It's EASY and free to be a member of TheCircle.org!
Click here to get started!

Don't Be Like Mike (Michael Jackson, that is)

Years ago Gatorade had its "Be Like Mike" ad campaign, whereby they urged the consumer to be like Mike---as in Michael Jordan---and drink Gatorade.  I did and it didn't help my jump shot, but that's another story.  Today I'm here to tell you to be unlike Mike---the late Michael Jackson, that is, referred to as MJ hereinafter---at least as far as your financial affairs are concerned.

If you recognize this as a blatant, shameless attempt on my part to benefit from the heavy activity that the name "Michael Jackson" is receiving on internet search engines these days, you are correct.  My other alternative was to write about Sarah Palin's resignation, which I can't quite work into a Budget, Save and Eliminate Debt blog entry.  I just wish she'd identified all those Alaskans who like to waste money by name, as they are prime candidates for me to send them email invitations to this circle, which would also benefit me.  Oh well, if you're out there, I hope you find me and tell all your money-wasting friends to check out my blog.

In any event, as details of MJ's estate and financial situation begin to unravel, it seems clear that despite his wealth, his affairs were one big mess and can be used as a case study in how not to handle one's financial affairs.  There are differing opinions on whether MJ's estate is actually bankrupt and it may take a few years to figure that out, but briefly, the following is what is known right now:
1. MJ's chief asset was his 50% interest in the Sony/ATV music publishing catalog, which he regularly used as security for debt and which he originally purchased for some $47 million.  The catalog includes the publishing rights to songs of everybody from the Beatles to Lady Gaga, the latter of whom I've never heard but I assume is no relation to Radio Gaga or Lady Bird Johnson.
2. MJ was more than $400 million in debt at the time of his passing, having developed a habit of not paying his bills.  In turn, his creditors developed a habit of suing him, resulting in the expenditure of millions of dollars in out-of-court settlements and legal fees.
3. His spending habits were legendary, with MJ reported to have spent $30 million a year on frivolous items during his peak earning periods.
4. His 2,700-acre Neverland Ranch was turned into his own personal combination amusement park/zoo, an expensive proposition complete with animals and employees.  Eventually Thomas Barrack of Colony Capital purchased Neverland from MJ for $22 million, just as it was about to be sold at auction to satisfy MJ's debts, at which point it would have been Neveragainland to MJ.
5. Denver billionaire Philip Anschultz was to back MJ's planned series of concerts in London.  MJ's willingness to participate in this excursion was seen as an admission of his dire financial straits, given his reported weariness and wariness of touring.

The uncertainty about the solvency of MJ's estate comes from the impossibility of valuing his interest in Sony/ATV.  In today's market, the interest may not command the price that it would have in better times, even with Sony/ATV's revenue growth of the past two years.  Additionally, back in 2006 MJ gave Sony/ATV an option to purchase his half interest.  Terms of the agreement are not known publicly as I write this, but the option may have been set at a fixed price that would be considered below-market today.  If so, who knows whether this price will cover his debts?

So what can we learn from this?  Loyal readers of my Manage Your Money blogs will know the answers already:
1. Don't spend money beyond your means, particularly on frivolity!  This is probably more important for you than it was for MJ, as you likely can't sell your residence for $22 million and still be allowed to live there nor get a billionaire to finance your own concert tour, even assuming that you could sing and moonwalk and that others would pay to witness it.
2. Diversify your investments!  Don't let yourself get into a situation where all of your holdings consist solely (or chiefly) of one asset, as MJ did with Sony/ATV.
3. Pay your bills!  Your creditors won't go away.  Ignoring them only compounds your problems, as you will eventually have to deal with late fees, legal fees, and court costs.
4. No matter how much money you make, you're not immune to financial problems, especially if you don't follow the above rules.
5. It's generally not recommended to give anybody an option to buy anything from you in the future at a fixed price either, but that's beyond the scope of this circle so I won't get into that.

Maybe the Sony/ATV option will yield MJ's estate a fair price, sufficient to pay off his debts, take care of his heirs, and fund the lifestyle to which they're accustomed.  Otherwise his heirs will wish that MJ had worked harder to Budget, Save and Eliminate Debt.