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Wednesday, March 3, 2010

How Stars Go Broke

How Stars Go Broke

It’s not common for some celebrities to announce their mega million dollar salaries in the media. Big numbers like Fifteen, Twenty, Twenty-five or thirty million dollars for a movie role. While these high salaries are quite shocking, what’s more disturbing is how quickly these enormous fortunes can slip away.

Numerous entertainers like Toni Braxton, Nicholas Cage, Sinbad, and the late Michael Jackson have found themselves bankrupt or in severe financial distress. Many more are on the brink and don’t even know it.

How does a star making millions of dollars go broke? Well, it can happen very quickly once expenses are broken down. Taking those multimillion dollar salaries apart after agent commissions, manager commissions, taxes and other expenses, there isn’t much left available for a celebrity to maintain their lavish lifestyles long-term. Over time, celebrity salaries actually go down while their expenses stay the same. This sets up a recipe for financial disaster. All it takes is a major illness, a tax issue, a divorce or a long-term period of unemployment to put a star’s finances in jeopardy.

What many don’t know is that celebrity careers have a cycle very similar to the economic cycle: Start, Rise, Peak, Decline, and End. Oftentimes, as a star cycles through the early stages of their career, revenues increase and they become accustomed to living within the financial means of their salary. However once a celebrity reaches the peak stage of their career, revenues and job opportunities to create revenues begin declining. This situation isn’t so bad if a celebrity adapts their spending to the declining revenues. However, in many cases celebrity spending often stays the same as the peak level of earning. Worse, some celebrities don’t monitor their accountants or managers (who often have power of attorney and authority over finances) to make sure they’re paying federal taxes, state taxes and property taxes.

This formula of diminishing revenues, poor education, and a lack of financial supervision and planning is what leads many celebrities going broke or going bankrupt during the declining and ending phases of their careers. Not knowing who’s handling their money or how much money remains can lead to multimillion dollar back tax bills, property liens, foreclosures, lawsuits and a financial nightmare.

In All About Marilyn I detail how celebrity fortunes can change in an instant. Over the course of a few years, the fictional Marilyn Marie goes from a TV star with a promising career to a struggling actress scraping by to pay her bills. This happens to so many celebrities in real life; the cancellation of a TV show, or series of box-office failures can lead to years of unemployment and a slew financial long-term problems. I want people to understand that these financial difficulties can happen to anyone even in the best of situations and that anyone can fall on hard times. It’s often easy for us to judge celebrities from what we see and read in the media, but we often don’t understand how quickly any of us can also wind up in a similar financial situation.

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