millions of dollars and you’re supposed to invest it all? Exactly how many 21-year-olds are going to do that?

“Probably not many,” Kelly replied.

Hard To Make Smart Choices

He’s right. In fact, it is hardly shocking that, regardless of age, few people put in that fantasy situation would choose to invest the money and check back in 10 years. Even fewer would put paying off debt or creating an emergency fund – two other sound choices with “found money” – at the top of their list.

A random sampling of people and what they would do with a windfall worth millions, produced these responses:

“I would buy myself a summer home in the mountains and a winter home on the beach,” said Bob, a middle-aged businessman who doesn’t expect either house to appear in his lifetime.

“I’d take vacations to all the best cites in the world and go on shopping sprees everywhere I went,” said Liz, a school teacher whose income provides neither opportunity.

“I’d buy a new set of golf clubs and a membership at the best country club in town,” 21-year-old Patrick, a college student, said. “Then, I’d buy a new car, a really nice one, and a house and take my friends out and take care of my family and … I don’t know, probably blow most of it.”

So Where Does Money Go?

In other words, about all the same things you’ve heard or read about what the 32 NFL first-round draft picks do with their new-found riches. The story of young men plowing through millions is such a cliche` now that you can find dollar amounts assigned to the typical purchases made by the new millionaires:

  • Athlete: Figure about half his bonus money will be spent on himself. In the case of the No. 1 pick, that’s $3.5 million, after accounting for IRS taxes and fees for an agent. That would bring a totally decked-out 7-bedroom, 5-bath home with swimming pool and requisite Mercedes-Benz, Audi, Escalade and Honda (hey, the hangers on gotta drive something, don’t they?) in the four-car garage supporting the house.
  • New home for Mom: Figure somewhere between $750,000 and $1 million for a comfortably-furnished four-bedroom home. She raised him and paybacks sometimes are hell, not to mention expensive.
  • Cars for Dad and rest of family: They need to show off their status and nothing does it better than a fast, luxurious set of wheels. Figure somewhere around $500,000 to take care of everybody.
  • Friends, cousins and former teammates or “hangers on” as we call them. This group can be expensive because they want in on the shopping sprees, exotic vacations and restaurant/nightclub gatherings, but want out when it comes time to pay the bill. Figure another 500 grand and that might be low.
  • Agent: He gets 4-5 percent right off the top, no questions asked.
  • Uncle Sam: He gets 40 percent off the top to cover taxes. Again, no questions asked.

Add it up and you can see that “bonus money” can disappear in a hurry, especially at the low-end of the first round. While the top pick starts with $14.5 million in bonus money, it drops under $5 million by the middle of the first round.

Maybe that’s why a survey said that 16 percent of NFL players – one of out of every six – will declare bankruptcy after retiring. A 2009 Sports Illustrated article said that 78 percent of the league’s players were under financial stress within two years of retiring.

Maybe Matt Kelly has a point. Put the bonus money away, live off your salary, and just go play ball.

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