Question of the Day: What fraction of US millionaires are professional athletes?
My favorite baseball player, Josh Harrison, just got signed to a four-year contract with my favorite baseball team, the Pittsburgh Pirates. He’s reportedly signed for $27.3 million, with two years of club options. If you’re interested in JHay, the Pirates, or sports contracts, you can read more here. It inspired my Financial Literacy Month (#FLM2015) Question of the Day:
What fraction of US millionaires are professional athletes?
First things first, not a single person on the Forbes 400 is an athlete or even former athlete (that I can tell); everyone in the “sports” category of the list is a team owner, but there we’re talking about billions, not millions, anyway.
Here’s a blog post from The Wages of Wins Journal that crunched some numbers about NBA salaries back in 2011 and makes the claim that more people win the lottery every year (1600) than the NBA has produced career millionaires since 1991 (971, as of 2011). It may not be surprising, considering that the basketball stars who make the Top 10 Richest Athletes in America list are Shaquille O’Neal, Magic Johnson, and Michael Jordan, all of whom have made the bulk of their money from endorsements, investments, starting their own companies, starring in movies, etc.
When we look at the Top 10 Highest Paid Athletes in America for 2014, we find 5 NBA players, 2 NFL players, 2 golfers, and boxer Floyd Mayweather, the highest paid athlete in the world in 2014, with income of $105M. The field of boxing isn’t exactly known for its athletes’ lengthy careers, so Floyd may be wise to do some serious saving and investing, a discussion worth having in your classroom.
This 2012 article from Forbes and Investopedia points out that there are only roughly 5000 professional athletes in the four largest North American sports leagues (NBA, MLB, NHL, and NFL), and, as we’ve seen, many of them make less than $1M per year, so becoming a pro athlete is not a guaranteed road to becoming a millionaire, by any means.
Finally, to (somewhat) answer my question, I liked the Tax Foundation’s 2012 report Who Are America’s Millionaires? Based on tax filings through 2010, this report is filled with outstanding graphs and charts you could use in your classroom, and students could investigate the idea of being a millionaire from all different angles. While it does not exactly answer my FLM2015 Question of the Day, it comes close:
Despite the publicity given to the growing number of young millionaire athletes, only about 3 percent of all million-dollar tax returns are filed by taxpayers under the age of 35. Indeed, of the 8,274 returns reporting more than $10 million in AGI, just 409 were from taxpayers under age 35. Nearly five-times that many taxpayers (1,923) over age 65 reported income more than $10 million in 2009.
So, if we assume the vast majority of professional athletes in the US are under age 35 (there are certainly exceptions, especially in the world of golf), and we consider there are roughly 5000 pro athletes in the top four US leagues, and we use the figure from The Wages of Wins Journal that approximately 51% of all NBA players average $1M per year, I’m thinking about this math:
3% of millionaires are under 35 (8000 people)
5000 pro athletes, but only half earn $1M per season (2500 people)
At most, 2500/8000 = 31.3% of the 3% could be athletes = 0.94% of millionaires are professional athletes
It’s a lot of assuming, but it’s my best estimate so far. Please correct my math, my reasoning, or my data sources. Please also consider using this Question of the Day with your students during Financial Literacy Month. I think it’s my best one yet!