Here’s what would have to happen for Dr Dre to become a billionaire
Reported by Liku Zelleke
“Dr. Dre is not a billionaire.” This according to Celebrity Networth’s Brian Warner. Warner says that Dre’s claim of being a billionaire is wrong and people have mistakenly concluded that he was one, even though he is filthy rich.
Warner came up with a cut of the Apple deal of $750 million, which isn’t bad. He’s standing by those numbers. He is basing this on the fact that Beats by Dre was sold to Apple for $3 billion dollars.
“Here’s how we determined Dre’s current net worth to be $750 million,” he writes. “Firstly, without even including his stake in Beats, Dr. Dre had a separate $200 million fortune that was earned from his various non-Beats related ventures.”
These ventures included his highly successful and lengthy music career which continues to make him money by way of royalties, record sales, producer fees, concert fees and merchandizing. Then there are his real estate and commercial endorsements.
“Secondly,” Warner continues, “At the time Beats by Dre was sold to Apple for $3 billion, Dr. Dre owned 25% of the company. Twenty-five percent of $3 billion is $750 million. Now if you were to add $750 million to $200 million you would get $950 million – Still not quite a billion.”
With all this money floating around, Uncle Sam would come a-knocking and that would mean taxes. Warner goes on to explain the various tax types that would apply to Dre.
“Because the Beats investment was over a year old, it qualifies for long term capital gains. Long term capital gains reduce his federal (IRS) tax burden from 40% to 20%. As a resident of California, Dre will also pay 13.3% in state taxes. That’s a total tax burden of 33.3%. That means Dre will pay roughly $247.5 million in taxes off this deal, leaving him $502.5 million after taxes. $502.5 million from the Beats sale + Dre’s other $200 million fortune = $702.5 million. Let’s be generous and round his net worth up to an even $750 million.”
Warner then moves on to the fact that when the Beats deal went through, Dre was given $2.6 billion in cash and $400 million’s worth of Apple stock. When considering that he owns 25% of the company, that would mean that his share of the stock would be something in the range of $100 million. With the current stock price of $95 it would also mean that he owns just a little over 1 million shares.
If Dre is to become a billionaire, Warner explains, Apple’s share price would have to increase by 320%.
“That would mean Apple was trading at $400 a share and Dre’s holdings would be worth $400 million. $400 million after taxes would put his overall net worth above $1 billion. Or at least very, very close. So how likely is it that Apple’s stock price would increase 320% to $400 a share? … Impossible. At $400 a share, Apple would have a market cap of $2.4 TRILLION dollars. The current record for most valuable company of all time is $623 billion set by (you guessed it) Apple, back in August 2012. For some perspective, if Apple was worth $2.4 trillion, it would be more valuable than Exxon, JP Morgan, GE, Berkshire Hathaway, Microsoft, Facebook, Google and British Petroleum…COMBINED.”
To those who say that Dr. Dre was worth $550 million before the Beats sale and adding the $500 million to it would make him a billionaire, Warner says that that isn’t true either.
“When Forbes and CNW said Dre was worth $550 million a few months before the Beats sale, that estimate already included the estimated value of Dre’s Beats stake at that time,” he writes. “At the time both sites made their estimates, Beats By Dre had recently been valued at $2 billion thanks to an investment from the Carlyle Group. 25% of $2 billion was $500 million. $500 million after taxes is $330 million. $330 million added to Dre’s $200 million non-Beats fortune equals $530 million. We rounded up to $550 million to be safe.”
Warner finishes with a point that many people seem to ponder: Maybe Dr Dre’s fancy lawyers and accountants would help him to avoid paying taxes, which would increase his wealth.
“Totally agree,” said Warner. “But on the other hand, the reality is tax loopholes typically just delay an inevitable tax payment by kicking it down the road a few years. Loopholes really aren’t as magical as you might think. Just ask Wesley Snipes.”
You can read Warner’s full argument by going to Celebrity Networth.