Is Kanye West Still A Billionaire Or What?
Is Kanye West Still A Billionaire Or What?
Over the past few days, I've received about 30 text messages and emails from people, both friends and CNW followers, asking for my opinion on the downfall of Kanye's business empire. Everyone wants to know if Kanye is still a billionaire.
Forbes dropped Kanye's net worth to $400 million this week. As always, I don't agree with their methodology. I don't have time to go into why and of course this all happens in the week when I'm basically unavailable to write. So, the article below was formulated in several random 20-minute sessions, when I was able to escape and write my thoughts down. Here we go.
There are three ways to become a billionaire.
You sell an asset and, after taxes, you have over $1 billion in your bank account.
You own an asset, public or private, valued at billions of dollars AND your personal equity interest in that asset is worth over a billion dollars. This is also known as being a "paper" billionaire.
You inherit $2 billion+ and are left with at least $1 billion in the bank after paying taxes.
With all three methods, to be a billionaire your asset value/bank account balance needs to be more than $1 billion after subtracting all debt. For example, if you have $1 billion in your bank account after selling a business (method #1), but you also have $100 million in mortgages thanks to a Malibu mansion, your net worth is $900 million. .
Kanye West became a billionaire using method #2. The vast majority of his net worth (even after the fallout) is tied to the private (paper) valuation of the Yeezy brand. He officially achieved billionaire status in March 2021 after a private valuation of his various personal assets by UBS bank was made public. Below are the values of Kanye's assets and debt identified by UBS as of March 2021.
Active:
Real Estate Assets = US $ 120 million
Music catalog, including G.O.O.D Music = $ 80 million
Site Yeezy.com = $ 100 million
Yeezy brand value = $ 5 billion
Gap partnership = US $ 1 billion
Money, shares and other assets = US $ 400 million
Total assets = US $ 6.7 billion
Liabilities and other considerations (mainly mortgages) = $ 100 million
Equity = US $ 6.6 billion
As you can see, Yeezy brand reviews, the Yeezy website and its gap partnership contributed $ 6.1 billion of $ 6.6 billion in net equity. In other words, if these two assets did not exist, Kanye would be worth about $ 500 million in March 2021.
Much happened to the Kanye commercial empire in the last 72 hours. In fact, it goes back just over 72 hours. Gap ended its partnership with Kanye on September 15. On Tuesday, Gap and Foot Locker began to physically remove the Kanye products from their respective stores.
The gap partnership was not so significant in my opinion. It had great hopes and potential when it was first announced, but the real relationship did not represent much in reality.
Adidas is another story.
By 2022, Adidas will generate about $ 25 billion in total revenue. Incredibly, almost exactly 10% of this revenue will be generated by Yeezy products. Yeezy's annual revenue is estimated at $ 2.5 billion and annual profits are $ 200 to $ 250 million.
More important:
Kanye West has 100% of Yeezy.
So when Adidas says the partnership ends, it means that Kanye is now a brand without a distribution and manufacturing partner.
As a comparison, Michael Jordan has no percentage of the Jordan brand. He is a highly paid endorser who gains a very generous royalty in brands sales. He has no shareholding participation, so if Nike ended the Jordan brand tomorrow, Michael would leave with Zilch.
With Adidas leaving the partnership, Kanye has two options:
#1) Find a new large retail company that would be willing to slide straight to the Adidas site.
#2) Attack on your own without the great manufacturing and distribution partner.
This first option is by far the best for Kanye, but can Kanye find a new corporate partner willing to face his luggage? Is there a clothing company willing to digest Kanye's controversy in exchange for the potential of a few hundred hundred extra profits?
Kanye is not wasting time trying to find out the answer to these questions.
On Wednesday afternoon, Kanye appeared without notice for Skechers's corporate headquarters in Manhattan Beach, California, presumably to discuss a new partnership. He was escorted out of the building:
If Kanye can find a company that is willing to deal with its manufacture and distribution, what impact will your recent controversies have the annual revenue and profit of your brand? Does revenue fall 20%? 30? No way?
For your information, in the last 72 hours, seven of the eight most popular Stockx shoes are Yeezy items:
So people don't seem to be turning their backs to Kanye so far. If we assume this is a sign that demand will not decrease, certainly Yeezy's value is still very high ... as in several billions of dollars, which would mean that Kanye's equity would still be $ 2-3 billions on paper.