How Magic Johnson Lost $Billions From Not Understanding Stocks
Magic Johnson won the National Collegiate Basketball Championship back in 1979 against his arch rival, Larry Bird. He was a sophomore at Michigan State and only 19 years old. Soon after their championship, Magic declared for the NBA draft and was courted by three top sneaker companies. Converse, Adidas, and Nike all competed for his services, eager to sign him to a shoe deal.
In the 70’s, Converse had the most popular sneakers around and everyone - including Dr. J - were wearing them. Nike was just starting out and was just a year or two old. Converse came back and offered Magic the most money. He would receive $100,000 for every year he was signed to them.
Founder Phil Knight of Nike returned back and told Magic that they could not match the money that Converse offered. All they could give him was $100,000 of Nike stock options. Inevitably, Magic Johnson took the Converse $100,000 cash deal - only to find out years later that it may have been one of his worst financial decisions of his life.
Years later, Magic explained it like this: when you grow up young and broke, you go along with the person who offers you the most money. Magic Johnson went on to say, “I didn’t know anything about stocks or what it was at the time. My family and friends didn't know what stocks were either. It hurts sometimes when you’re raised and don’t know anything about money and finance.”
So, why should Magic Johnson have taken that Nike deal? Because those Nike stock options proposed back in 1979 would be worth a whopping $5.2 billion today. Magic says he still kicks himself now for choosing the Converse cash deal over the Nike stock options deal.
Obviously, he wished he knew what stocks were and how they worked. Magic says, “man, Michael Jordan would still be making me so much money today if I did that deal.”
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