How do most celebrities who've earned megabucks go broke?

Cafe Society
1

And by “go broke” it may just mean “serious financial troubles” since they don’t usually wind up living in a single wide trailer, but still…

Anne Heche had to go to court recently to get a reprieve of her $15,000 per month alimony/child support payments. (Her ex-husband is a stay-at-home dad, prior to which he seems to have been a mostly stay-at-home camera man.) She cites the reason as the cancellation of her show, Men in Trees, along with housepayments in Canada and a leased home in L.A. eating her income. Her salary for Men in Trees was around $65,000 per episode take-home and more than $100K per episode before taxes/commissions/etc… (She should’ve stayed with Ellen and had a kid- she’d be getting a fortune in alimony and child support as I’ve read Ellen’s worth over $100 million.)

More surprising is that Ed McMahon is currently in foreclosure, being $644,000 in arrears on his house payments. In addition to presumably really fat paychecks from The Tonight Show, Star Search, Bloopers & Practical Jokes and whatever other successful shows he’s been involved with the man has done emceeing duty for $100,000 and up for decades, is spokesperson for [whichever] sweepstakes and insurance companies, and hawked so many products while on Tonight Show that he actually parodied himself as an endorsement whore in a cameo in The Last Remake of Beau Geste and other films and TV shows. I’d be astonished to learn that he’s earned less than $100 million in his career.

Willie Nelson famously had tax problems that wiped him out for some years, MC Hammer and Burt Reynolds lived like Shahs and then lost their earning power, Screech is Screech, and Gary Coleman lost his in legal fees, embezzling and inept handling (more actually from his agents I understand than his parents) and Sherman Hemsley (in spite of two very long running successful shows that began long after he was old enough to take care of his own affairs) and John Wayne are two who famously lost their shirts by violating the cardinal rules of “Never put your own money in the show” and “NEVER PUT YOUR OWN MONEY IN THE SHOW!” (a turkey of a movie called Ghost Fever for Hemsley and The Alamo for Wayne). Randy Quaid’s another actor who filed for bankruptcy a few years ago (while making movie after movie) with something like $100,000 in assets and 10 times that in debts.

OTOH, Heche’s Men in Trees co-star and Hemsley’s fellow Norman Lear alum John Amos- while I’ve never seen his bank statements, he doesn’t seem to have financial problems. I read in one recent interview with him that he mainly lives on his ranch in Oklahoma and raises horses and cattle for fun. Good Times was a very long time ago before megamillion dollar contracts and his residuals are all paid out by now (especially since he left the show in the third season) so he can’t really have much from that, but he apparently has enough money not to have to appear in total crap. Karen Allen just got her first really big screen exposure in many years with the new Indiana Jones movie but seems to have been living comfortably as a yoga instructor in New England. Florence Henderson is evidently extremely wealthy judging by her home (recently on some show) and she hasn’t had a leading role since Carol Brady and would never have earned a Friends or Frasier salary. Same with lots of lesser famed actors: in “where are they now” articles: they may not be living in the Spelling Mansion style digs but they’re not usually living in the slums either, and these are people like Amos and Allen who never earned $10 million for a movie.

So any idea how somebody can earn tens of millions of dollars over a career and yet wind up with nothing or less than nothing? I would think that $644,000 would be pocket money to a man of McMahon’s career and while Heche isn’t A-list it’s a surprise that $11,500 would overdraw her account. Is this usually adversity or poor planning or… what? I can understand how somebody who had one big deal paycheck can fritter it away, but not the ones who keep earning them for years and years and years.

2

Posse, pussy and peyote. All three are expensive habits to maintain. Plus, none of the bankrupt people ever talked to Wayne Rogers.

3

Many people (including celebrities) are simply not financially literate. They don’t understand the concept of putting aside funds from current earnings so that they can be drawn upon in future periods when earnings are lower. When they have the cash they live for the moment and splurge on assets that do not appreciate in value.

Celebrities probably fare even worse because they’re often surrounded by hordes of hangers-on, who all want their cut and who proffer unhelpful financial advice. And they live in a world where they’re led to belive that the normal mundane tasks of everyday life do not apply to them e.g. budgetting, lodging tax returns. Some of them get tripped up as a result when the inflow of cash dries up as their celebrity status slips and they find that they owe huge amounts of money to their advisors and the tax authorities.

4

I can easily see it happening. Having all that cash gives you access to get into more debt - shopping frenzies, shady investments, drug use, gambling in the high roller games in Vegas, etc.
If a celebrity grows up without money, they might feel obligated to “share the wealth” - buying a nice house for Momma turns into every dirtbag relative coming out of the woodwork with outstretched hands. They may not have any financial skills to speak of (many people don’t, after all) and have to rely on manager, lawyers, agents and accountants to look after those dollars.

5

I think paid hangers on is the big thing that does for alot of celebrites. Some of the celebrities you mentioned had posses that that rival some sizable companies, all of them on sizable salaries (plus gifts, interest-free loans, etc.). It doesn’t take long to get through a pretty sizable lump of cash that way (by way of example, how much does your company spend on payroll in a month ?).

6

The McMahons may not be anywhere close to bankrupt. This article says that he broke his neck 18 months ago and hasn’t been able to work since then. And although it’s in arreers,

This sounds like he had a downturn in income and is allowing a house that he can no longer afford to go into forclosure. If he hadn’t gotten caught in the housing bubble, he’d have just sold the house and downsized.

He may be in financial difficulties, or he may just be cutting his losses on the house. I’d be more worried about his health than his finances, without further information.

7

Everybody says that’s what happened to Hammer - the minute he had money, his friends had money. Suddenly, he had a lot of friends. Poor guy - I’ve never heard a bad word about him as a person.

8

It may be a stretch to call him a celebrity, though he was known: the drag queen Divine had a roller-coaster career (actually on an upward part when he died) and when he was in the chips he had live-in assistants, a sort of mini posse, several of them like him heavily into drugs at the time (he later cleaned up his act in time to die). At one point when his paying gigs (mainly nightclubs and low budget movies) dried up he filed for unemployment and bankruptcy protection, and his assistants either filed for unemployment or found jobs and or sold drugs and actually managed to save his house. An almost heartwarming story. (When he died he had moved into TV appearances and was about to begin a recurring character on Married With Children as, depending on the source, either Peg’s uncle or Peg’s mother, or both.)

There’s a similar story about one of the silent film stars but I can’t remember which (wish Eve were here). Talkies and the Depression cost them their fortune but the servants and other “30’s posse” all took whatever other work they could get and helped with expenses until their master or mistress (can’t even remember gender) was on their feet again; this was parodied a bit in Auntie Mame.
There’s also a story about Buster Keaton building a sprawling ridiculous mansion that had constant delays and a guest house that alone would have sold for a small fortune and it took several years to build due to constant delays and personal problems and financial setbacks and the like. Just as the place was finally completed the Depression wiped him out so he never lived in the mansion; he ended up living in the guest house and leasing the “big house” for several years before finally selling it at a loss.

A star who died broke on the verge of a comeback was Nell Carter, who had over $1 million in liabilities and only a small fraction of that in assets in spite of a long lucrative career as a TV and stage star. I’ve wondered if her children, both adopted when she was well to do and still minors when she died, were provided for by either life insurance or a trust set up when they were infants.

I think it was a major shock to everybody just how bloody rich OJ Simpson was for a man who retired from football before modern salaries (even when adjusted for inflation) and appeared in B movies. I think his was mostly from his Hertz and other endorsement deals (compensation for which included franchises). The other “forgot he was a live until his wife was dead” celebrity Robert Blake was also doing pretty well until the “incident”; he was a multimillionaire, though he’s broke now due to legal fees and legal settlements. Last update I read he was working as a 70+ year old ranch hand, though largely by choice.

Redd Foxx’s money problems came largely from a very very very bad divorce settlement- I don’t know if there was blackmail or just incompetent representation or what involved, but his wife got 100% of his residuals as part of her settlement as well as most of his cash on hand. When Sanford ended he was basically broke, and though he still made a fortune in Vegas he also still tried to live the life of a TV superstar and he gambled and he kept a mansion in L.A. as well as Vegas, etc. and he did drugs and he was said to be insanely generous in tips and in giving money to destitute old Chitlin’ Belt comics and entertainers, and it all just finally caught up with him and left him broke. I read in one source that his costar, Whitman Mayo (Grady) who’d lived in poverty most of his life (and of course didn’t make that much on Sanford & Son as he was only a semi-regular for about 2 or 3 seasons and sitcoms just didn’t pay as much then) was pretty much of the “this too will pass” philosophy and used the large paychecks to open a travel agency and a fast food franchise that supported him when the show ended (after which he worked fairly steadily until he chose to retire and move to Atlanta).
Co-star Lawanda “Esther” Page did well enough from Sanford and post show fame to afford this odd “not impressive but also not a slum” of a house, though I’m guessing that in L.A. it’s probably worth more than many much nicer homes are in small cities.

Speaking of houses, I’ve wondered how important choosing a house is to an actor’s financial success. I’ve never studied finance, but it would seem to me that the absolute worst purchase an actor could make until they’re very very very successful (i.e. not just a high-paying gig or two but absolute assurance that there will be years of high paying jobs) would be to buy an expensive house (though in L.A. of course expensive is relative and a $1 million house isn’t necessarily a mansion like it is in most of the country). While it’s true that the equity will go up perhaps faster than in a smaller house, there’s always the Ed McMahon “location location location but then after that timing timing timing” factor when selling it. I’m also sure that if you’re an actor who has to unload a white elephant before the next mortgage payment or two then the buyer’s realtor probably knows that and will use it to make the sale.

Hijacking my own thread- and I may start it in another thread instead, but what however would be the best and worst things for an actor to do financially with money from a cash cow that might or might not still be here next year? What’s the best way to make, say, 10 times the average yearly income last as long as possible in case next year there’s no income? (Obviously it would be “save it”, but in securities? In a real estate investment of [say] a modest but comfortable condo? etc.) While a full on entourage is obviously a no-no, is a personal assistant always a bad idea? (I wonder if any actors have assistants paid by their employers as part of their compensation package; it would seem a good thing to ask for, since when the show is done you won’t need them around as much anyway.)

9

All of the above, great stuff people!

The bad ones spend the money as fast or faster than they make it, usually on the rather shaky assumption that the income will never end, just get bigger.

The Chronically Stupid (See: Michael Jackson) don’t stop spending when the income ends. They can’t get past the fantasy/idea that there is going to be another big paycheck right around the corner.

Just watch how every freshly minted pro athlete blows his signing bonus on cars, a house for mama, and a bunch of shit he doesn’t need. All in the belief that he’s going to be making every penny of that fat long-term contract he signed. Then he gets injured and can’t play, or gets cut the next year in favor of the next crop of college kids, and what does he have to show for it? (Answer: A desk at the local Cadillac dealership with a wall space for some pictures to show potential customers that he used to be someone.)

One of the best things I ever saw on that was a bit in our local paper where an agent to at least some of those kids was telling them to treat their signing bonus as if it was the last dime they were ever going to earn. That being, to set aside and invest every single penny of it before they played a single day. Then worry about the bling once they started earning a paycheck.

10

Of course some people invest wisely and well (Lucille Ball, William Shatner, Mae West, Johnny Carson), but we never hear of them.

Anyway, I came across this great article elsewhere about how Jose Canseco screwed up his life. He was young, everyone told him he was great. He ignored advice. Well worth your time.

11

Neil Young is the template for wise investing. He plowed most of his early money into real estate and the like. His back catalog provides the daily cash, the investments provide for his family.

12

Don’t overlook the obvious. Handling big money is a skill and most of us have never had to learn it. If somebody gave me ten million dollars, I wouldn’t know what to do with it (other than to buy a really nice “thank you” card first thing). What do I do with it? Stick it in my savings account? I know that the smart thing to do is invest the money but I have no idea what a good investment is or how to make it. So I suppose I’d try to find somebody to manage my money for me and make my investments. In which case, I’m trusting my fortune to a relative stranger and hoping I guessed right and that he’s competent and honest. I assume the celebrities the OP mentioned are the ones who guessed wrong.

13

Bob Hope bought real estate in Southern California back in the thirties and forties. Heather Thomas was another smart investor - she once said that she can live the rest of her life off the investments she made back when she was a regular on T.J. Hooker and that all the money she’s made since then was just extra.

14

Ditto Candy Clark. She took her paycheck from American Graffiti and bought a limo company, which in LA is a license to print money.

15

Also, it is worth mentioning that Agents get 10% off the top, Managers get up to 30%. So, that’s 40% gone in a flash. Taxes? m’be 25%…

So, the net is only 35% of the gross. I can see how it’s hard to wrap your mind around that all the time.

“Here is your million dollar paycheck!”

“YAY! I’ve got a million dollars!” (no you don’t!)

16

I caught part of Wayne Newton’s Cribs (or similar) episode. That man is wealthy, in the Chris Rock sense (the football player is “rich”, the man who signs his checks is “wealthy”. The difference is that you can’t get rid of wealthy. Paris Hilton is wealthy.) One assumes he made exceedingly wise choices.

17

I think it was Will Smith I heard talk about that - so, you know you made a million dollars. So you be cautious with it and buy a 250,000 whatever. Onliest thing is, you owe this to your agent and this to taxes and this to this so you only got 200,000 out of the million… and you’re already 50,000 in the hole.

18

Besides the other points people I have raised, I think it’s the nature of the sort of people who tend to end up celebrities. They tend to be risk takers rather than prudent types ( the odds of doing all that well as, for example, an actor, musician or sports star aren’t that good, as I understand it ); when that risk taking pays off, they don’t know how to turn it off.

And, related to what Little Nemo said, the majority of them are going to be people who specialize heavily in whatever skill or talent made them famous; unless they got famous by being really good at business that skill or talent probably isn’t a financial one. Given that they likely became a celebrity in part by focusing heavily on whatever made them famous, I wouldn’t be at all surprised if your typical media celebrity type was even less knowledgeable than average people about handling money.

Or to put it another way, well rounded, prudent, moderate people are less likely to be the sorts that become celebrities in the first place.

19

I think you mean Heather Locklear, right? Heather Thomas was the goddess from The Fall Guy who got coked out of her mind for awhile there.

That ain’t good financial plannin’!

20

I know a ball payer who made at least $10 million every year for the last 5, and when he can’t play anymore he will be broke. :frowning:

Most people are not good money managers. Smart people find a trustworthy, professional person to manage their little empire.