King of Cash Burn

Posted on July 7, 2009 by Ben Connard 

Michael Jackson died on June 25th with an estimated $500 million of debt. The notion that someone who earned an estimated $1 billion in his career, and had a continued source of income, could ring up so much debt is astounding. But the reality is if you spend more than you earn, no matter how much, you will end up in debt.

Michael Jackson sold over 750 million albums, including more than 100 million copies of Thriller, the bestselling album of all time. He recorded 13 No. 1 singles. He owned Neverland Ranch which includes a zoo, cinema and miniature train. In the mid-1980s he bought the Beatles catalogue, called ATV, which he merged with Sony to create Sony/ATV in 1995. The partnership generates $300-$500 million in songwriting royalties per year from the Beatles, Bob Dylan and others.

According to a June 30th AP report, Jackson was worth $236 million in March 2007. This net worth is based on $568 million of assets, consisting mostly of his Sony/ATV interests ($391 million), Neverland Ranch ($33 million) and $20 million of antiques/cars/collectibles, less $331 million of debt. His debt load has most likely increased in the last two plus years, which may be how the $500 million debt figure is reached. In 2008, he restructured debt and created a joint venture with a private equity group, Colony Capital, which holds the deed to Neverland Ranch. Given the current economic state, Neverland Ranch and the antiques etc. are definitely worth less. His net worth may have been minimal at the time of death.

Jackson spent millions each month to maintain Neverland and satiate his spending desires. While this may have worked in the late 1980s and early 1990s when he was making hit records, it was not as successful when his last album was published in 2001 (Invincible) and sold about 10 million copies. In 2006, Jackson tried to reverse the trend with a new album, and even enlisted a Middle Eastern Prince to bankroll his efforts, but the album never materialized. At the time of his death he was preparing for a 50-date engagement in London that would have allowed him to earn approximately $100 million.

In the end, it may not have mattered because for every dollar Jackson earned, he spent two. Jackson’s tragic death has actually improved his estate’s cash position. He no longer can spend money, but his album sales have shot through the roof. A compilation of his number one hits, Number Ones, is now at the top of the UK charts after being 121 last week.

Jackson’s spending habits represent an extreme example of the spending mania that gripped the country during the past couple of decades.