Warren Sapp, the popular former defensive tackle for the Tampa Bay Buccaneers and Oakland Raiders is the most recent sports stars to go bankrupt. According to his chapter 7 filing in Fort Lauderdale Florida he owes roughly $6.7 million to creditors- plus back child support and alimony -against assets of $6.45 million.  That’s despite a successful 13 year NFL career.   How is this possible?

One reason so many athletes go broke is because they put too much money in private equity investments.  Michael Vick, star quarterback of the Philadelphia Eagles, filed for Chapter 11 bankruptcy after several bad business deals- he lost $40,000 he invested in a janitorial company with a friend, $150,000 on an airport medical service, $827,000 on two wine bars and a package store, $1.4 million on a car rental business, and $200,000 on a horse farm. Making it even worse  was that several of these investments were made based on bad advice from so-called financial advisors.

Professional athletes have no problem finding bad financial advice. The NFL PA estimates that between 1999 and 2002 78 players lost a total of $42 million in acts of fraud perpetrated by financial advisors. For example, Sports Illustrated describes a former high round NFL pick whose advisor couldn't reveal how much she was charging to manage his municipal bonds "because of the patriot act." This advisor was taking $146,000 in commissions every year.  In response to this type of fraud, the NFL PA started its Financial Advisors Program in 2002. This program sets restrictions based on experience and background checks to ensure that only well-intentioned and experienced financial advisors are allowed to deal with players.

Extravagant spending frequently plays a role in breaking pro athletes.  Former MLB slugger Jack Clark filed for bankruptcy in July 1992 while still playing, listing debts of $6.7 million and ownership of 18 cars – 17 of which still had outstanding payments.  The amount of money lost by some players is more than many of us will make in a lifetime.  But there are lessons to be learned from their mistakes.  Do your own research on all financial advice you get, even from professional advisors.  Make sure you fully understand what’s being proposed and that it makes sense.  And forget the hot stock tip and can’t miss business deals.  There are no shortcuts.  If something sounds too good to be true, you can bet it is.

In July, a US appeals court upheld two new consumer protection regulations by the Department of Transportation.  The first one requires airlines to prominently display the total cost of a ticket, including taxes, when advertising airfares.  The other allows consumers to cancel a reservation within 24 hours after purchasing a ticket and also prohibits airlines from changing the price of a ticket after purchase by increasing baggage fees or fuel surcharges.  The government fees and taxes that were left off price quotes often added 20% or more to the final cost of an airline ticket.

Before these regulations were passed, travelers could spend hours comparing ticket prices on travel websites only to find out that the ticket they purchased was actually far more expensive than advertised! What's worse, even after you bought a ticket – weeks or months later the airline could decide to raise a surcharge and bill you any amount they deem necessary, essentially saying that the price you agreed to at the time of purchase no longer applies and you owe them the difference.  These new rules protect against this ridiculous practice of post-purchase price increase, and the traveling public is better off because of it.

The opportunity to cancel reservations within 24 hours of purchasing a ticket is also an important part of these new regulations. I can't help but compare this to my recent refinancing on my home loan.  I was required to sign several hundred pages no less than 18 times. There's no possible way anyone could read that information in a half hour meeting.  That’s why the law requires a 3 day right of recision on refinances, so you have time to read and analyze the fine print.   The same is now true for airline tickets;  you have 24 hours to read the terms and conditions and cancel with a full refund for any reason.  And that’s far more palatable to being at the mercy of an airline.

These regulations are far from earth shattering, but they do represent an example of the government doing what it was intended to do – protecting citizens from making decisions based on misinformation or deceptive business practices.  Too often government oversteps its bounds by regulating prices or mandating services.  But in this case it took important steps to protect the public, proving not all regulation is bad!

Have you ever heard the term “Creative Destruction”?  It was first coined by Joseph Schumpeter in 1942 and it’s used to describe how the nature of capitalism is constant change.  In the process one type of business is often destroyed as another type is built.  This may be happening before our very eyes when we look at Best Buy.

I can remember the first time I walked into Best Buy and was absolutely blown away by the feeling it created for the shopper.  Sure, I’d shopped around and looked at TVs, but never had a seen a giant wall dedicated to the latest and greatest technology on the market.  It was like a giant man-cave.  And that was exactly the aura they wanted to create.  How could the little ‘ma and pa’ TV shop compete with that?  Heck, Circuit City couldn’t compete with it.  Buyers flocked to the incredible Best Buy showrooms.

But think about how much of an investment it takes to get every single Best Buy up and running.  Huge amounts of space to lease.  Constant turnover of equipment on the showroom floor.  Staff to explain how to use the equipment…and don’t forget the Geek Squad.  It’s all very impressive…and very expensive.  As long as people are buying it all works very effectively.  

The problem for Best Buy is that people are buying; they’re just not buying from Best Buy.  If you haven’t guessed it yet, people are going on line and buying electronics from Amazon.  You can buy it cheaper, have it shipped directly to your house, and do your shopping at 3 in the morning in your pajamas if you feel like it.  What makes it even more frustrating for Best Buy executives is that people are going to their stores to look over the equipment, then going on-line to make the actual purchase.  That’s like to going to your local hardware store to pump the owner of all the information on how to fix your plumbing problem and then saying, “Thanks.  Now I’m going to go to Home Depot to get all the stuff I need.”

At Best Buy, profits are down 91% from this time last year and executives have suspended guidance for the future because they lack confidence in their projections.  I’m certain the owners of all the little ma and pa electronic stores that were forced to out of business by Best Buy are far from sympathetic.  What goes around comes around!

Lately there's been a lot of emphasis on investing in companies that pay dividends. And that makes sense given that the market is only a few percent away from where I was back in 2000 before the tech bubble burst. A large part of investment return since that time has been dividends. In a recent article, Kiplinger's magazine demonstrated the power of investing in a growth company that also pays dividends.

They profiled the golden arches – that's right, McDonald's – from 2003 to now. McDonald's, which trades under the symbol MCD, started 2003 trading at pennies over $16. That year it paid $0.40 in dividends to shareholders. At that time, we were in the third year of a market meltdown. McDonald's like many other companies were refocusing strategy to deal with the struggling economy. They overhauled their menu selections, price strategy, and promotions. This included adding premium salads and McGriddles to their product mix.

This strategy paid off – not only for the company – but for shareholders as well. By the end of 2007, the stock was trading at over $60 a share and the company was paying a dividend of a $1.50. In 2008 the company started paying dividends quarterly rather than annually and opened their 1000th restaurant in China. But the growth continued and by 2011 they had restaurants in 119 countries. Today the stock trades at around $88 – quite an impressive run from just $16 some nine years ago.

 But let's look at this from the income perspective.  Today, McDonald's pays $.70 per share quarterly to its shareholders. That equates to $2.80 a year, or more importantly, about 3.2% per year on the current share price. But what if you had bought those shares back in 2003? Not only would you have made over five times your original investment, but the dividend payout equals 17% of your original investment.

That's the power of stock investing. Owning a stock is nothing more than owning a fractional piece of the company. As the company grows, so do the earnings that many times are passed along to shareholders in the form of dividends, and that is certainly what happened to McDonalds.