The Clinton Money Machine

The disclosure this week that Hillary Clinton recently loaned her presidential campaign $5 million prompted me to give further thought to the Clintons and their current state of affairs. I am not thinking about the presidential campaign, politics or the health of their relationship. I am thinking about their money – they have lots of it!

Since leaving office in early 2001, Bill and Hillary have created an extraordinary process of personal wealth creation. Very few Americans will ever match this rate or level of wealth creation particularly if you consider the age in which they initiated it.

For perspective, the median household net worth for someone in their mid-fifties earning at least $200,000 is just over $800,000. When they left the White House in early 2001, Bill and Hillary were in their mid-fifties. At the time, they owed upwards of $12-15 million – mostly due to outstanding legal bills related to Whitewater, Paula Jones, campaign fundraising investigations and the Monica Lewinsky scandal. They also purchased a house in Chappaqua, New York and took on a mortgage of $1,360,000. Seven years later, their net worth is now approximately $25 million, a +$40 million swing. We should all be as lucky in the run up to our golden years…

The $186,600 Bill receives from his presidential pension and Hillary’s senate salary of $169,300 are probably sufficient to cover the annual Clinton household expenses – enough to cover their overhead but nowhere near enough to pay down debt. That’s where the Clinton money machine kicks in.

Since leaving office, President Clinton has earned up to $50 million from giving speeches around the world at a rate as high as $350,000 a speech. He earned a $12 million book advance for his autobiography, “My Life.” Hillary also earned $8 million from her book advance on “Living History.” In sum, the Clinton’s together probably generated at least $70 million in earnings in the last 7 years. After paying Federal and New York State taxes and other withholdings, their take home pay was probably close to $40 million or roughly $5.7 million annually.

The math is pretty straightforward. The Clintons’ left office owing close to $15 million. They earned at least $40 million since, resulting in a household net worth of $25 million. This is before Bill receives his $20 million buy-out from Ron Burkle. Hillary can easily afford to lend her campaign $5 million.

This significant wealth creation on the part of the Clintons is extraordinary given how much controversy and scandal surrounded them. President Clinton's affair with Monica Lewinsky on its own is enough to end the money-making abilities of most executives. The increased spotlight on sexual harassment in the workplace has quickly ended the careers and earnings power of many.

How did Clinton manage to avoid this dead-end trap?

Well, it helps to be a worldwide celebrity. Celebrities have an unfair advantage over ordinary citizens when overcoming scandal or crime. It also helps to be hugely talented (Roman Polansky the academy award winning director, not Polansky the fugitive). If you have ever witnessed the Clinton charisma or the power of his speech making, you can't help but agree that Mr. Clinton is talented.

If you are a celebrity and are going to commit a crime or be involved in scandal, illicit sex is probably the easiest to overcome relative to your future earning power. Here's is my celebrity rule of thumb on the topic:

1. Illicit sex is the easiest to overcome (Hugh Grant, Eddie Murphy)
2. Drugs and alcohol are usually forgiven (Eric Clapton, Kate Moss)
3. Crimes of the mouth are unfortunately tolerated (Don Imus)
4. If you are going to cheat, do it on a technicality (Martha Stewart)
5. But never cheat the public of its trust (Pete Rose, Pee Wee Herman)
6. Murder is hardest on the pocket book (OJ Simpson)
7. But hurting animals can be just as bad (Michael Vick)
8. There are limits to just how much you can get away with (Michael Jackson)
9. If all else fails, make them feel sorry for you (Britney Spears)
10. Or, thank God you come from a rich and powerful family (Ted Kennedy)

$40 Billion can't buy innovation

Values such as innovation, open-mindedness and collaboration can't be bought -- no matter how much money a company has. Not even $40 billion.

ExxonMobil reported that it earned $40.6 billion in profits in 2007 --its highest level ever. This isn't all that difficult to do with the help of a near doubling of oil prices to about $100/barrel. But for all of this profit, ExxonMobil is standing still as a business.

Last year, it replaced the oil and natural gas that it produced with as many new reserves. But this accomplishment will be difficult to repeat in the years ahead. ExxonMobil is competing for energy reserves with producing nations such as Saudi Arabia and Venezuela as well as national energy concerns in developing countries such as PetroChina, Petrobras (Brazil) and Gazprom (Russia).

Today ExxonMobil and the three other western oil majors -- Chevron, Shell and BP -- have an ever decreasing share of the global oil market. Today they control just 6% of this market and ultimately their share will drop to near zero as producing countries protect their economic interests first.

The demand for energy -- and the worldwide chorus for new, non-fossil fuel sources --should be a bonanza for a company of ExxonMobil's size and financial strength. Unfortunately, ExxonMobil lacks the confidence and core competency to invest, innovate and capitalize on this demand. Instead, it acts more like a bank -- paying shareholders $40 billion last year through a rich mix of dividends and buybacks. Based on how ExxonMobil spends the money it makes, the energy problems of tomorrow appear to be bigger than its balance sheet today.

Like ExxonMobil, Microsoft has the money but not the skill to innovate. Microsoft made headlines last week by setting in motion a $44.6 billion hostile takeover of Yahoo. While this is a bold step financially, it will not strengthen the software giant's position over the long term. Bulking up its advertising audience will do very little to protect Microsoft's desktop dominance against Google or new technological threats.

Innovation costs a lot more than $40 billion... particularly if the legacy of your values has more to do with Goliath than David.

Odds & Ends...

Driving to the office today, I made a quick choice on the radio dial. First option was a NPR segment on the purchase of Countrywide Financial by Bank America and CEO Mozilo's decision to forgo close to $40 million in severance benefits. My second option was the classic, Miles Davis recording, Bitches Brew, featuring an all-star line-up. Easy decision -- enough already about Countrywide.

A couple of weeks back, new Merrill Lynch CEO, John Thain, was quoted saying, "I didn't cause this problem" referencing the investment bank's sub-prime financial woes and balance sheet write-offs. It appears that Thain has already lost the team-oriented, consensus building culture of the Goldman Sachs' partnership. Much better to say, "We will solve these problems" then to say "They caused it...."

Sears is a mess. Once referred to as the next Warren Buffet, Edward Lampert has certainly dispelled any likeness to the "Sage of Omaha" with his Sears Holdings investment. Financial performance, competitive strength and customer satisfaction are all way down since Lampert made his investment. The latest "plan" calls for a re-structuring of Sears into separate operating units such as Craftsman tools and Kenmore appliances. Current CEO Aylwin Lewis is out. Even before Lewis departed, Lampert had the heads of strategy, merchandising and marketing reporting to him. Lampert may be a great hedge fund manager but he is no merchant. Warren Buffet would never make a menu decision at Dairy Queen or advise Coke on its formula.

Celeb Media Frenzy

My youngest son just completed the college application process with all of the typical family tensions. Each evening for the past six weeks, he would be up late finishing his homework first and then composing crafty answers to essay questions. To the question, "What outrages you most" he wrote about the public fascination with celebrities and the media's eager willingness to feed this fascination -- like Burger King serving triple Whoppers to the obese. In his view, what was once a healthy escape in moderation has now become an obsession at the expense of dealing with weightier societal issues.

Having been the General Manager of PEOPLE magazine in the mid-eighties, I read his essay with added interest. PEOPLE was launched by Time Inc. in 1976; its genesis being the two-page "people" spread in TIME magazine. PEOPLE invented celebrity journalism and remains today -- more than 30 years after its launch -- the most commercially successful and profitable magazine in the world.

The idea behind PEOPLE was to apply TIME magazine's successful editorial formula -- quality reporting and writing backed by double fact checking -- to the subject of people. The editorial premise was "ordinary people doing extraordinary things and extraordinary people doing ordinary things." The reader might be inspired by a small town hero and then, turn the page and get satisfaction from knowing that even celebrities had their share of problems and issues. In its early years, the tabloid voltage was kept in check and balance with a mix of human interest stories.

PEOPLE not only created a magazine category now filled with titles such as US, OK!, HELLO, STAR and IN TOUCH -- but also instigated the endless rise of celebrity coverage on TV and the Internet -- including ENTERTAINMENT TONIGHT, THE HOLLYWOOD INSIDER, TMZ, E!, CELEBRITY APPRENTICE and countless other reality shows. As the competition grew and spread across media, so did the level of sensationalism. Any person in the public domain was fair game to be profiled -- and no subject was off limits -- privacy barriers were virtually eliminated.

The obsession with celebrity was at its peak this week with the death of Heath Ledger. The building where Ledger lived is just around the block from my office in SOHO. For over 48 continuous hours, news trucks -- equipped with digital video production equipment and transmission antennas two stories high -- lined the blocks at the intersection of Broome and Lafayette. The morning after the death -- at the early hour of 6am -- I counted 15 of these trucks each staffed with a team of many including on camera reporters, producers, writers, editors and technicians.

After the announcement and before the autopsy report, what more was there to say about the death? The cost of this on-site operation must have been enormous. And there was little journalistic pay-off to justify the expense. I watched a variety of entertainment and "news" shows which featured segments about Ledger and would hardly call the coverage journalism -- speculation, rumor and tid-bits were the means to differentiate the story as opposed to in-depth reporting, research and fact checking.

The coverage was way overboard and made no sense at all -- on editorial, economic or marketing levels. Nothing much more was said yet at a significant cost premium. This is the flaw of modern media -- particularly old media such as television and print --spending considerable money in the hopes of creating a huge audience to generate sufficient advertising dollars to pay for the cost. It's hard to believe that this business formula is sustainable.

And, did the viewing and reading public actually want continuous coverage of Heath Ledger's death? I doubt it. At some point, reason must set in and attention spans must fade.

But perhaps I am wrong. Maybe the "Quadruple Whopper" would be a huge marketing hit. No wonder my son is outraged by the obsession with celebrities.

Redemption of Sorts

William Jefferson Clinton, the forty-second President of the United States, left office in early 2002 impoverished morally and financially. Despite a 65% approval rating -- the highest for any president since World War II -- the Clinton presidency was marred by his affair with Monica Lewinsky and the subsequent impeachment for perjury and obstruction of justice (although he was later acquitted.) Clinton faced huge legal bills accumulated to defend against investigations during his presidency.

Leaving office, Clinton went right to work earning six figure payments for speeches made around the world. For example, Fortune Magazine paid him approximately $125,000 to speak at the Fortune Global CEO Forum in Hong Kong in 2002. These speeches and public appearances earned the former president tens of millions of dollars.

Now, Clinton is poised to reap his biggest payday yet. The Wall Street Journal reported this week that Clinton is severing ties with billionaire Ron Burkle and is redeeming his share in Yucaipa, Burkle's investment firm, for an estimated $20 million. It is not clear what exactly Clinton has done to earn this huge payout. Clinton is redeeming his shares in an effort to protect Hillary's presidential aspirations by steering clear of potential conflicts of interest and politically sensitive issues surrounding Burkle's business interests.

Most certainly, the Clinton's are impoverished financially no more.

Refilling the coffers is easy for a former world leader of Clinton's stature. Much easier than moral redemption.

America's Pastime is Making Money

At Major League Baseball, economics triumphs over morality and legality. Or, more precisely over personal accountability. As a reward for boosting revenues by 400% and setting league attendance records, Baseball commissioner Bud Selig was recently awarded a contract extension through 2012. Mr. Selig is almost guaranteed to make at least what he made last year -- $14.5 million.

That's right, about $15 million a year is going to the man who failed to provide quick and decisive leadership when professional baseball needed it most -- at the earliest stages of the steroids and performance-enhancing drug controversy. Today, Major League Baseball has tough substance abuse policies. The sport banned steroids in 2002 and established testing and penalties in 2004. But nothing was done during the home run boom of the nineties when the realities of player substance abuse moved beyond mere suspicion.

The Mitchell Report, which was conducted at the request of Commissioner Selig, concluded that the MLB Commissioners, club officials, the Players Association, and the players all share responsibility for uncontrolled, illegal use of steroids in professional baseball.

Selig has now vowed to rid baseball of performance enhancing substance abuse and holds himself personally responsible for what was not done earlier. We should all be so lucky as to accept responsibility without corresponding consequences -- which is the implication of Selig's contract extension.

Barry Bonds' home run record deserves an asterisk. So does the revenue line item in MLB's accounting statements.

Good Clean Fun!

The company name -- Wham-O Manufacturing and this photo of its founders -- Richard Knerr and Arthur Melin -- says it all. With a corporate mission based soley on having fun, Wham-O launched such childhood favorites as the Frisbee, Hula Hoops, Super Balls and Silly String. Long before (and continuing after) sex, drugs, rock-n-roll and the digital age permanently shifted pre-adolescent attention, the premise of Wham-O was about active, outdoor fun. Never consistent in its financial or commercial success, Messrs. Knerr and Melin produced sufficient smiles and giggles to earn a spot in the good karma hall of fame. Mr. Knerr passed away this week at the age of 83.