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

[iamthewalrus_3]

@sleestak

Now some of these folks, both actors and lottery winners, get smart and either learn about investing or pay someone to do it. The problem with paying someone to do it is that you have to watch rather carefully so that the investment adviser doesn’t rob you blind and man, they will try.

It seems like the right way to handle this is to have, say, 3 independent financial advisors, each with 1/3 of your money, and have them each review the actions of the other. If one of them sees something fishy, then you hire a forensic accountant to look into it. If you keep the account managers confidential, then there isn’t even a way for them to collude against you. They might still milk you a bit, but they probably couldn’t rob you blind.

Of course, this would take some setting up, and some regular checking on. If you were capable of doing that, you could probably take care of your finances on your own.

[StGermain]

I remember seeing an interview with a now-adult Malcom Jamal Warner (Thoe Cosby). He said his mother dragged him kicking and screaming to every meeting with every manager and financial advisor. She told him that the money was his and he would learn how to handle it. He didn’t say how much he was worth, but he made it sound like he still has most of it.

StG

[dwc1970]

Maybe Ed McMahon could win the Publisher’s Clearinghouse sweepstakes and all his financial woes will be over.

Yeah, I know, he’s probably ineligible.

[hajario]

@iamthewalrus(:3=

It seems like the right way to handle this is to have, say, 3 independent financial advisors, each with 1/3 of your money, and have them each review the actions of the other. If one of them sees something fishy, then you hire a forensic accountant to look into it. If you keep the account managers confidential, then there isn’t even a way for them to collude against you. They might still milk you a bit, but they probably couldn’t rob you blind.

Three financial advisers, each with one third of the money. Every two years, the one who performed the worst is fired and replaced with a new guy.

[Ferret_Herder]

@Atrael

What about insurance? What coverage do you get as a SAG member? Do you have to have your own insurance? Hell are you even insurable if you’re wealthy? Or do insurance companies say “screw you pay for it yourself”?

If you mean health insurance, I know that at least some SAG members have SAG-provided health insurance as I have a patient covered by it; I had to photocopy his insurance card for the clinic I work in. This person isn’t an A-list actor or near that, so I don’t know if the superstars get extra coverage or are told to deal with it themselves, or what.

[Enginerd]

@hajario

Three financial advisers, each with one third of the money. Every two years, the one who performed the worst is fired and replaced with a new guy.

I don’t think this is the way to go, especially for a younger investor. With a long-term outlook, you’d make different investments (or at least distribute your capital differently) than you would for just a two year window.

I do like the idea of three advisers who each review the work of the other two.

[Zebra]

Money management is not easier when you have lots of it. Most people can not really have a good idea of what a ‘million’ is.

I remember reading an interview with Ron Howard and how when Happy Days was starting, Tom Bosely took the young members of the cast, sat them down and have a very serious talk with them about investing their new found wealth.

[Musicat]

@Enginerd

I do like the idea of three advisers who each review the work of the other two.

…while each taking a slice of the victim’s capital. With luck, the total of the slices is less than the total appreciation. Without luck, you kill off the golden goose.

[Chimera]

@dwc1970

Maybe Ed McMahon could win the Publisher’s Clearinghouse sweepstakes and all his financial woes will be over.

Now that’d be funny. He gets into the prize van and they drive up to his house before he realizes it.

And then for future commercials, he can add that little boost by stating how it’s so easy to win that he himself is a winner!

[Annie-Xmas]

Many a successful actor has suffered poverty for years before hitting it big. Some of their spending is a reacton to the days when they had nothing to spare.

[Sampiro]

@iamthewalrus(:3=

It seems like the right way to handle this is to have, say, 3 independent financial advisors, each with 1/3 of your money, and have them each review the actions of the other.

Also let each know that you’ve got enough cash kept back to take out a hit on them if they try to run for the Caymans.

Bill Cosby is one of the richest men in show business now of course, but in the ‘70s he was a total mess (broke and deeply in debt) due to bad investments, unpaid taxes, and a thieving manager.* He talked in one interview about how he was world famous, had a hit comedy record, could dial up half of the Hollywood A-list by memory, but he wasn’t able to buy one of his kids a birthday present because he had no cash and all of his cards were not just declined but seized, and how he had to borrow the money from a fan who was in the toy store (who he said he still sends gifts to on his daughter’s birthday). His advice to all up-n’-comers is “NEVER EVER EVER give anybody but your wife the power to sign your checks, and only let your wife do it if you’ve been married a while and have kids and you 100% trust her” (i.e. not some newlywed trophy wife or Sharon-Stone-from-Casino character). This would seem a no brainer, but apparently there are people who allow their managers to just have full access to everything they make.
Singing stars are notorious for making several gold or even platinum records and yet still being in debt to their label. I’m not really sure how this works, but apparently their money in their early years, even after the big albums, comes almost solely from the tours and personal appearances and it’s usually years before they see their record profits.

*Some trivia about Cosby’s broke days: the only thing that saved him from foreclosure and bankruptcy and total ruin were Coke and Jell-O commercials and a particular casino in Nevada whose manager liked him and overpaid him (I can’t remember which one). Gratitude was why he continued to do the Coke/Jell-O commercials and play that casino for the same rates when he was a zillionaire megastar from his TV show; the money itself went to his charities.

[Earl_Snake-Hips_Tucker]

Add Evander Holyfield to the list of high-profile foreclosures.

[jjimm]

@Boyo Jim

Earn 5 million dollars. Spend 6 million dollars.

Rinse.

Repeat.

Or as Dickens put it:

Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

[ivylass]

I remember watching a show about the girl group TLC once. One of the girls talked about how, if each record made this much, this person got a cut, that person got a cut…all the way down the line. I think she said it worked out that out of every dollar they earned, the girls actually only saw about 8 cents.

This is one of the arguments I have with my husband. I think the NFL should take only college graduates, he says kids who don’t graduate college should be on the table. I think if you don’t have the discipline to finish college, and instead want to jump on the new shiny thing, you won’t have the discipline to manage your money.

I also think all incoming NFL players should be required to take a course in financial management. So many think “Signing bonus! Wheeee!” and then wonder why they’re working as a valet in a parking garage five years later.

Putting money in investments is boring. But, long term, it’s the best thing to do.

[Sampiro]

@Zebra

I remember reading an interview with Ron Howard and how when Happy Days was starting, Tom Bosely took the young members of the cast, sat them down and have a very serious talk with them about investing their new found wealth.

Specifically he told them to invest it in SMC.

I hope they listened since most haven’t done a lot since, though perhaps that’s why. Erin Moran did say on an episode of the fusterclucked reality show *Celebrity Fit Club Boot Camp (or Return of Screech) * that she couldn’t care less about losing weight, she just wanted the money, but that doesn’t mean she’s broke; of course she seemed to have really major issues as well.

@Earl Snake-Hips Tucker

Add Evander Holyfield to the list of high-profile foreclosures.

What the hell is it about boxers? They ALL wind up broke it seems. I don’t know about Muhammad Ali but most of the biggest names- Mike Tyson, Joe Louis, Evander, Sugar Ray [at least two Sugar Rays actually] George Foreman- all earn millions and millions and wind up owing millions and working in Vegas. It’s almost a conspiracy. (Foreman was frank that he returned to the ring in his late 40s for money, pure and simple; of course his deal with the grilling machine is one of the most legendary [a percentage of the company rather than endorsement fee and that after looking at hundreds of products and finding “the one”] and has earned him far more money than boxing ever did (well over $100 million to date).

[Sampiro]

McMahon’s the guest on Larry King tonight, incidentally.

[D_Odds]

@hajario

Three financial advisers, each with one third of the money. Every two years, the one who performed the worst is fired and replaced with a new guy.

Actually, I’d hire three managers with different goals.

1. Risk capital - high risk / potentially high return
2. Capital appreciation - goal is to outpace inflation - real inflation, not CPI
3. Investment grade current income - this is the money to live off of

Rank the managers against their peers on a post tax and post manager fee basis. You can probably get the managers to handle the rankings for a different manager as part of their agreement with you.

Say you are a fairly normal working schlub who suddenly clears $10,000,000 to invest.

$5,000,000 in investment grade securities designed for current income. Figure, after tax, about 4% a year. That’s $200,000 to live on. The principal is not expected to grow over time.

$3,000,000 in capital appreciation, because $200,000 won’t buy as much in 2023 as it does in 2008. Expect to, over time, increase the previous $5,000,000.

$1,000,000 in throw-away investments. Maybe you luck out and find the next Google, but won’t be a problem if you don’t

$1,000,000 to pay off the house, buy the car, buy the boat. Plan for it so that you don’t feel like you are depriving yourself.

This way, even if you never make another penny, and your capital appreciation manager sinks all your money into Ford and Delta, you still have $5,000,000 in the bank and a steady income.

[D_Odds]

@ivylass

This is one of the arguments I have with my husband. I think the NFL should take only college graduates, he says kids who don’t graduate college should be on the table. I think if you don’t have the discipline to finish college, and instead want to jump on the new shiny thing, you won’t have the discipline to manage your money.

I also think all incoming NFL players should be required to take a course in financial management. So many think “Signing bonus! Wheeee!” and then wonder why they’re working as a valet in a parking garage five years later.

Putting money in investments is boring. But, long term, it’s the best thing to do.

One of my co-workers from another office is an ex-BC and ex-Raider. We do management consulting, so we’re talking about a smart man, one of the players who actually used college for an education.

1 - College football is the minor leagues for football. It’s not about discipline to finish college. It’s about training to play at the next level for potentially pro-caliber athletes.

2 - He agreed when we talked about financial management. The NFL is getting better about it, but they are not there yet. He has a lot of peers selling electronics or cars.

[Sampiro]

When my sister sold her business my understanding is that she kept out enough cash to live fairly comfortably (she’s extremely stingy for a woman who owns as many freaking houses as she does) for several years (we’re not talking $250,000 a year but a fraction of that) and invested all of the rest in long-term growth. She plans to switch to ‘income’ when the cash runs out or comes close, by which time it should be enough to generate a comfortable lifestyle.

She lives in a beach community where the credit crisis hit before it hit anywhere else. Ten years ago you could still buy beachfront property (high rise condos especially) for $100,000 and she did (at least three of them) as well as a beach house. By the early 21st century the same places were selling for $250,000, and then anything that could be built was selling for $350,000 or more before it was even completed. That’s when she saw the handwriting in the sand (to mix allusions) and sold all but one of her investment condos and her own private beach house for a huge profit over what she’d paid for them (basically doubled her money even after paying off the mortgages).
Then all hell broke loose. So many properties were foreclosed on and so many builders declared bankruptcy that many banks started gladly selling them at a loss that it’s almost impossible to move property there for what it’s worth. Realtors who had literally been making close to $1 million per year during the boom were suddenly having to take part-time jobs when they moved from selling dozens of properties in a good month to selling one or two every quarter. (My sister knows a husband wife realtor team who were buying $50,000 SUVs for their teenaged kids during the boom and ended up having to downgrade their cars all around, sublet their McMansion for smaller digs, and put their kids in public school/public university, and quit real estate for conventional jobs because the alternative was total ruin, and this happened in a matter of months.)
Anyway, my sister’s safe because her residences are paid for and her remaining beach properties are close to and have a mortgage payment so low that the rental price way exceeds the payment even in winter. (I don’t know if rental income is something she uses or invests.)
She’s currently looking at north Alabama mountain property, believing that it’s going to be the next boom based on what’s happened in Georgia and Tennessee in recent decades. (Alabama has beautiful mountains and it’s largely undeveloped, though there is a reason.) She’s invited me to go in with her when I sell my house, though I’m a bit leary- she can afford to take a hit that would absolutely wipe me out plus I don’t like the thoughts of tying everything in a long term non-liquid investment. Otoh the woman’s LOADED so she knows what she’s doing.

[lobotomyboy63]

Pro athletes have “winning attitudes.” They never say quit…they’ve got the swagger that says they can do anything asked of them. So to spend cautiously, I would think, goes against their grain because that would require them to believe they might not continue to succeed.

Movie stars may be similar. And if you’ve just made a hit movie, you can’t show up on the red carpet in clothes you just bought at Wal Mart. Image is a very big deal.

All that aside, a real estate broker I once knew told me that there are plenty of people who earn $80K per year but can’t afford a $40K house. Reason: they only look at the minimum payment on things. They spend spend spend up their monthly income, never stopping to think that if you’re making the minimum payments, you can lock into lengthy loans that end up costing you double or triple what the thing was worth in the first place. I suspect when millions are coming in, you think you can cover everything and don’t sweat the details.