NBA legend Shaquille O’Neal admits he didn’t understand how taxes worked when he first started making a lot of money in the early ’90s. In fact, he learned the hard way.
When O’Neal signed his first million-dollar trading card contract, he blew through the check in one day, buying cars and jewelry.
Then, he says, he got a lesson from the president of his bank. “[T]he president of the bank pulls me in and he says, ‘Sir, I love you. I don’t want you to be like all these athletes that go broke. You need to get your stuff together,'” O’Neal told told “Shark Tank” star Daymond John at a Black Entrepreneurs Day event on Saturday.
The bank president then took out all of the then-20-year-old basketball player’s bank statements for them to review together, O’Neal told John.
“I was like, ‘Yep, I did this. I did this. I did this.’ Then I see a word ‘FICA’ and I’m like, ‘Yo, who the hell is FICA? I don’t know nobody named FICA and I didn’t give FICA no [money],'” O’Neal said.
FICA, which stands for the Federal Insurance Contributions Act, is a law that requires taxes be withheld from paychecks and used to fund Social Security and Medicare programs for retirees, the disabled and children. Both employees and employers pay FICA taxes at the same rate (about 6.2% of your gross wages goes to Social Security tax and 1.45% goes to Medicare tax).
So O’Neal was looking at taxes that were withheld from his check.
“I had a million, but I wasn’t netting a million. I had no knowledge about FICA, state tax and income tax,” O’Neal told John.
After that, O’Neal realized he needed to learn more about finances.
But it wasn’t until O’Neal signed with Los Angeles Lakers in 1996 that he started to develop business acumen. Ant that was thanks in part to former Lakers legend Magic Johnson.
“When I first got to L.A., [Johnson] said ‘Shaq, it’s okay to be famous and all that but at some point, you want to start owning things,” O’Neal said.
O’Neal listened to the advice and today, he has reported net worth of over $400 million and has a business empire that includes restaurant franchises, fitness gyms, car washes, his own line of branded products and a partnership with Papa John’s.
Don’t miss: The 6 best credit cards for shopping at Costco
Disclosure: CNBC owns the exclusive off-network cable rights to “Shark Tank.”