FROM RICHES TO RAGS
WHY RICH CELEBRITIES AND PRO-ATHLETES GO BROKE AND HOW TO AVOID IT
Dr. Ernest Pecoraro and
Laurence Sledge, J.D.
All rights reserved. No part of this book may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without written permission from the copyright holders, with the exception of reviewers, who are permitted to quote limited passages in reviews.
Money Players, A Guide to Success in Sports, Business and Life for Current and Future Pro Athletes, by Marc Isenberg, A-game Publishing, Copyright 2008.
The Business of Sports Agents, second edition by Kenneth L. Shropshire and Timothy Davis, University of Pennsylvania Press, Copyright 2008.
Editor Acknowledgment: Compliments are due to our incredible editor, Daveda Lamont. She is an author and developmental editor with many nonfiction books to her credit (http://www.dlamont.com). She has co-authored course curricula for the corporate online universities of clients such as Barnes & Noble, Dell, VISA, and Bloomberg.com. Becoming a True Champion: Achieving Athletic Excellence from the Inside Out, by Kirk Mango with Daveda Lamont and foreword by Nadia Comaneci, the first Olympic gymnast to earn a perfect 10 score, was published in 2012. Daveda’s 2011 novella, The Way of the Eagle: An Early California Journey of Awakening, has earned honors in three national competitions.
Disclaimer: This book’s content is not intended to constitute legal or accounting services or advice, but is offered solely for educational and entertainment purposes. All of the facts provided herein are intended as a tutorial means of instructing the reader in the general principals of money management and are to serve as a reference for further discussion with qualified legal counsel, accountants and professional advisors. The authors make no representations or warranties of any kind and disclaim any implied warranties as to the applicability of any of the facts herein contained to the particular circumstances of any reader or to any other particular or general purpose.
The author does not represent, warrant or guarantee financial or retirement planning performance or results as given in examples or situations provided in this book, nor do they represent, warrant, or guarantee that analysis of past financial performance can predict or is any indication of future financial performance. The authors do not recommend any particular asset allocation, security or investment method nor do the authors provide customized tax, legal or investment advice or strategies. The facts provided herein are for illustrative purposes only. Rates of return and calculations are for illustration purposes only and do not represent any specific investment results. Before taking any action, you should seek the advice of qualified legal counsel, accountants and professional advisors.
To my wife Nydia and my children—Yolanda, Francesca, Danielle and Ernesto.
You are my life and give me purpose.
I want to acknowledge my father, his friends, and my extended family for setting a good example of handling money and living a responsible, happy life.
~ Also all the entertainment celebrities and professional athletes who have entertained and fascinated me.
~ The authors of the books I have read who shared their ideas and experiences with me that helped to educate me.
~ Laurence Sledge for his persistence and talent in helping me to write this book. He is a true professional.
~ My wife Nydia for her support in writing this book, and my family and friends, who gave their input regarding the book’s content and presentation.
To Ensure Your Success with This Book
A glossary has been provided at the back of the book so you can clear up all specialized terms included in the book that you don’t understand. However, you should not skip over any words you are unsure of, or simply don’t understand at all, whether they are normal English words or specialized. Doing so can prevent you from understanding the rest of the material in this book. Use a good large dictionary such as the New Oxford American Dictionary to clear up any unfamiliar English words.
PART I: THE BASICS OF SOUND FINANCE FOR ALL
CELEBRITIES AND PRO ATHLETES
Chapter 1 Celebrity Horror Stories and Ponzi Schemes 1
Chapter 2 This Book Is for You, the Celebrity/Pro-
Chapter 3 Artists Are Different 23
Chapter 4 Author’s Introduction 27
Chapter 5 Goals and Purposes 33
Chapter 6 What Motivates You? 37
Chapter 7 You Are a Professional 39
Chapter 8 How To Select a Good Financial Manager 41
Chapter 9 The “F” Word 53
Chapter 10 What You Should Know About Financial
Planning and Budgeting 57
Chapter 11 Taxes 63
Chapter 12 Buying on Credit 67
Chapter 13 Corporations 71
Chapter 14 Insurance 75
Chapter 15 Where Should You Keep Your Money? 83
Chapter 16 Banking—Checking and Savings Accounts 87
Chapter 17 Retirement Plans 93
Chapter 18 Investment Concepts 99
Chapter 19 Stocks, Bonds, Other Non-Real Estate
Chapter 20 Real Estate Investments 117
Chapter 21 Your Own Home 127
Chapter 22 Investing in Businesses 129
Chapter 23 Investing in Gold, Silver, and Foreign
Chapter 24 Marriage—Pre and Post, Community
Property, Groupies and Gold Diggers, Pre-
Nuptial Agreements 137
Chapter 25 Identity Theft 147
Chapter 26 Bankruptcy 151
Chapter 27 A Life of Your Own 157
PART II SPECIAL POINTERS FOR PERFORMING
Chapter 28 Considerations Unique To Performing Artists 161
PART III SPECIAL POINTERS FOR PRO-ATHLETES
Chapter 29 Tips for Staying On Top 167
Chapter 30 Sports Agents and Financial Managers—
Putting Together Your Team 173
Chapter 31 The Rule of Ten for Pro-Athletes 187
Chapter 32 Handling Requests for Money 189
Precious metals 207
Finance Manager Questionnaire 211
Budget Example 219
He moves gracefully out onto the stage, his hat pulled down over his eyes. He stops and spins, then does his famous “moon walk.” The audience goes wild. Teenagers scream and the young girls faint, tearing their hair.
It’s Michael Jackson, the King of Pop. The Guinness Book of World Records recognized him as the most successful entertainer of all time. Jacko sold hundreds of millions of records, owned the rights to Beatles songs that were worth over a billion, but filed bankruptcy in 2007 for not being able to pay back a $25 million loan on his home, Neverland Ranch.
What is wrong with this picture?
His empire had crashed. Like a roman candle, he soared into the rarefied stratosphere of stardom with all of the wonders that riches could buy. Then, like a burned-out cinder, he plunged to earth. He had a fifty-show tour in place which could have saved him, but we will never know if it would have.
The names of celebrity entertainers and sports stars who have been catapulted into the intoxicating realm of stardom and great riches and then crashed would fill a volume. Some losers make big news; many crash quietly.
The King of Pop probably would have solved his problems had he lived; however, financial troubles among celebrities and proathletes are epidemic and many end in bankruptcy. I will repeat the following statistics several times throughout this book to make sure you understand the magnitude of the problem this book was written to solve:
78% of NFL players are broke within two years of their retirement.
60% of NBA players are broke within five years of their retirement.
Statistics show that entertainment celebrities, pro-athletes, and many other types of celebrities who became rich suddenly, have experienced similar failures because of bad financial management.
This guide walks the reader through simple steps to knowing how to keep money and make it grow. It is based on natural laws that apply to anyone, but is specifically tailored for entertainment and sports celebrities who need a trusted, easily readable book on how to win and keep winning with their money.
THE BASICS OF SANE, SOUND FINANCE
FOR ALL CELEBRITIES
CELEBRITY HORROR STORIES
“I have plenty of money, unlike other Hollywood celebrities or athletes that have not invested well.”
“The best way you hurt rich people is by turning them into poor people.”
—Billy Ray Valentine (Eddie Murphy) in the movie Trading Places.
If you are newly rich as a result of your talent, you are in a dangerous place. Not knowing what to do once you are getting a flood of money is playing with dynamite.
You are suddenly thrust into a dreamlike world, where there seems to be plenty of everything. You are lifted from the commonplace to the heady lifestyle of not having to worry—so you think.
Almost every story you read of sudden riches has an unhappy ending. But believe me, there are things worse than being poor. Being rich, losing it all and being poor again is worse. Sometimes bankruptcy, loss of friends and even jail time follow in the wake of mismanagement. But let me assure you that you can have the riches without the danger, and can keep and increase your money. You can have your cake and eat it too—in fact, it is actually very simple. Here is the first thing to know:
Money Will Not Flow on Disorderly Lines
This may sound strange, but it’s one of those ancient truths of the ages. Money refuses to go where there is disorder. Some are able to generate millions, but it disappears and like a living thing will not regenerate and come back when there is confusion regardless of the talent involved. One hundred percent of the celebrities who crashed had their finances and personal lives in disorder; they had no idea what order was! I would venture to say that they, each and every one, tried to solve their confusion by buying new things that would fill the inner need for order and substance in their lives. This was simply throwing gasoline on a fire.
Here are some examples of how not to do it, using real-life horror stories about individuals you have heard of. At one time they were like you, about to make it big, or they had already surged to the top into the big money.
Icarus Flew Too Close to the Sun
There is a Greek myth about Icarus, the son of Daedalus. They were captives on the Isle of Crete, an island in the Aegean Sea near Greece. They wished to escape and the genius Daedalus crafted a set of wings from feathers and wax. He warned Icarus not to fly too close to the sun, but Icarus was reckless and believed that he was impervious to harm. He ignored his father’s warning. He flew too close to the sun, the wax melted, loosening the feathers, and he fell to his death in the sea. This really is a moral lesson demonstrating that one can become too prideful and too conceited, thinking normal rules do not apply to him. Such people always crash.
Although this is a myth, it is essentially repeated over and over by the modern celebrity Icarus who flies too close to the sun of great wealth, then plunges to disaster. There are hundreds of bigtime names who flew too close. What follows is a short list of just a few of the major stars who mismanaged their finances, frittered away their fortunes, and lost everything. Some are making a comeback after putting in order. Yet this list doesn’t include the thousands of artists, professionals, business men and women who went to ruin anonymously through mismanagement. They were not celebrities. They simply passed away financially more or less quietly, embalmed in debt, and were buried destitute without acclaim or notice.
These Ruined Celebrities Had Bad Guidance or None at All
The examples below, stories of celebrities who crashed and lost their fortunes, are mentioned just to show what can happen. I do not single them out as a criticism of their actions or failures. They were blessed with amazing talent that gave them their fortunes. They are all good men and women, none of whom had any knowledge or training in money management. Many were simply overwhelmed by the flood of money and fame and literally drowned in their own affluence. Many were cheated and robbed by trusted managers; others were very poorly advised.
Celebrity Financial Ruin Examples
Paul Hogan, a/k/a Crocodile Dundee, as of the date of this writing, lost $34 million in offshore investments through the advice of his “financial manager,” who evidently spent it all. He hired a crook as his manager. I can’t imagine his shock when he found it was all gone. (National Post, 4/15/13)
Gary Busey, a regular in Gunsmoke, and Walker, Texas Ranger, received an Academy Award nomination for The Buddy Holly Story and appeared in over 70 films, including the blockbusters Lethal Weapon and Point Break. But he filed bankruptcy in 2012 with only $50,000 in assets, owing over $1,000,000 to creditors. What happened?
From 1971 through 2012, over four decades of movies and TV shows, Gary Busey became a movie icon. He was a true celebrity and seemed to be riding the high wave fairly well until he suffered a fractured skull during a motorcycle accident while riding without a helmet. He complained of inability to function and his psychiatrist prescribed Depakote, after which he began to experience random emotional spells and unpredictable behavior. He hung on, but from there on he had a series of run-ins with the law, drugs, and wild living. Lawsuits brought him down. He didn’t have any form of financial parachute. (Huffpost Celebrity)
Stanley Kirk Burrell, also known as MC Hammer, had a 200-person entourage and crew that cost him a cool half million monthly, plus the cost of managing a $30 million mansion, which he built in a middle-class neighborhood. He pulled in $33 million after a Diamond-selling album, Please Hammer, Don’t Hurt ’Em. But six years later his bankruptcy listed $9.6 million in assets and debts of $13.7 million. He also owed half a million to NFL star Deion “Prime Time” Sanders. What happened?
Raised in a two-bedroom apartment with six siblings, he worked to help his single mother and family. He loved sports and was hired as bat boy with the Oakland A’s because of his high spirit and willingness to work. He called himself M.C., for he was Master of Ceremonies for gigs when the A’s were in the field. He wanted to be a baseball pro, but didn’t make it. He joined the Navy, and after that played in a Christian band. Rap caught on and off he went into musical rap with his innovative dancing, then into investments and high technology. A good man, heaped with talent and energy, and brilliant as he is, he still overloaded himself with his entourage and excessive spending, and at the bottom of it all, he had no plan except to spend all he made.
Hammer has rebounded and is again working his way to the
top and properly handling things, having learned a valuable lesson in discipline and money management from his mistakes. He needed a reliable, knowledgeable, steady hand as his manager—all this would never have happened had he been given good guidance to begin with. A lesser talent would not have had the ability to recover. (Moneycrashers.com, Business Insider).
Beauty Pamela Anderson, Baywatch star, put her beloved Malibu mansion on the market for $7.75 million to pay toward her tax debt of $524,241. She is now living in a double-wide trailer. What happened? In rebuilding her Malibu mansion, she owed a contractor over $345,000, and didn’t pay the other suppliers and workmen. She said the price overrun was $3 million. Yet she lined her pool with platinum! What went wrong? A platinum pool? She could have used a little useful financial advice and saved that platinum to pay some bills. An independent competent manager, with hands on the reins, channels the client’s energy and money to higher and higher levels of efficiency. Pamela evidently had no one to channel for her. She is 46 and still a knockout. In 2007 she began promoting her own line of perfume, Malibu— most appropriately named. She finally has good financial advice and is recovering. (Huffpost Celebrity)
Willie Nelson declared bankruptcy in 1990, owing $16.7 million in back taxes. It is rumored but not confirmed, that he bought tax shelters that were disclaimed and he found himself owing taxes he had been advised were sheltered by these investments. What went wrong? Willie was one of the first country “outlaws” to leave Nashville for Austin, where he became one of the new country icons. His lonely voice called out to many hearts and he had hit after hit of his own composition sung both by himself and others—Red Headed Stranger, Blue Eyes Crying in the Rain, Hello Walls, Crazy
(originally a hit by Patsy Cline). He is an American folk hero who stood up for what he believed, and lived as he wanted, but was given some bad advice that nearly wrecked him. He should have gotten good advice and a sensible plan to begin with. Plans that shelter an unusual amount of taxes are unusually dangerous. He worked hard, sold many of his assets, and released The IRS Tapes: Who’ll Buy My Memories. Admirably, he paid off his debts and bought himself clear. Moneycrashers.com.
Gary Coleman, the diminutive star of Diff’rent Strokes, trusted his family and manager, yet they spent nearly all of his money. He discovered that the $8 million trust fund he had accumulated as a young actor was gone, leaving him less than $200,000. Although Gary had suffered from nephritis, a congenital kidney condition, from birth, his money problems may have caused his medical problems to intensify. I can imagine his state of mind when he discovered he had been robbed by his own trusted flesh and blood. Sadly, he passed away in 2010 at age 42 after suffering from illness and financial strain. Moneycrashers.com.
Mike Tyson earned over $400 million during his rollercoaster boxing career. He was like a boulder with fists, and mean as hell in the ring. He was feared, and for good reason. A single fight would yield $30 million. He bought mansions, cars, and tigers. Eight months before filing bankruptcy he walked into a jewelry store and bought a $174,000 gold chain with 80 carats of diamonds. But all his ferocity and toughness in the ring, his creditors didn’t need fists to take him down. The tax man needed $17 million, seven law firms wanted $750,000 in fees, and he owed $300,000 in limo fees—a total of $23 million. An honest, tough-as-nails manager with the intention to keep him reined in and on a smart plan would have saved him. Moneycrashers.com.
Nicolas Cage, Academy Award recipient, had a tax bill of $6 million for just the year 2007. Like so many celebrities, he loved to buy expensive toys. He only needed a good manager to funnel this energy correctly and give him a game to play that would increase his wealth, such as learning the alchemy of real estate and how to turn it into gold. He resorted to selling off his properties to pay off his taxes. He is a smart man and a survivor. Huffpost Celebrity, Rolling Out.com).
Sir Elton John, one of the most famous singer-songwriters of all time and knighted for his musical accomplishments, filed bankruptcy in 2002. Rocket Man, Yellow Brick Road, Daniel, Tiny Dancer, Candle in the Wind, Your Song, and many more great songs made him a multimillionaire. He had a debt of $2 million dollars a year from his uncontrollable passion for spending money. Taking better control of his money, he is turning his financial misadventures around. (Huffpost Celebrity)
Wesley Snipes, of Rising Sun, Wildcats, Major League, White Men Can’t Jump, Jungle Fever, Rising Sun, Blade Runner and others, says that he didn’t know that he should file tax returns every year. He made more than $38 million since 1999, but only started filing returns in 2006. He was convicted of failing to pay taxes, and served three years in federal prison. This story is simply daffy. He should have had an honest manager tougher than he was to keep him in the traces. (Business Insider)
How about athletes? These guys are snared from the get-go even as early as high school by unscrupulous agents and managers who offer money to the kid and his parents. It is a hook from which some athletes are unable to disentangle themselves, as it drives ever deeper into their psyche and self-esteem. Their relationship with the agent or manager immediately becomes that of debtor/creditor as soon as they accept that first gift, favor or dollar. The easy money gets uneasy when the tax or debt collector comes calling. Seldom does the athlete, dazed by sudden, easy riches, even know what is happening.
Michael Vick. Now here is a story that surpasses belief. The Philadelphia Eagles signed Vick to a $100 million, six-year contract, plus a $3 million signing bonus. Three years later he signed a tenyear extension for $130 million, which made him the highest-paid player in the NFL. Good judgment and common sense were evidently not exhibited by this fabulous sports hero, for Vick spent two years in prison for dog fighting! All that money must make you crazy. He lost his NFL salary and all of his endorsements, including a ridiculously lucrative Nike sponsorship. He declared bankruptcy while in Federal prison. How could this happen? Well, it did and does, and something must go on in the heads of some of these sports superheroes—they obviously believe the well will never go dry and they can do no wrong. You can only shake your head with a mixed feeling of sympathy and anger at such a waste. (Huffington Post, Wikipedia, Answers.com. Celebrity Networth.com)
Lenny Dykstra, the triple-time All-Star of the NY Mets and Phillies, took the Mets to a World Series victory in 1986. He believed he was qualified to tell others how to handle their money simply because he had so much, so he became a financial advisor. There is no telling how many he led to their destruction, considering his freewheeling spending habits. In 2009, he finally decided to check the level in his money well. He claimed to only have $50,000 in assets (but he actually had $25 million) and $50 million in liabilities when he declared bankruptcy! He is currently serving time in federal prison on many criminal charges, including a 2012 addition to his sentence for federal bankruptcy fraud. He plead guilty to looting his mansion of valuables before creditors could liquidate them. Some have major moral issues as well as lack of financial discretion and money management know-how. (Celebrity Networth)
Johnny Unitas, the legendary NFL quarterback with “the golden arm,” was Most Valuable Player three times and threw touchdown passes in 47 sequential games, a record that has not been exceeded by any other player. He bought into restaurants, real estate and bowling alleys, but they just didn’t work out. When he died in 2002, his management company had to file for bankruptcy to protect his estate. (Celebrity Networth)
Evander Holyfield, five-time World Heavyweight Champion professional boxer, made over $200 million during his fighting career. He lost his driving privileges for missing $3,000 a month support payments for only one of his eleven children. His $10 million dollar home is in foreclosure and up for sale at the time of writing. (News One)
Jack Clark played baseball for the San Francisco Giants, the St. Louis Cardinals, the New York Yankees, the San Diego Padres and the Boston Red Sox. In 1992, he filed bankruptcy with debts of $6.7 million, including $400,000 in taxes. Cars were his weakness. His assets were 18 luxury cars, including a $700,000 Ferrari, a Rolls Royce and a Mercedes. He owed money on all but one of them. He lost his $2.4 million dollar home and his drag-racing business because of his extravagant spending habits. Although his was one of the most publicized bankruptcies in baseball, it is said that he recovered financially by the late 1990s. (Celebrity Networth)
Allen Iverson, NBA All-Star, made around $154 million in the early 2000s and had the coveted Reebok endorsement. He had a 50-plus entourage and showered his mother with expensive jewelry. In 2012, he filed bankruptcy, citing an $860,000 debt to a jeweler. He was ordered by the court to pay a jeweler back $900,000. His mother must glitter like a Christmas tree! Surely a good manager would have kept him out of trouble. He does have a $30 Million Reebok trust fund he can’t touch until the year 2030. (Celebrity Networth)
Curt Schilling, champion Red Sox pitcher, filed bankruptcy in 2012, listing $21.7 million in assets and $150 million in liabilities. He says he will lose all of the $50 million he had accumulated from playing baseball on his failed video game venture—his gaming company defaulted on a $100 million loan from the government of Rhode Island in 2012 and laid off all its employees. Schilling is currently an ESPN Baseball analyst and also works for FOX postseason. The size and degree of these mistakes and evidence of bad or no advice simply makes me dizzy.(Business Insider, Celebrity Networth)
Other Celebrities Who Went Bankrupt or Had Severe Money Problems
Toni Braxton: Owed $50 million to AT&T, Tiffany, Four Seasons and tax agencies on unpaid tax liens.(Essence)
Stephen Baldwin: Alec’s younger brother, avoided jail for failure to pay taxes of $350,000. (ABC News)
Britany Spears: Saved none of her $737,000 monthly income. Her father took over her management and since then she is making a turnaround. Before he took over the reins, she was headed for bankruptcy because of her unrestrained spending.(Celebrity Networth)
Annie Leibovitz: Internationally famed photographer. $24 million in debt, mostly taxes. (New Yorker)
Lindsey Lohan: Served jail time for drugs, bought a
$30,000 Rolex and $100,000 Maserati. The car is on EBay for $62,000 and she claimed the watch was stolen.(Celebrity Networth)
A few others recently: Sherman Hemsley, The Jeffersons; Wayne Newton, Vince Neil, Kim Basinger, Randy Quaid, Sinbad, Cyndi Lauper, Chris Tucker, Courtney Love, Don Johnson, Tammy Wynette. (Daily Finance)(Business Insider)(Rolling Out)(Celebrity Networth)
From these numbers, it’s beginning to look like an epidemic, isn’t it? Yet, unlike a physical disease that spreads uncontrollably, bankruptcies, financial disasters and simpler money problems are all preventable if you follow the suggestions and guidelines in the following chapters to start managing your wealth in a sound, sane and safe manner.
How Suddenly Rich Jocks Spend Their Money
Noah Davis, in a GQ article published on 3 April 2012, interviewed Chris Gandy and Doug Glanville for some insight into the problems with athletes blowing their money. Gandy, a former University of Illinois basketball star who played for the Chicago Bulls and L’Hermaine in France, is currently a district sales manager at Mass Mutual where he advises 29 current professional athletes. Glanville, who had a nine-year baseball career after graduating from the University of Pennsylvania with a degree in systems engineering, is a businessman and writes op-eds for outlets such as The New York Times that focus on the lives of professional athletes.
Davis surveyed enough athletes, plus the data from Gandy and Glanville, to arrive at some interesting statistics as to where the money goes a year from an athlete earning $5 M annually. Here are the general numbers:
Total Income $5,000,000
Bad investments $ 100-250k
Stock market, etc 300,000
Management fees 250-400
Divorce/child support 0-100k
Other (clothes, tickets,
Does this suggest that the average player needs an iron hand here?
The Ponzi Scheme
Even successful businessmen and women get themselves entangled in bad deals. They too can be tricked. It is also likely that, because celebrities and artists are already dealing with very large sums of money acquired rapidly and the other wonderful trimmings of a celebrity lifestyle, they are more susceptible to well-presented scams.
The liability is that these schemes may not so easily recognizable when presented by someone who is supposed to be reliable. Celebrities are already magnets for unscrupulous persons who want to divert some of the glamour, attention and power to themselves. Others seek to get in on the monetary action and will use scams to be able to do so—some of them very sophisticated and seemingly legitimate. As we have seen in the case of the celebrity without an alert manager, this happens too often.
WEALTH PROTECTION RULE NO. 1:
If it sounds too good to be true, it isn’t true.
Further, if it seems all right, but something—ANYTHING— seems fishy or suspicious to you, pay attention to your intuition! You are probably right.
Unfortunately, people fall for schemes to make big, quick money every day. Here is the most notorious of get-rich-quick schemes.
The scheme is named after Charles Ponzi, who made millions off of trusting “investors” in the 1920s, before his crime was finally revealed and he was jailed.
The way it works: It is a fraudulent investment operation that pays returns to its investors from their own money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. You give the scam artist money on his promise to make you a huge profit on some scheme. He takes your money and pays a previous “mark” a high return on his money, convincing him that the scheme is legitimate, and the mark invests more. Then the crook gives some of that money back to you, (your own money) and you become excited and tell your friends about how much you made, and they give him money. Each time someone gives him money, he of course skims most off the top for himself, and uses the rest to convince his current investors that the money came from his incredibly profitable investments. With this going around in a big circle, he just uses each new investor’s money to pay the old investors the supposed high returns he promoted to begin with. This goes on until he has scammed enough money or people are getting suspicious and he leaves town or goes to jail.
What Celebrities Fell Victim to a Ponzi Scheme?
Liza Minnelli, Paul Simon, Tom Brokaw, Harvey Weinstein, Phil Donohue, Carly Simon, Annie Leibovitz, Neil Simon, Sylvester Stallone, Uma Thurman, Martin Scorsese, Wesley Snipes, Henry Kissinger, Caroline Kennedy, Robert Ziff and heiress Rachel “Bunny” Mellon are just a few who fell for Kenneth Starr’s slick scheme (this is not the Kenneth Starr who was the Whitewater prosecutor). Starr cheated them out of over $59 million. And this is just one big one we know all about, because it got noisy. There are many similar slicksters who have bilked money out of their trusting friends without it ever making the news. It happens every day. (Gawker.com)
In December 2008, Bernard Madoff revealed that the asset management arm of his firm, Bernard L. Madoff Investment
Securities, was “just one big lie” (Henriques). It’s estimated he took his investors for a cool $65 billion over the course of nearly two decades. And he didn’t just con fat-cat billionaires and celebrities (such as Zsa Zsa Gabor, Larry King, Kevin Bacon and Steven Spielberg), but he hit on humbler individual investors,banksand even charitieslost money in the scheme (Wall Street Journal, Sunday Times) The scheme wasn’t revealed until Madoff himself confessed his crimes. In March 2009, Madoff pled guilty to the charges against him, and he was sentenced to 150 years in prison. (Bankrate.com, Edwards, Wall Street Journal, Sunday Times)
How It Can Happen to You
You may know the type. He has convinced a friend of yours he has a product or exotic international currency trading system that makes amazing returns. He singles you out and approaches you at a party. He says that he knows you are sharp enough to know a great opportunity when you see one. He says he is only allowing a few to see this, as it is really secret, and time is of the essence. The window is closing on this deal by midnight. You are flattered that he recognizes your intelligence and you would like to make a killing in a short time and demonstrate to your friends that you are really smart. He takes your money, and even gives you some money back in a week to prove the deal is hot. You may tell him to reinvest it and you tell your friends. This is the way this goes.
There is always someone out there who wants to make money the easy way. There are the street scams—the “melon drop” where someone deliberately runs into you and drops something and it breaks, though it has already been broken, and he starts yelling for you to pay for it. Or “Three Card Monte,” like the old 2 shell game. The gullible bystander is asked to gamble on being able to spot the odd card out, after the cards have been rearranged. The con artist often uses shills to make it appear that winning the game is possible. I watched a shell game “take” a victim. The bean was beneath a certain shell, and I knew it, and the “Mark” saw it. She looked into her purse for more money, and the scammer almost as quick as the eye could see, switched places with the shell. But through sleight of hand and misdirection, the con artist can make sure the desired card or bean is never found.
You are not likely to be victim of these, as you will be subject to much bigger cons, like “Pump and Dump”, which involves artificially inflating the price of an ownedstockthrough false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price. Once the operators of the scheme “dump” their overvalued shares, the price falls and investors lose their money. There are as many cons and scams out there as there are imaginative men who are willing to steal from their fellow man.
This is just the tip of the iceberg. You could say, after reading these, “if you’ve seen one, you’ve seen them all,” and that is true. They all fail miserably to follow simple common sense. It’s a sure bet that each of these people listed, and everyone who crashed and burned, failed to understand this principle, and it’s a sure bet their advisers didn’t either. Every failure in this chapter would have been avoided if the rules you will learn in this book were followed. The lesson to be learned here is simple: people who generate wealth need to take responsibility for their money—these lucky and talented people need to know exactly how money works, and how to control it.
Keeping Up with the Joneses
“Too many people are buying things they can’t afford with money they don’t have
to impress people they don’t like.”
What do most of the people mentioned in the horror story chapter have in common with each other? They have been infected with the fatal disease called “keeping up with the Joneses.” Once the celeb sees all of that money available, then there is a spending spree. They move into a new, ritzy neighborhood in a house way too big, decorated by the most expensive interior designers. They surround themselves with an entourage of new parasite/devotees who have all made themselves totally necessary.
Then the celeb looks around and sees the neighbor has a Lotus, a Porsche and a Ferrari. “I’ll go one better,” the new rich celeb thinks. Now the six-car garage has a Rolls, a Maserati, and a $100,000 pimped-out Hummer. Men give their wives a bigger diamond than Debbie, the next-door neighbor, has—or the young virile male model husband gets a new yacht for their jaunts to the Mediterranean. It goes on and on.
The spending dance begins with a slow waltz, then becomes a wild-eyed, tribal orgy of spending. The celeb is swallowed up by the ravenous material monster that eats not only money by the gulped mouthful, but consumes the common sense and spirit of the celeb, who compulsively uses new possessions as a substitute for life and livingness. The only way for the Celeb to survive this is to have an honest but strong manager whose goal is first, to educate him or her in management, and second, to hold a tight rein so the insanity of owning stuff doesn’t totally destroy everything that has been created by this artist of stage or playing field.
WEALTH PROTECTION RULE NO. 2:
Learn how to handle, be smart with your money, and you will always have it.
THIS BOOK IS FOR YOU, THE CELEBRITY
“I don’t want to make money. I just want to be wonderful.”
“Celebrity is about a lot of people loving you at a distance.”
This book is written personally for you, the celebrity artist/performer and pro-athlete. The principles apply to anyone who strikes it rich whether from the lottery, oil, gold or business.
Throughout this book references will be made to you as a celebrity, for that is what you are, whether you are a performer on stage or screen, vocalist, visual artist, speaker, writer, circus performer or fire eating, juggling, trapeze artist; whether you are
|team player on the field, court, golf course, or race track. Every|
|word in this book is written just for YOU whether you are called an|
artist or celebrity or athlete. As a performer, artist, you are an athlete in your own way. As an athlete you are an artist in your performance in your field. You are all celebrities.
You are very special, but all of you will encounter similar circumstances and problems in dealing with your new-found fortunes. I have seen too many great talents light the sky and then burn out, when their fire should have lasted their lifetime.
My long-term goal for you is that you have financial security during and long after the end of your professional careers and that you are able to live happily and abundantly while sustaining and increasing their wealth through wise management.
You are not alone in facing financial problems due to lack of knowledge. Schools teach virtually nothing to provide for life skills, and money management is a vital skill that is usually learned the hard way, by trial and error—but mostly error! Often these lessons are learned through hard knocks and losses from which, many times, there is no recovery. Just knowing what is contained in this book will supply this missing and needed information that is so important to you in surviving in the 21st century. This is not a textbook. It is a toolbox you can use to keep and grow your money.
Organization of This Book
This book is divided into three parts. Part I, The Basics of Sane, Sound Finance for All Celebrities, contains vital information that everyone in the celebrity professions should know—many of the circumstances and problems involving performing artists and pro-athletes are the same. While money management applies to everyone, new stars of stage and field finding themselves suddenly wealthy have special problems this section addresses. This section comprises most of the book. You should read and make sure you understand this information first.
Part II, Special Pointers for Performing Artists, covers several special situations and considerations that will help you in your career and financial affairs.
Part III, Special Pointers for Pro-Athletes, covers additional information about pitfalls that only pro-athletes face, and how to avoid them or deal with them.
|The Differences Between the Financial Situations of|
|Performance-Artist Celebrities and Pro-Athletes||
The principles of money management are the same, whether we are talking about performers, athletes or just ordinary folks. These principles are truths that apply anywhere that money is to be used—the issue is how to use it properly.
The usual difference between the financial situations of performance celebrities and athletes is that most pro-athletes are taken right out of high school or college and given huge sums of money. They have no idea what to do with it, because their schooling and background haven’t prepared them for this flood of money and the instant celebrity that comes from signing with a great team for millions of dollars. Some of the problems they experience result from:
- Lack of education in financial matters
- Lack of role models among their family and friends who are knowledgeable in money matters
- Lack of ability to handle requests for money
(inability to say “no”)
- No guarantee of future contracts (athletes can be injured)
- Unethical financial managers
- Borrowing against future cash flow
- Investing with family and friends without themselves having any business and market knowledge.
Performing celebrities usually pay their dues in that they have been practicing their art, music, or acting for some time before their talent is recognized and before they begin making anything near what athletes start making immediately. They have had time to grow accustomed to living on the economic edge and often have made some preparations for the time when they move into stardom. But when they attain sudden riches, many are as lost about what to do as athletes.
Besides the difficulties athletes face, mentioned above, performers face the additional problems of control of rights. They must learn how to control their movie, music recording, and publishing rights as well as see to the enforcement of such rights so they receive what is coming to them.
ARTISTS ARE DIFFERENT
We are the music-makers,
And we are the dreamers of dreams, Wandering by lone sea-breakers, And sitting by desolate streams.
World-losers and world-forsakers,
Upon whom the pale moon gleams;
Yet we are the movers and shakers, Of the world forever, it seems
—Arthur William Edgar O’Shaughnessy
“All I ask is a chance to prove that money can’t make me happy.”
You Are in Wonderland
By definition, whether you are a performer, painter, writer, singer or pro-athlete, you are an artist in your own right with your talent and skill. You are like a science fiction character who steps off the elevator into a new universe. Nothing is the same—You have friends calling you have not heard from in years; smiling strangers are at your door, offering to manage your new-found money; and Uncle Fred needs a hundred grand to finance a perpetual motion machine investment that will solve the energy problems of the world.
Your hunger for things becomes ravenous when you discover that you really can have that Ferrari, an Alpine ski chalet, a yacht, a mansion with a bowling alley—just by blinking your eyes. You are now the All Powerful OZ or the Queen, ruling all you survey at the snap of your fingers. You can have everything. You can hire people to do stuff for you. You just have to play your game, sing your songs, and find things to buy. This is the surreal world of the newly rich celebrity. Being conservative with your wealth and money management are not your favorite topics of discussion.
We Need Artists
You are all artists. You are creators, giving us the privilege to see you work your wonders. Without the artist, this world would be a dreary place. Art gives dreams an open door to become real. With dreams, there is joy, hope, someplace to go and something wonderful to do. The artist is the dreamer who creates the future, points the way, and leaves a trace of those dreams in our memories to remind us of how great we really are. Whether you are a team player on the field, playing on the stage with your band, acting in a play, film or television series, or in your studio painting or writing, you are an artist.
The artist is a cut above the normal “humanoid” who may only dream of the kind of things you do every day. In possession of these talents and abilities, you are paid huge sums in exchange for performing and inspiring the normal man or woman and giving them a glimpse at the exquisite—the dream made real.
Two Separate Worlds
As an artist, you know that there are two separate worlds: first, the world you live and create in as an artist, which is akin to the world of the spirit, and second, the harsh world of numbers, balance sheets, and profits and losses—the realm of squinty-eyed bankers and bean-counters, shifty lawyers, and wolves circling your camp.
Few of you are adept at handling money wisely and efficiently. This is why you may feel that you cannot be the artist you are and have attention on money matters, other than spending it, for it chills your contact with your muse or your skill. In fact, you don’t understand that second world that second world because it is so alien to your nature as an artist. You are inclined to delegate the job of handling your resources to others. This is inevitable and proper. You will delegate much of it to a finance manager.
The Dream World Can Become a Nightmare
This dream world can become a nightmare when one wakes and finds the money gone, the synthetic friends unavailable, and your manager peeping from behind a veil of excuses, with you owing the IRS and facing unpaid bills and possible jail time. This must be approached and solved before it becomes a problem using simple common sense.
Along with your gift comes responsibility, for you are now in the spotlight, and your actions set a good or bad example and ultimately will have a large effect on you, your family and loved ones. Now that you are in deep water, you must know how to swim. You must recognize predators and how not only to swim safely, but to do it in style. You may inspire your admirers or disappoint them. It is up to you.
You must understand enough to know if your manager is doing it right. Not everyone has your interests in mind. This book will not help you directly with your art, but it provides the road map that can free you from worry about potential bad or harmful consequences of your talent. Your art may produce wealth beyond the dreams of the normal person, but you may find that wealth is the master and you the slave. Your performance may suffer and you may lose everything.