I read that when Michael Jackson died, he was $500 million in debt. How does someone get into that kind of debt?
In: Economics
Being rich doesn’t mean that you don’t take loans or contract out services. It also doesn’t make a person good with money, it just means they *handle* a lot of money.
If that $500M is accurate, its the money he owed to loans and contracts, but doesn’t take in to account assets.
If you borrow $10M to buy a mansion you are $10M in debt, even if you have $20M in the bank. Also, you own the mansion which has value as well. Banks are more than willing to loan $10M to someone with $20M. The person with $20M likely would rather borrow $10M at say 3% to keep their $10M invested returning 10%.
The better picture of wealth is to look at net value, that will be the result of all assets minus debts.
Buying a lot of stuff they can’t afford;
Having money and managing money are two different skill sets.
When the assumption is personX will always make more money next album/tour/movie/deal people are willing to extend a lot of debt
You can borrow against your assets. I.e. you borrow money against your house to pay yourself a salary while you do a music career that could be up and down. You then get super famous and do this until you spiral out. Also his ‘brand’ is worth way more than that.
The rich don’t spend their money they borrow against their assets because you don’t have to pay taxes on borrowed money and when they die their estate settles the debt and may even settle the taxes for less than was owed
Money sort of works different for the ultra wealthy.
There is a point where it makes more sense to leave your money wherever it is and take out loans to pay for everything using the interest on your money to pay of the interest in the loans.
Like if my money makes 10% a year and I can get loans at 5% a year I can take 5% from my money and pay off the loans and still be up 5%.
I’m not saying this is the case with mj it’s just an example of how things are different at gigantic sums of money.
Did he or his estate pay back all that debt or was it forgiven?
This sub is such a joke. The four comments so far, none of them answer the question, just people wanting to sound like they are smart.
“Buying a lot of stuff they can’t afford; “, lol, no shit Sherlock. What stuff, I think would be the actual answer.
” he was spending two million dollars for every one million he earned. ” As above.
“Being rich doesn’t mean that you don’t take loans or contract out services. It also doesn’t make a person good with money, it just means they *handle* a lot of money.” lol, this one is the worst. It doesn’t even make sense and has nothing to do with the question.
Now I don’t know the actual answer, but hey, that’s OK. I don’t have to pretend I do.
Has everyone already forgotten?
[https://www.independent.co.uk/news/people/michael-jackson-paid-ps134-million-in-payoffs-to-stop-up-to-20-sex-abuse-victims-speaking-out-say-lawyers-a108541.html](https://www.independent.co.uk/news/people/michael-jackson-paid-ps134-million-in-payoffs-to-stop-up-to-20-sex-abuse-victims-speaking-out-say-lawyers-a108541.html)
Generally not by buying things, but by borrowing money for services or taking on obligations with recurring costs.
Example: You have a super yacht. It can easily cost $2-3m annually for staff/maintenance/etc.
Now add in a private plane. Now several mansions. All of these things have a staff, and huge ongoing expenses.
Now take care of Friends and Family.
It adds up quickly
$500 million in debt but that does not include his assets. So there are two things going on here.
One, as Redditor shawm1980 rightly explains below, is that wealthy people don’t spend their own money. They borrow against assets and then spend the borrowed money because it is actually more financially advantageous for them to do so. So many wealthy people have a large amount of debt on paper.
But the other thing that was going on in MJ’s case is that he was a notorious spendthrift. It was not at all unusual for him to drop tens of thousands of dollars on shopping sprees. He commissioned tons of artwork, usually of himself, and spent lavishly on friends and supporters. He had a full zoo and amusement park at his home at Neverland, which required a full-time staff to maintain and operate. He traveled often and stayed in expensive hotels, frequently for long stretches at a time. And his output, both in terms of recorded material and live performances, dropped precipitously after the first child-abuse allegations came to light in 1993. From that point on he only released three albums, one of which was a partial greatest hits collection and another, *Blood on the Dance Floor*, that only had four new songs (the rest were remixes). So he wasn’t making the kind of money he had made in the past, but his expenses were just as big. Factor in the damage done by multiple allegations and settlements and it starts to become clear just how precarious his finances were.
That was the reason for the *This Is It* shows at London’s O2 Arena. He needed the money. If all had gone according to plan, the revenues from those shows would have put him back in the black, at least for a while. But his habits probably wouldn’t have changed, so he very likely could have found himself back in the same position after a few years.
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