Yesterday, fans of Michael Jackson bemoaned the loss of a great musical icon. But what was more interesting to me was how much debt he had at the time of his passing. Estimates range from $300 million to $600 million. I have done as much search and research about it. So here’s my “Saturday Morning Live” money lessons from the King of Pop.
Invest in “proven” things that pay you a dividend for a long time – One of Michael’s best investment ever was investing $47.5 million in 1985 for the rights to a catalog of music that included 251 Beatles songs. Those rights, as well as concerts, endorsements and music videos, would generate more than $400 million over the next two decades. That is what I call passive income. (hey – much better than rental properties!)
I just had a an interview with the Silicon Valley Blogger and one of the things we talked about was how so many people in Silicon Valley are just looking for “the next big thing”. Well, the next big thing may never come!
Work once – get paid forever – It is estimated that Michael Jackson made over $300mm of sales from his recordings alone in the early 80s. Granted, he has the talent that very few people have. But this only goes to show that when you work on something that produces income for a long time, it pays off handsomely. Contrast this to a 9-to-5 job that most people are in, you can get laid off anytime time, lose your health care (ex-cobra) and you have to hunt for your next job!
Beware of Maintenance Cost – Michael bought a $17 million in 1988 for the 2,800-acre ranch in California that would become Neverland. In it was a theme park – complete with zoo, movie theater and fairground. If all it was was $17 million, that’s all and fine. But no, it cost $5 million a year to maintain.
Most of us will never dream of being able to own a zoo. But this lesson applies to us as well. Many folks a second home by the ocean or lake. But only use them one month a year and rent it out for three months. Most of the time, the rent they get and the amount of time they spend would not even justify the cost of maintaining a place that is not occupied for most of the year. Yet, there is mortgage cost, insurance cost and property taxes. Most people will be better off renting a vacation place rather than owning!
Or take another example, a boat. If you own one, make sure you use it. Because maintaining it is very expensive. There is a cost of “park” at the harbor, fuel cost (don’t even get started), a crew!
How often do Ferrari owners really drive their car? I suppose most owners can easily afford it. But still, you need a decent garage. You will probably only drive it once in a while. You still have to pay insurance. Truth to be told, might as well rent a sports car when you need to! (there are places that rent these beauties).
Buying expensive and unnecessary stuff can ruin you – Did Jacko really need a zoo? I mean couldn’t he have flown to San Diego Zoo and get a private tour (well,maybe he can never walk through a zoo in peace). Did he really have to have his own theme park? I mean, he could rented the whole six flags to himself?
A zoo or a theme park may be too far fetched for us.But let’s think about this, do your kids need more toys? Do you really need 4 plasma TVs in your house? Do you really need the super large Viking kitchen grill and cooktop (especially when you are not even a chef!). Do you really need a 20th pair of shoes or handbag? Do you really need this gigantic gas guzzling SUV? You really need to ask yourself if this is something you really need or just something you really want.
Maybe the best way to say this is STOP BUYING CRAP!
Lawsuits Can Make A Serious Dent To Your Wealth – Michael Jackson had to settle for $17 million a child molestation case. If it happened to any mortal soul like us, we would be wiped out. Yet lawsuits remain a fact of life in the good old litigation trigger happy USA. We must always protect ourselves as much as possible. Like registering your start up business, or getting an umbrella policy.
Divorce are expensive matters – Yup, Michael could afford (and he probably did have a pre-nuptual agreement) with Lisa Marie Presley. But to ordinary folks like us, the stress, the kids and the finance are indeed stressful and expensive matters. Choose your spouse carefully and if you are really rich, have a pre-nupt!
Never Use Assets To Sustain Your Lifestyle – Your type of lifestyle should reflect your income and cash flow. Make only $2000 a month, well, then live your life like a person who makes $2,000 a month. Make a $20,000 a month, well, you can obviously afford to live a much better lifestyle.
But look what Jacko did. He was reportedly pulling in income of about $19 million from royalties, and yet he had to sell a 50% stake of his investment in the beatles catalog for $100 million to Sony Records to help sustain his lifestyle. (Think again about using your home equity line of credit to do your renovation or take a vacation?).
Get Your Will Written – Here is Michael’s family situation. Debbie Rowe, a nurse who Jackson married in 1996 and divorced in 1999, is the mother of Prince Michael, 12, and Paris, 11. Prince Michael II (also known as Blanket), 7, was reportedly born to a surrogate mother, whose name has never been released.
At this moment, we do not know if Michael states clearly in his will who will get custody of who? Let’s hope he did.
For the rest of us, get your will done (and think through these difficult issues) and stop asking and wondering if you need a will.
Organize Your Financial and Business Affairs – This isn’t exactly related to Michael Jackson but the reason behind how he could actually get the rights to a large chunk of the Beatles music is an interesting lesson in itself.
To avoid confiscatory British taxes (this occurred in the 60s), Paul McCartney and John Lennon turned their publishing rights over to newly-organized Northern Songs, a publicly-held company in which they owned sizable but apparently not controlling blocks of stock. In 1969 music mogul Lew Grade launched a takeover bid for Northern Songs. He offered seven times the stock’s original offering price. Lennon and McCartney, weren’t exactly on brilliant terms then, were unable to organize an effective defense and the company was sold out from under them. This made them even more fabulously wealthy. But they were not happy because it was a “matter of principals”.
Do not get into debt – Alright, for most of us, we have a mortgage. But isn’t it sad that someone who makes millions a year has to get into debt. Michael actually had his theme park nearly foreclosed because he missed an interest payment. In the end, he was bailed out by Colonial Capital! And he eventually had to sell 50% of his beatles rights to Sony Records!
Spend less than you make – I do not even want to expand on this point. But isn’t it sad that someone who makes so much still does not have enough?
Being Rich Does Not Mean You Can Handle Money – Even the mega wealthy can have debt! Even they can spend beyond their means. Some people may have got rich quickly through events like selling their company. It can even happen when you are young. But having that pot of money is absolutely no guarantee that it will last if you do not know how to manage your new found wealth. Even having a million dollar pay day is no guarantee that you’ll always have money. That is why most folks who win the lottery lose their wealth. Even Mike Tyson (who was worth an estimated $350 million) went bust! Think of the people who lost their entire wealth investing with Bernie Madoff.
At any level, take some course about personal finance. Read about it and use your common sense when it comes to money.
Always Have a Back Up Plan – Michael Jackson had a planned London concert later this year. If that had gone through, it is estimated that he would have netted $100 million. If he had followed that by a world tour, he could have earned possibly $500 million! Perhaps that explains why Michael could get away with not being fully on top of his finances and spending. He had a plan B. And that plan B was that he could always give concert tours. He just had to make sure he was healthy!
Question for you is : Do You Have a Plan B? What if you got laid off? What if Your Spouse Got Laid off? Do you have a plan B?
My final thoughts – I grew up with the 80s music. Michael Jackson was so huge in the early 80s it was unreal. I enjoyed his music but am not really a big fan. I have nothing against him but since I write about credit cards, debt and money, I think I want to add my final two cents to this post.
It is really sad that a person of his talent, “wealth”, stature would pass away with so much debt. Rather than leaving with a few hundred million in debt, could you imagine the good if he had left a couple of hundred million instead to charity? One of the reasons we should get out of debt is so that we can give more. This to me is the greatest tragedy of his passing. We will always have his music, but the wealth they earned could have been put to so much better use (thought this is not to say he was not charitable – am pretty sure he must have made some hefty donations to worthy causes).
Lastly, I also wonder who his financial advisor was because he or she or they ought to be shot!