Bossip is reporting that the rapper Jay-Z owes Highland Capital Management LP $52 million dollars in loan guarantees, and that the Jigga man hasn't been paying as expected. The loan was allegedly used to purchase property in Manhattan for a hotel.
Jay-Z has reportedly filed a complaint against Highland Capital, claiming that the company was seeking funds in excess of the amount owed. He has requested $3.7 million in compensation. Bossip is also reporting that Jay-Z was sued by his attorney last year for unpaid legal fees. It seems that everyone in this story has something to say, and I hardly expect that this means that Jay-Z is going broke. At the same time, things may not always be what they seem.
Here are some quick thoughts on the alleged financial problems of Jay-Z.
1) There is nothing all that uncommon about Jay-Z's actions: Wealthy men and women set up small corporations regularly that get sued for non-payment or even go bankrupt. Donald Trump is notorious for it. The reason is that when you engage in any business venture, you should be incorporated so that your assets are protected from losses of the venture. I am sure that Jay-Z's expensive lawyers set him up for all that good stuff.
2) It's not inconceivable for a seemingly wealthy entertainer to have liquidity problems: Many rappers are stuck in the nasty trap of having to brag about how much money they make. When you do that, you are setting yourself up for embarrassment if the world finds out that you're not rolling in the cheddar like you claimed you were. For those of us who are not rappers, I recommend slowing down on the status symbols, such as fancy cars, big spending or expensive clothes, since that stuff only makes you a target for people looking to borrow money. Eventually, the world thinks that you're made of money, and feels disappointed when you hit hard financial times.
3) Remember Nicolas Cage and MC Hammer: Nicolas Cage seems to be in a blockbuster film every month. But he himself was in serious financial trouble with the IRS and had to sell several of his mansions around the world (the words "several" and "mansions" shouldn't be in the same sentence, should they?). MC Hammer earned over $25 million dollars during the year he declared bankruptcy and still has not recovered from the financial devastation which occurred nearly 20 years ago. Making a lot of money doesn't mean you can't go broke, especially if you're spending more than you make. The actor Will Smith often discusses his bankruptcy 20 years ago, when he spent the money for his second album before it had even been released. My cousin T-Boz from the group TLC (yes, she is my cousin - she's a Watkins too) did an interesting documentary about how she and the other women in her group were forced into bankruptcy, even though their first album sold millions of copies. It's good that they "weren't too proud to beg," since they were on the verge of having to beg for money in spite of being the hottest musical artists in American that year. Americans are addicted to living beyond their means, and that includes both rich celebs and regular people.
4) There's a difference between wealth and liquidity: Most businesses fail because of a lack of cash, not profitability. Many wealthy Americans own a lot of stuff, but they don't have the cash necessary to maintain that stuff. Managing liquidity can be just as important as finding profitable investment opportunities. I presume that Jay-Z has enough liquidity to run his business ventures, but make no mistake about it: the liquidity needed to run his business is like the amount of water needed to operate a Water World amusement park. I hope his financial team is qualified, since it's easy to believe that earning $35 million dollars in a year will instantly make all of your financial problems go away. But remember Michael Jackson's crazy spending habits? The poor man needed over $10 million dollars a month just to keep up with outgoing cash.
I'm not sure if Jay-Z is broke or not, but I suspect that he's going to be just fine. The truth, however, is that the stock market's disappointing performance in 2008 and early 2009 wiped out a lot of wealth, and I expect that Jay-Z was not immune to that. Hopefully, he took the advice of Warren Buffet and invested heavily during the downturn. That was an opportunity to make some serious dough. Jay-Z is a smart brother and I am sure he will be OK.
Dr. Boyce Watkins is the founder of the Your Black World Coalition.
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