KOBE BRYANT OR THE CASE FOR A PRENUP

Celebrity marriages don’t usually have stellar track records, so news of a divorce may be surprising but not unexpected. However in the case of Kobe and Vanessa Bryant, such news is sure to make a splash. The main issue here is not the divorce in itself but the fact that Kobe did not have a prenuptial agreement in place. In financial planning, clients are taught to protect themselves against the 3Ds (Disease, Death or Divorce) as they are the surest ways to financial ruin. For celebrities, Divorce is the main culprit and this Bryant case is bound to be costly.

First of all, Kobe is one of the highest basketball players in the league and according to Forbes, he racked in $53 million last year with $28 million in off-court earnings. His net-worth is estimated to be in the $300 million range and he is still owed almost $80 million by the Lakers over the next 3 years. Given Kobe’s age (33 year old) his earning potential could be in the several hundred million over the next few years.

In the absence of a prenup and based on the state of California community property laws, Vanessa could be entitled to upwards of $150 million. The question now is, should she be entitled to that much? A supportive wife is an invaluable asset to any successful man, but Kobe was already established by the time they met. After 10 years of marriage and two children, the numbers amount to $15 million a year or $75 million per child. How much of Kobe’s wealth should be attributed to his wife? We may never know but I doubt that her contributions outweigh or even equal his. His own drive, determination and basic raw talent led him to where he is.

The future will tell how much Vanessa eventually ends up with and if they even go through with the divorce. The sad part is that all this potential drama could have been avoided had Kobe listened to his father and signed a prenup. This is an expensive lesson to be learned and hopefully other wealthy individuals will learn from his mistake. Marriage is a lovely institution but over 50% of unions end in divorce. Wouldn’t it make sense to insure a fair level of protection for the wealthy party just in case? After all, we take the time to insure our vehicles even though we may never have an accident. We insure our homes even though we might never be the victim of a break-in or a fire. So with odds of a divorce at 1 out of 2, this should be a no-brainer.

Lady Gaga or the cost of Popularity

Lady Gaga has taken the music world by storm since she burst onto the scene in 2008. Since then, she's transformed into one of the leading touring acts worldwide, with her Monster's Ball Tour grossing over $125 million. Those numbers reflect a successful run, but in an article with the Financial Times1, she actually revealed that she ended up almost $3 million in the red. How is that even possible you say?

The reality is that a tour of that caliber is a major financial undertaking. On a typical tour like Lady Gaga's, over 100 individuals have to be on payroll: musicians, dancers, production staff, and dozens of crew members. With weekly salaries in the $1000-$6000 range and daily per diem at $45 a day, bi-weekly payroll usually tops $250k. This army also has to be housed in hotels in every city, with some of them staying in Luxury hotels with the celebrity. Given the frenetic pace of a world tour, one has to keep in mind that these expenses incur even on off days in between shows. Transportation (tens of tour buses and trucks, even charter planes sometimes) catering on show days also increases the bill. However, the biggest expenses are related to the stage performance itself. Lights, sound, stage rigs (elevators), special effects and other tricks require a couple of hundred thousand per show. On a 100+ cities tour, you do the math.

One little known fact is that depending on the deal with the promoter, the artist is actually responsible for most of the aforementioned costs. A promoter will promise the artist a guaranteed fee (says $500k a show) and may even throw in a small weekly allowance to cover certain costs (i.e. $10k a week for lights). This in essence skews what the artist him or herself is really making. From experience, these costs run well into the 50% range, thus making actual income half of the gross. This is why efficient tour accounting is key as those expenses can usually run out of control and push those costs in the 70% range. Horror stories range from hundreds of hotel room reservations that could not be cancelled due to scheduling errors, to artists requesting more and more elaborate costumes or special effects regardless of costs.

Finally, commissions have to be paid to the various players that help the tour happen. A booking agent will probably get 7.5-10% of the guaranteed gross. Management and business management respectively amount to 15% and 5% of gross revenue. In Lady Gaga’s case, let’s say that the above commission rates apply. This means that the booking agent made $9.375 million, the management made $18.75 million and the business management $6.25 million, for a total of $34.75 million in commissions. Assuming that the reports of production extravagance that Lady Gaga allegedly required2 pushed the expenses to 75% of gross, she would have netted $31.25 million on $125 million, which is about 3 million less than the commissions she would have owed. There is an internal industry debate as to whether these commissions should be calculated on the real income the artist made, which is after expenses are deducted.

Touring is one of the last areas where musicians truly make money. It is therefore important that the ship be run tightly and that costs be controlled. What’s the point of going on a grueling worldwide tour to come back deep in debt? Luckily Lady Gaga can rely on the additional millions she makes from publishing and endorsements. So the next time you hear about a high grossing tour, just know that there might be more to the story.

Sources
1 http://www.nypost.com/p/pagesix/gaga_monster_debt_GcmQx3CLmuTAOSJepo3fAJ
2 http://www.azcentral.com/thingstodo/music/articles/2010/01/06/20100106lady-gaga.html

Another One Bites the Dust

High flying music producer Scott Torch has been arrested for Grand Theft Auto for failing to return his Bentley GT. This incident follows the recent foreclosure of his $10 million mansion on an island off of Miami Beach.

At the end of the lease, Torch did not returned the car as agreed, but gave it to rapper Lil Kim. The car was eventually tracked down at her place in NJ.

Yet another example of money wasted on a fast lifestyle. In a 2006 Rolling Stone article titled "Scott Torch's Outrageous Fortune", Torch described his posh lifestyle and claimed to have a net worth of $70 million already. His career encompassed delivering hits for the likes of Beyonce, Dr. Dre, Lil Kim, Justin Timberlake, Fat Joe, Chris Brown and 50 cents. The notable holdings that the article mentioned were a bevy of luxury cars, a $20 million yacht, as well as wearing $3.5 million worth of jewelry in one outing.

Scott Torch is apparently in rehab at this time, by the way.

Source

"You're About to Get Paid, Now What?" Part II

STICK TO THE PLAN
Having a successful plan starts with one’s lifestyle. As the saying goes “It’s not how much you make, but how much you get to keep”. With that said, your lifestyle determines how much you have left to actually fund the plan: savings, investments, insurance, etc…This is why it is primordial that an appropriate budget be set up from the get-go. Unfortunately, the age-old conflict of Indulgence vs. Excess is still current. Clients need to be realistic in their budget expectations. It is okay to indulge here and there, but living a lifestyle of excess is a one-way ticket to perdition. Very few people can afford to burn $250,000 a month in cash consistently, but many try. The majority of it is usually spent on non-critical items. The only solution is to know and understand the plan. A good attitude involves knowing what the goal is, what is expected of you, but mostly knowing your weaknesses so you can recognize the triggers and avoid them. If being depressed makes you want to splurge in boutiques, notify someone before it is too late. Adopting such a strategy will ensure that the plan is implemented and maintained.

WHAT ABOUT PLAN B, C AND D?
Very few careers last forever, so one should have a backup plan at all times. If you prefer a voluntary exit strategy or retirement, you first need to define what shape it will take and what exactly it will entail. You also need to figure out a road-map to get there and over which time frame. A few people successfully managed to retire at the top of their game on their own terms, but very few that announce it actually follow through. For everyone else, I suggest setting up an ICE Plan (In Case Of Emergency) for when those checks stop coming. The key here is to figure out what else motivates you. Is it teaching or coaching your former profession? Is it something else in the industry or field? Or is it exiting the field altogether? Options in that case range from starting an unrelated business to going back to school. Do your research about those endeavors during your career and talk to people that went that route already. Whatever it may be, you should never be caught unprepared whenever your career ends.

GIVE BACK
To whom much is given, much is required. I believed that whenever a great blessing has been bestowed upon you, your responsibility is to share some of it. On top of the moral aspect of giving, there are tax benefits associated with charitable donations. You can give outright personally, via your business entity or through a non-profit you set up. Please consult with a professional to structure such donations. Again, it truly makes sense to reach back to the least fortunate. Not only do you get a sense of accomplishment, but you also achieve spiritual balance and spread good karma that is sure to come back your way. I always share my personal philosophy on the matter with new clients: Those who give are always provided for. I could give you countless personal examples, but confidentiality prevents me from doing so. Just know that it works!

“You're About to Get Paid, Now What?” Part I

This is from a presentation I made at SESAC in June 2008

Every creative person has success in mind and usually with success comes money. It is a difficult transition to make when the big checks start coming in, and below is a road-map for people in that situation. Keep in mind that this is just my humble perspective.

GET A GOOD FINANCIAL TEAM
Why do you need a team? A good team provides peace of mind, and helps you prosper. You can focus on what you do best, which is creating or performing, without having to worry about paying the bills or the type of investments you need. I usually encourage people to get their money’s worth, as you get what you pay for. Having a cousin or a sibling handling money is a recipe for disaster, unless they are already proficient in that field. To those that claim to be able to do it themselves, I offer the “crazier of the two” analogy and that usually shuts them up. It goes as follows: Seems like of one us is crazy. Either I am crazy for having studied all these years and obtained these credentials when someone with no training can do my job, or you are crazy for thinking you can do as well as I without my training and experience. Which on of the two do you think makes sense? A good team has to be a good fit as you should feel comfortable dealing with and talking to them. Condescendence has no place in this field regardless of a client’s educational level or social background, but many stuffy traditional firms do not seem to get it. A fit also means the competencies of the firm you are considering. A CPA should not be doing your estate planning and an insurance agent should not be doing your taxes. Finally, one needs to assess how good that team is. This involves checking references, verifying credentials and talking to people they do business with. This is called due diligence, and many people tend to skip that step.

BE ACCOUNTABLE
Once one has a team in place, the hard part begins. I push my clients to get educated and become familiar with the various terminologies (such as Assets, Liabilities, Bonds, CDs, Stocks, etc…), how they’re being charged for products (commission or fee?), and other things such as their tax brackets and various rules. The more one knows, the better decisions they can make for themselves. It is also important to know the details. This means actually reading your statements to know where you stand financially and showing up to appointments; when there, please stay awake and be involved. I have seen it all from yawning and texting away during financial meetings, but the only one losing out is the client. All the other parties only need to point to that meeting in case anything goes wrong and say “but he/she was there!”, thus declining responsibility. Which leads me to my next point: Don’t be afraid to ask questions. It is your money so shame has no place in there. Questions such as “why this”? “How does it work”? “How long does it take to reach my goals”? These are pertinent questions which will help you remain accountable.

To be continued...

4 Levels: Where do you stand?

Great words to live by, especially in today's economy. Below are the 4 levels of wealth and what they mean, per an online source.

First Level of Wealth - Financial Stability

The first level of wealth is known as financial stability. Financial stability is achieved when you have accumulated enough liquid assets to cover your current expenses for a minimum of six months. You should have also bought life and health insurance to protect you and your family's lifestyle should you be permanently disabled or passed away suddenly. Spend at least 5 minutes to compute your current level of wealth to find out how long you can sustain your current lifestyle without working. This is calculated by taking your total liquid assets divided by your monthly expenses less your current passive income. If you have not achieved financial stability, you would need to do the following:

1. You must aim to clear off your outstanding debts to minimize the negative cash assets that are taking a cut off your monthly salary.

2. Save at least 10-20% of your monthly income. This is on top of any mandatory saving plans such as 401K. You should save up at least 3 times your monthly salary before thinking about investing your savings. This is to make sure that you have sufficient cashflow to handle emergencies.

3. Book an appointment with a financial advisor to have a consultation on what kind of life insurance policy is more suitable for you. This is to cover you and your family in the event that you cannot continue working due to disabilities or any other unfortunate events.

Second Level of Wealth - Additional Passive Income

The second level wealth will be achieved when you accumulate passive income to sustain your most basic expenses. This means that you can choose not to work and yet have enough money to pay off your mortgage, daily food and transportation allowance as well as interest for all your loans and your insurance premiums. Any income that you gained from working will be channeled entirely into investment.

Third Level of Wealth - Financial Freedom

The third level of wealth would be achieving financial freedom. This means that you can sustain your CURRENT lifestyle without working again. You have accumulated enough passive income to sustain your current lifestyle indefinitely.

Fourth Level of Wealth - Financial Abundance

The fourth level of wealth would be attained when you have enough passive income to sustain your DESIRED lifestyle without working indefinitely. The amount of time that you take to achieve financial abundance from financial freedom depends how the gap between your current lifestyle from your desired lifestyle.

As you can see, to achieve higher level of financial wealth, it is very important to save a portion of your income and channel it into generating passive income. I am pretty sure most people are working hard to achieve or maintain level 1. Let's just keep the other levels in mind for that glorious day when the Global economy improves.

Enjoy!

Source

Warmed-Over Myths of Black Wealth

Newsflash from CNBC's NEWBOs: If you're black and can't rap or play ball, forget about making it in America.
By Alfred Edmond, Jr. - February 27, 2009

It’s 2009 and a black man is President of the United States of America. So why is CNBC still programming like it’s 1989 and the only way black Americans can hope to achieve wealth is via a sports contract or a record deal? CNBC’s NEWBOs: The Rise of America’s New Black Overclass, a special which aired last night, is wrong on so many levels. But its biggest disservice is that it is based on two stereotypical myths about black wealth that are just not supported by the facts:
The best–and even the only–avenue to real wealth for black Americans are through sports and entertainment. The majority of the “NEWBOs” featured on the program hit, run and jump for a living (the NFL’s Terrell Owens, Major League Baseball’s Torii Hunter and the NBA’s LeBron James) or perform on stage and recordings (Cash Money Records co-partner and rapper Bryan “Baby” Williams, contemporary gospel artist Kirk Franklin). An exception is RLJ Development CEO and billionaire Robert L. Johnson—the only subject featured who can make a credible claim to being “uber-wealthy.” Of course, he made his fortune by creating and marketing a cable channel featuring black people singing, dancing and rapping. (Oh, and unless you’re Oprah Winfrey, black women need not apply—apparently there are no female NEWBOs.)
Black athletes and entertainers are among the richest black Americans and among the nation’s wealthiest Americans. The problem with this is that NEWBOs primarily focuses on the gross income of the subjects. However, the real measure of wealth is not gross income, but net worth—a person’s assets minus their liabilities. (Black Enterprise readers are familiar with the net worth tables accompanying our monthly Wealth for Life profiles.) Lee Hawkins, the host/interviewer of NEWBOs and a Wall Street Journal reporter who’s authored a forthcoming book about this group, goes to great pains to hype the fact that “black athletes in the NFL, NBA and Major League Baseball and the 20 highest paid hip-hop entrepreneurs” earn a combined total of $4.5 billion dollars. He quickly moves past the fact that this is the combined income of more than 1,000 people, and never mentions that the combined net worth—the real wealth—of this group would be a small fraction of that total. Athletes and entertainers earn good money—but they don’t even come close to being uber-wealthy, the term Hawkins repeatedly uses without ever defining what he actually means when he says it.
Aren’t these the stereotypes and false messages we’ve spent much of the past 40 years trying to deprogram from American thinking, and black American thinking in particular? In the age of Obama, why are we still telling each other—and worse, our children—that our best chance to become wealthy in America is through sports and entertainment? Especially when anyone who understands wealth and the American economy, as CNBC and Hawkins surely do, knows that is not true? Ken Fisher’s book The Ten Roads to Riches: The Way The Wealthy Got There (And How You Can Too!), correctly identifies sports and entertainment as the most difficult way to achieve serious wealth, with the longest odds. The primary reasons to pursue a career in sports or entertainment is because you are good at it, and you like to do it—not because you have more than a prayer of ending up with Bob Johnson money. There are no athletes or entertainers on the most recent Forbes 400 list of the wealthiest Americans. (You needed a net worth of at least $1.3 billion to make the most recent list. Their combined net worth? $1.57 trillion.) I’ve personally come to suspect that black people are intentionally steered toward sports and entertainment to keep us away from the real sources of wealth in America.
Forget the fact that, as a television interviewer, Hawkins is a great newspaper journalist. Forget that there is nothing remotely new about a tiny percentage of black people from poor backgrounds suddenly achieving fame and fortune in sports and entertainment, often fulfilling the role of financial saviors for entire extended families. Forget the fact that there is nothing unusual about most of these NEWBOs being under the age of 40: sports and entertainment are youth-oriented industries—it’s extremely rare for a recording artist or athlete to maintain his or her earning power past the age of 35. (By the way, Bob Johnson is 62.) And don’t even get me started on the poor taste, if not outright insensitivity, of Hawkins focusing—as millions of Americans struggle through a devastating economic crisis—on how his subjects spend their money. (How many black kids could be put through college on the half-million dollars Cash Money’s Williams told Hawkins that his grill is worth? Williams has the right to spend his money as he pleases. But what’s the point of Hawkins celebrating it? Why is it that when wealthy whites are interviewed, the focus is on how they made their money, but wealthy blacks are usually stereotypically profiled as profligate spenders? When did CNBC start airing MTV Cribs?)
To be fair, to really identify the wealthiest black Americans would take a lot of digging—after all, truly wealthy black people, (including many of the corporate CEOs, Wall Street executives and owners of Black Enterprise 100s companies featured in Black Enterprise) are not eager to draw attention to their wealth. They’re quite happy to let Baby Williams and Terrell Owens get all the attention—and aggravation—that comes when people realize you’re earning big money. But isn’t that the kind of thorough, hard-hitting, uncompromising financial reporting CNBC is supposed to be known for?
NEWBOs is of the kind of check-the-box, toss-the-reporting-standards programming that black Americans have come to expect—and too often, regret—starting around the King Holiday in January through the month of February. To me, it feels like the show was created to serve two purposes: as a barely disguised infomercial for Hawkins’ book and a quick and easy way to for CNBC to offer programming for Black History Month (whew—made it with two days to spare!).
Sorry CNBC—that’s not good enough. And no using the flack you’re going to get, and deservedly so, for lowering the CNBC bar with NEWBOs as an excuse to do no programming about black people at all.