King Of Pop Had A Mountain Of Debt
MICHEL MARTIN, host:
Even as Los Angeles struggles through financial woes, one of the biggest stories is still the death of Michael Jackson last week. And even as his family mourns their loss, they have to sort through all of the King of Pop's legal and financial mess. And experts say it could take years.
Estimates have his debt somewhere between 400 and $500 million. There's his Neverland Ranch, which featured an amusement park and a zoo that cost millions to maintain. Reports also suggest he burned through additional millions in whimsical shopping sprees, and then there were the legal entanglements, lawsuits that cost him millions in judgments and legal fees.
All of this leaves many Americans wondering: How could one man burn through such a large fortune? And how can the rest of us avoid these mistakes? Here to talk about all this is our Money Coach, our personal finance expert, Alvin Hall, who has been traveling the world but is finally back here with us. Welcome back, Alvin, good to talk to you.
ALVIN HALL: I'm very glad to be here today, Michel.
MARTIN: Well at one point, Michael Jackson was the biggest star in the world. I think that's fair to say. His career spanned 40 years. He grossed, it is believed, about a billion dollars. So how is it possible that he could wind up with nothing, or that his heirs, rather, could wind up with nothing?
HALL: Well, I think they're actually going to wind up with something, but at this moment he's probably pretty much on the negative side. That's because he spent his future. He was once a huge pop star who could just go out and generate huge amounts of cash. And with that, he started to spend, spend, spend. And like many people, if somebody told you no when you're earning a billion dollars, you'd say, oh, that person doesn't know what I - how much money I have. They don't understand me. They don't understand how I generate money. And Michael Jackson would fire them and bring in a new team. He would fire that one and bring in another team. So eventually, he surrounded himself with people who were largely financial enablers. They would let him spend whatever he wanted.
MARTIN: So it's just a simple math. I mean, it doesn't matter how much money you have if you spend more than you earn.
MARTIN: That's how it is. So that's - in a way, it's a cautionary tale for the rest of us. But I do want to say, you know, we've talked a lot about how shrewd a businessman he was. Many point to his purchase of The Beatles catalog in 1985. He bought it for $47.5 million at the time, but it provided millions in annual income.
MARTIN: And then he sold Sony a stake in the catalog a couple of years back. He reported pocketed $95 million just for a stake. So I guess the question one would have is, if you're so smart about those kinds of decisions, right, how is it that you could still make poor decisions that would cost you on the other end? I mean, can you just add some insight there?
HALL: Yes. I think if you watched the Martin Bashir special, where in less than six minutes, or whatever that timeframe was, he spent $6 million on what was tchotchkes. I mean, it wasn't even stuff of good taste.
I think Michael just led a life where if he wanted a private jet and it cost $40,000 to charter it or half a million, it made no difference because he never really did the numbers. He never subtracted numbers. All he saw was the money coming in, and I think that's what happens to people when all of a sudden, they have unbelievable wealth.
You see this again and again with movie stars, especially with rap musicians or any type of pop music star. They have this burst of fame. They think it's going to go on forever and ever and ever. And they forget, all you have to do is look around, and you see that everybody's careers goes through cycles. So you need to prepare for the down period, and Michael didn't cut back.
MARTIN: What's the relevance for the rest of us? Let's bring it down to where the rest of us live, which is not in the world of private jets, at least not me. I don't know, maybe you. You've been gone. I don't know. Maybe you were jetting around…
(Soundbite of laughter)
HALL: Oh, that Cessna in Africa. That was me and a bush pilot.
MARTIN: You know, a Lear jet, but…
HALL: For the average person, what it says is, when you're earning good money, you need to stash it away, which Michael did. But then you need to cut your cloth to fit your earnings. Just because you were once earning this huge amount of money doesn't mean you're doing it today. So you need to dial back a little, and Michael clearly did not dial back.
And the other lesson, especially when you're earning serious money like that, you need to have very prudent, wise financial advisors around you. My grandmother used to always have this really odd statement, and I never really understood it until in recent years: You need to always have friends in your life who will tell you that your breath stinks. So what Michael needed was somebody in his life to tell him that he was overspending, but he didn't want that.
MARTIN: Who's that person going to be? I mean, generally, the people who you're surrounded by at that level are people who are earning their income off of you.
HALL: But you can also find people, as many of my friends who are in the entertainment industry have done, people who will be honest with you, who will tell you how much you're spending, how to control your spending, how to put money aside. But Michael really surrounded himself with a lot of yes-people, and that's because he did not want to hear no.
MARTIN: And finally, we only have about a minute left. We understand that Michael's mother, Katherine Jackson, won temporary guardianship of his three children and temporary control of his estate. So I'm just curious, what financial issues will she have to deal with over the course of time? One does not know whether he left a will assuring, you know, who would take care of the children in the event something happened to him. So are there issues, again, that the rest of us should be thinking about when we think about a situation like that, very briefly?
HALL: Yes. When you have children, you need to make sure that you leave a will telling who you want to receive your children. Otherwise, it's up to the courts. And the good thing for the children, however, is that Michael is no longer spending. So with that, I'm sure the cash flow from the estate will return positive very quickly.
MARTIN: All right. Alvin Hall is a regular contributor on matters of the economy and personal finance. He joined us from our bureau in New York. Alvin, thank you, welcome back. Thanks for speaking with us.
HALL: Thank you, Michel.
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