Is Kanye West Still A Billionaire?
Every Tom, Dick and Harry in the United States wants to know if Kanye is still a billionaire, especially in the wake of Kanye’s recent collapse. Good question that.
Forbes reduced Kanye’s net worth to $400 million this week. However, I would disagree with their methodology as usual. Let’s get started.
Kanye West Net Worth
There are three methods to become a billionaire.
1) After taxes, you sell an asset.
2) You are the owner of a public or private asset that is worth billions of dollars. Your personal equity stake in that asset is more than one billion dollars. This is known as a “paper billionaire”.
2) You inherit $2 billion+, and you have at least $1 Billion in your bank account after paying taxes.
After subtracting all debts, you must have a greater asset value/bank balance than $1 billion to become a billionaire using any of these three methods. For example, let’s say you have $1 billion in your bank after you sell a business (method 1), but also $100 million in mortgages due to a Malibu mansion, your net worth would be $900 million.
Method #2 made Kanye West a billionaire. Even after the fallout, the vast majority of Kanye West’s net worth is tied to the private (paper-based) valuation of the Yeezy label. After a confidential valuation of his personal assets by UBS, Kanye was officially made a billionaire in March 2021. Here are the UBS March 2021 values of Kanye’s assets and liabilities:
Assets:
Real estate assets = $120 million
Music catalog including G.O.O.D Music = $80 Million
Website Yeezy.com = $100 Million
Value of Yeezy brand = 5 billion
Gap Partnership Value = $1 Billion
Cash, equities, and other assets belonging to him > $400 million
Total assets = $6.7 Billion
100 million for Liabilities and Other Considerations (mostly mortgages).
Net Worth = $6.6 Billion
You can see that the Yeezy brand, Yeezy website, and Gap partnership contributed $6.1 Billion to Kanye’s $6.6 Billion net worth. These assets would have made Kanye worth approximately $500 million if they had not been created.
Kanye’s business empire has seen a lot of ups and downs. On September 15, Gap announced that it was ending its partnership with Kanye. Gap and Foot Locker started physically removing Kanye products from their stores on Tuesday.
Actually, the Gap partnership was not very meaningful. Although it had great potential and high expectations when it was first announced in the media, the reality of the relationship was not satisfactory.
Adidas is a different story altogether.
Adidas will earn around $25 billion in total revenue by 2022. Amazingly, almost 10% of this revenue will be generated by Yeezy products. Yeezy’s annual revenues are estimated at $2.5 billion, and its annual profits range from $200 to $250 million.
And most importantly, Kanye West has 100% ownership of Yeezy.
Adidas’s decision to end the partnership with Kanye means that Kanye is no longer a distributor or manufacturer-partner.
Michael Jordan doesn’t own any share of the Jordan Brand. He is a well-paid endorser and receives a generous royalty on sales. He doesn’t have any equity in the Jordan brand, so if Nike were to end it tomorrow, Michael would be left with nothing.
Kanye now has two options after Adidas pulled out of the partnership.
1) Look for a major retail company that is willing to take over Adidas’ shoes.
2) Go it alone without a major manufacturer or distributor partner.
The first option is the best for Kanye. But can Kanye find a corporate partner who will take on his baggage? Is there an apparel business that is willing to take on Kanye’s controversy for an additional couple hundred million annually in profits?
Kanye doesn’t waste time trying to figure out the answers to these questions.
Kanye arrived unannounced at Skechers Corporate Headquarters in Manhattan Beach, California on Wednesday afternoon, presumably to discuss a possible new partnership. Kanye was then escorted from the building.
What impact can Kanye’s recent controversy have on his brand’s annual profit and revenue? Does revenue drop by 20%?
People don’t appear to be abandoning Kanye yet. This is a sign that the demand for Yeezy will not decrease. It would also indicate that Kanye’s net worth remains at $2-3 billion.
Kanye will have to become an independent person to maintain his billionaire status. However, it is still possible for him to do so.
Let’s suppose Kanye starts his own manufacturing, distribution and logistics. And then, let’s assume that Kanye’s controversy leads to a reduction of revenue and profit by half from their previous levels. This would still result in a business with $1.25 billion in annual revenue and $125 million in profit. The average profit multiples value of a retail company was 15x in 2022. Let’s make a modest estimate and use 10x. The Yeezy brand would have a value of $1.25 billion if it made $125 million annually in profit. Kanye is still a billionaire when you add in his assets and subtract around $100 million in liabilities. Kanye’s estimated worth is $2 billion.
Contrary to everything that has been just stated, if Yeezy doesn’t make a meaningful comeback, it’s difficult to see how Kanye West can still be considered a billionaire.