For celebrities accustomed to a champagne lifestyle, financial strain may follow when big paydays stop.
They can live in mansions. Shop at the fanciest department stores. Drive luxury cars. So why is it that so many highly paid entertainers have money issues?
Well, they often live in mansions, shop in the fanciest department stores or drive luxury cars — even when they can no longer afford it.
Although an exact accounting of Ed McMahon’s financial problems remains undisclosed, he risks foreclosure on his multimillion-dollar Beverly Hills estate, and he and his company owe American Express Co. nearly $750,000. But the veteran entertainer recently said he understood this basic economic principle: When you spend more than you make, you’ve got problems.
Fame may open lots of doors, but it can’t always pay the bills, especially when those tabs run into the hundreds of thousands of dollars and work suddenly slows down or stops altogether. And even though Hollywood celebrities can seem worldly in ways beyond regular folks, they are often surprisingly naive in managing their own financial affairs, lawyers and business managers say.
McMahon, the 85-year-old former sidekick to Johnny Carson on “The Tonight Show” and host of “Star Search,” made headlines last week for facing foreclosure on his Mediterranean-style mansion, but that’s not his only financial crisis.
On April 16, American Express won an arbitration judgment against him and his company, McMahon Communications Inc., for $747,000 over unspecified debts, according to Los Angeles Superior Court documents. A lawyer from American Express declined to comment about the dispute.
According to the Wall Street Journal, McMahon was more than $600,000 behind in payments on his $4.8-million mortgage, and lender Countrywide Financial Corp. filed a default notice in March. McMahon — who has hosted real estate infomercials — has been trying to sell the property for two years; two websites listed the asking price at $5.75 million, but listing agent Alex Davis said it was priced at $6.25 million.
McMahon, who declined to be interviewed, said on CNN’s “Larry King Live” on Thursday, “If you spend more than you make, you know what happens.”
McMahon injured his neck in a fall a year and a half ago, which has prevented him from working and earning money to pay his bills, according to his publicist, Howard Bragman. “Ed loves to work,” he said. “I don’t think he would know what to do if he retired.”
Bragman added that McMahon’s financial problems stemmed in part from his munificence. “Ed supports a lot of people and charities — he’s been exquisitely generous to everybody. He’s just a giving guy.”
Whatever is causing McMahon to fall behind on his bills, he’s hardly alone in Hollywood.
While millions of working-class people struggle, several highly paid celebrities — including actor Randy Quaid and rap music impresario Marion “Suge” Knight — have suffered their own financial difficulties.
Unlike homeowners wrestling with adjustable-rate mortgages, the entertainers are sometimes undone by the true costs of a rich-and-famous lifestyle.
“Renegade” television actor Lorenzo Lamas owed nearly $200,000 on a private plane, while actress Lorraine Bracco, who later became famous on “The Sopranos,” was on the hook for more than $7,000 to Giorgio Armani and more than $4,000 to a limousine service, their bankruptcy petitions show.
“I don’t think it’s unique at all,” attorney Jay Cooper, who chairs the West Coast entertainment practice of law firm Greenberg Traurig, said of McMahon’s difficulties. “Every single career in the business has its ups and downs. And unless you are prepared for the valleys, you’re going to be in trouble.”
When the work is coming, so are the perks, which may be part of the reason many celebrities have a hard time understanding the actual costs of their high standard of living. While they are employed, most top stars can go for weeks without having to pay for much more than breath mints. Movie studios cover their hotel, food and transportation bills; designers shower them with free clothes; and gift baskets come jammed with complimentary cellphones, jewelry and other goodies.
That swanky lifestyle soon becomes addictive — even after some third party has stopped underwriting it. And Hollywood can be as cruel as it is kind with compensation, and the once-hot actress who was making $10 million a few years ago might be forced to scrape by with just $5 million now. If her cost of living has grown to match those better-off days, she might suddenly find herself millions in the hole.
For all the media attention focused on fat show-business paydays, news stories often fail to spell out the financial accounting that’s central to entertainer compensation.
Almost every performer retains a talent agent, whose fees average 10% of the gross returns, and many also use a personal manager, who typically takes 15% more. A business manager will charge an additional 5% and attorneys can add the same fee. Then there’s the publicist, who can cost as much as $5,000 a month. So a hypothetical $100,000 acting job would net about $60,000, and state and federal taxes would trim that amount even more.
That one acting gig still delivers more than most Americans earn in a year, but most Americans don’t have the kind of mortgage that McMahon carries.
Built in 1989, his estate inside a gated community has six bedrooms and five baths. The master suite includes his-and-her baths. The home features canyon views, imported doors and, according to a real estate listing, “meticulously chosen fireplaces.”
When Columbus, Ohio, bankruptcy attorney Susan Rhiel heard of McMahon’s cash-flow issues, she was reminded of the plight faced by some of her high-net-worth clients.
“They may be very good in what they do in their field, but they may be very poor money managers,” Rhiel said. “And they feel that because of their status they have this entitlement — ‘I should be able to go to the spa every week, even if I can’t afford it anymore.’ ”
A few years after his television show “The Immortal” was canceled, Lamas filed for bankruptcy protection in 2004, listing assets of $433,000 and debts of $617,000. He owed more than $20,000 on a Harley-Davidson motorcycle, $48,000 on a Hummer H2 and nearly $200,000 on a Piper Seneca airplane. He listed his monthly take-home income at $10,922 but his monthly costs at $21,826, which included $6,123 in alimony. Lamas’ bankruptcy case was closed in 2005.
Bracco, in her 1999 bankruptcy filing (before “The Sopranos” became a hit), claimed assets of $2.2 million (including $97,000 in fine art and $66,000 in jewelry) but debts of $2.4 million. Her bankruptcy case was closed in 2004. Her bankruptcy lawyer did not return a call seeking comment.
In his 2000 bankruptcy filing, Quaid and his wife, Evi, listed assets of $3.4 million but debts of $3.5 million, including a bill from Barneys New York for $11,554.
The Quaid bankruptcy, which the couple said was prompted by a court battle over the financing of “The Debtors,” a 1999 movie that Evi Quaid directed and Randy Quaid starred in, was closed in 2005. A message left with their bankruptcy lawyer was not returned.
Rap music mogul Knight has a notable asset-to-debt ratio, claiming in his 2006 bankruptcy petition that he was worth $4.4 million but owed $137 million, including at least $11.3 million in federal taxes and $107 million in a court judgment over the founding of Death Row Records.
A lawyer for Knight said the bankruptcy was forced by the court judgment, which is in the process of being settled, and that Knight could emerge from bankruptcy in a little more than a year.
Joseph Eisenberg, a bankruptcy lawyer who represented Lamas and other celebrities in their financial reorganizations, said lawsuits could force some into insolvency.
But, he added, a lot of celebrity financial troubles “have to do with bad management. They delegate to somebody the obligation to take care of their affairs” and then lose track of their finances.
“These cases arise from different problems,” Eisenberg said. “It’s not just because they spend a lot of money and have these exotic lifestyles. It can be anything.”
As for Lamas’ financial woes, “he had a TV show that was canceled,” Eisenberg said. “It changed the situation because he got significantly less income.”
Rick Flynn, an attorney at the accounting and business management firm Rothstein Kass and coauthor of the book “Fame and Fortune: Maximizing Celebrity Wealth,” said several events could trigger a celebrity bankruptcy.
When an entertainer goes into bankruptcy, the circumstances can include a “career no longer being as hot — and the expenses are still there,” Flynn said.
Besides vanity, one of the most common show business personality traits is a feeling of invincibility. Even though such unshakable confidence can launch careers and win Oscars, it also can destroy healthy caution.
“People get seduced by their own success,” attorney Cooper said. “Everyone is telling a star how important they are, and they start to believe that rather than take a step back. The lesson is easy: Take a good portion of what you make in a good year, and put it away.”