The average consumer-level same day loan comes with a 15 to 25 percent fee per $100 loaned. Considering the relatively small dollar amount of these instant payday loans, the fee generally doesn’t break the bank. However, the 2011 NFL lockout has given rise to high-dollar variation of such loans, which the media has dubbed “lockout loans,” reports Yahoo! Sports. Players without paychecks because of the labor dispute who find themselves in financial distress are being solicited by lending agents with offers.
Lockout loans: When 36 percent APR is dangerous
While a 36 percent APR attached to consumer same day loan of $300 or $400 produces too little revenue for a lender to operate, NFL lockout loans for more than $60,000 at as much as 36 percent APR generate a lot of interest very quickly. Yet players from at least 16 NFL teams have already applied for such large-scale instant payday loans, writes Yahoo! Sports.
The NFL Players Association lockout fund has helped some players, but clearly the response to high-risk lockout loans indicates that some players haven’t curbed their extravagant lifestyles in the absence of their paychecks. The NFLPA advised players to save at least three game checks from the previous season in anticipation of the 2011 lockout, but insiders report that the advice may not have been heeded. In addition, the NFLPA has urged players to refinance their homes, fly coach and pursue moneymaking opportunities like autograph signings and speaking engagements in this extended off-season, writes MSNBC.
Why do NFL players have money problems?
Sports psychologists suggest that star athletes are surrounded by enablers from a relatively young age. By the time players reach the professional ranks, it is not uncommon for them to lack real world financial knowledge, as they’ve never had to take responsibility for such things. Throwing millions of dollars at someone who may have grown up poor can also open the door to myriad temptations. This is perhaps why as many as 80 percent of retired NFL players have declared bankruptcy, according to a Sports Illustrated estimate. MSNBC indicates that as many as 380 of the NFL’s 1,700 players live from paycheck to paycheck, even though the average NFL annual salary in 2010 was $1.87 million. The rookie average was $320,000, but after taxes and agents, money problems can occur if players aren’t careful.
A dissenting voice in support of lockout loans
Sherard Rogers, a financial adviser to a number of NFL athletes, told Yahoo! Sports that lockout loans are a legitimate product that meets player demand. While franchises will endure, players who live to spend can run into trouble.
“Every NFL team was valued at over $1 billion, so they can weather the storm of a lockout. But could players if there weren’t resources to cover this short-term labor dispute?” asked Rogers. “The key is to figure out how to solve the short-term liquidity issue and put the pieces in place to ensure they don’t have this liquidity issue again.”
Both sides are feeling the ‘deal heat’