Michael Jackson changed the music world forever. He mixed pop, rock, disco, and jazz and created magic. Came out with albums that sold millions of copies. Won 13 Grammys.
And yet, he always struggled with money. His expenses were always more than his income. Especially after 2001 when his last album was released. He once went on a $6 million shopping spree. He bought chimpanzees for the fun of it. He bought diamond encrusted gloves. There was no limit to his expenses.
He still earned over 20 million a year in royalties from his own music. But what do you do when your expenses are 40 million?
The one thing that saves Michael Jackson
Jackson would have gone bankrupt. But one thing saved him. When Michael Jackson was 22 years old, Paul McCartney of the Beatles showed him the list of songs whose copyrights he had bought. McCartney earned 50% of everything those songs earned. Every time those songs were played on the radio, he made money. He could license those songs out to other brands and ad agencies.
Michael Jackson took that lesson to heart. And when he was 25 years old and his album Thriller had become a huge hit, he started buying publishing rights to other songs himself. One of the things he bought? The Beatles catalog plus 3700 other songs – for a whopping 47.5 million dollars!
It was his ownership in the Beatles catalog that saved Jackson time and time again. Because whenever Jackson had money problems, he would pledge the Beatles catalog and take out a loan.
The amazing thing was that his music catalog actually appreciated more than most other investments! In 1995, Jackson sold 50% of the stake in his catalog to Sony for $95 million – twice what he had paid for 100% of it 10 years back!
By 2005, this same catalog was valued at over a billion dollars! Even with various lawsuits on Michael Jackson, the celebrity didn’t have to file bankruptcy because he took out a loan of 200 million against his stake in the catalog!
Doctors make a lot of money. But it’s the person who owns the hospital who makes the most. But doesn’t ownership come with a lot of risk?
Ownership and risk management
Mario Lemieux was in a quandary. He had deferred his salary because his ice hockey team – the Pittsburgh Penguins were not doing well financially. Being one of the greats of the game, Lemieux commanded a huge price. And his deferred payment had ballooned over $26 million. And yet, the Penguins filed for bankruptcy.
At such a time, Lemieux did something amazing. He made an offer to buy the struggling Penguins himself. He decided to convert $20 million of his deferred salary into equity. Forgive the remaining $6 million. Invest $5 million more of his funds. And then approached a few high networth investors to put in the remaining funds required to buy the team.
But how was he so sure that he would be able to turn around the fortunes of the struggling Penguins?
The negotiations before the investment
First thing Lemieux did is just get a preliminary approval from the bankruptcy court to buy the team. Based on that preliminary approval, but before putting any money down, Lemieux went ahead and negotiated a few key deals.
He approached SMG – the company that had the contract to manage the arena. And negotiated with them so that they would give a bigger portion of the proceeds from advertising, luxury suites, and parking revenue. This amount would fill the Penguins coffers with at least $3 million more per year. SMG agreed because it was better than losing the team altogether.
Then Lemieux went and negotiated a better television broadcasting deal from Fox Sports worth $9 million per year.
And only then did Lemieux go to the bankruptcy courts to get final approval.
The year before Lemieux had bought the Penguins, they had made a loss of $16 million. Under Lemieux, they made a profit of $47,000 in the first year!
In 2021, Lemieux and his investor partners finally sold the Penguins for $900 million! And Lemieux took home a paycheque of over $350 million – more than any player has ever made playing ice hockey!
- Ownership is essential to become rich beyond your skills and effort.
- But ownership comes along with risk as well. You’ve got to reduce the risk of ownership and make the numbers work for you before you invest.
- Take a lower pay cheque now if you can get equity in return.