Monday, September 14, 2020

Will Kanye West Surpass Jay-Z?


For the better part of hip-hop’s existence, it was solely considered a genre of music. We now recognize the larger cultural movement surrounding the New York-bred art form as a leading force driving growth in fashion, entertainment, food and beverage, and technology. As a result, the top 10 highest earners of 2019 on Forbes’ annual list of hip-hop’s richest account for a staggering $633,500,000 in combined earnings. And for the first time in his career, Kanye West ($150 million) has outpaced the rest of his competitors to take the top spot — leapfrogging JAY-Z by $69 million.

It was certainly a banner year for West, especially considering he claimed to be $56 million in debt just over three years ago. While earning the top spot is certainly noteworthy, his income jumped dramatically between 2018 and 2019, accounting for a net increase of $122,500,000. Although the entire industry had a great year — with the top 20 acts’ revenue increasing by 33 percent since 2018 — the huge financial increase poses an interesting question: with an album on the way, YEEZY accounting for $1.5 billion in annual sales, and a track record of exploring radical projects, will Kanye West be joining JAY-Z in the billionaire’s club?


According to Forbes, the majority of West’s 2019 income derived from his aforementioned YEEZY deal with adidas. When The New York Times published a report in June of this year, an unnamed source commented on West’s financial windfall from the deal, stating that the rapper earned 5 percent royalties of net sales on shoes and apparel, which is certainly a nice chunk of passive income. However, other sources have speculated that West actually receives 15 percent royalties on wholesale of all YEEZY products.

As of June this year, West’s net worth was $240 million — placing him fourth behind Diddy ($740 million), Dr. Dre ($800 million), and JAY-Z ($1 billion). Whereas both Diddy and JAY-Z added to their fortunes, resulting in top four finishes, Dr. Dre surprisingly didn’t even make the top 20, suggesting he earned less than Pitbull’s $18 million.



If we look at artist growth, Kanye West is worth five times more than he was just five years ago. At the time, his sixth-spot placement was attributed to the “YEEZUS” tour rather than his burgeoning YEEZY empire. Although “YEEZUS” was the second highest grossing tour of 2013 — accounting for $25.2 million in revenue from 23 performances, averaging at nearly $1.1 million per night – West has since eschewed arenas in favor of growing his fashion business.

If West were to tour his newest album, Jesus is King, numbers from fellow hip-hop heavyweights — including Travis Scott’s Astroworld, JAY-Z’s 4:44 and Kendrick Lamar’s The Damn Tour — suggest that the $50 million mark is achievable for a tour spanning three to four months. According to the Guardian, artists and their promoters usually receive around 84 percent of the gross sales, which is further diluted when other expenses — stage design, musicians, roadies, etc — are figured into the equation. Whereas a Kanye West show is chock-full of innovative set designs and theatrics, we can only assume that the 84 percent of bankable income on touring is probably diluted to one half. So on a tour that banks $50 million, it’s certainly within the realm of possibility that Ye could take home $25 million before taxes.

West also recently made some calculated real estate moves. In 2018, he purchased 300 acres of land in Calabasas for an undisclosed price.”I’m getting into development. It’s just the next frontier for me, to develop,” West told Charlamagne tha God in an interview. “We’re standing on my first property. So I’m going to be one of the biggest real-estate developers of all time — what Howard Hughes was to aircrafts and what Henry Ford was to cars.”

That investment could pay real dividends. According to a listing on Zillow, a 27.73 parcel of land in Calabasas is currently selling for $4.9 million, meaning the land alone could be worth over $53 million. Coupled with the fact that West supposedly already turned a $20 million profit on his own home, owns a new $14 million ranch in Wyoming, and another $14 million condo in Miami, he clearly sees the value in real estate.

There are no signs of a YEEZY slowdown. Coupled with his other sources of income — which could include a vast arena tour — a yearly income of $150 million is not out of the realm of possibility in the foreseeable future. When footwear trends inevitably shift in the future, West has a myriad of other sources of income to keep him in that financial ballpark.

So when might Kanye West become a billionaire and surpass JAY-Z? Clearly there are many variables at play, including how they invest their money, their rate of return, gross vs. net, their respective tax situations, their expenses, and family needs. Simplified, however, they are on a level playing field with the only variables being (1) their starting net worth and (2) their annual earnings.

As previously stated, West has a starting net worth of $240 million. JAY-Z has seen his growth go up and down over that same period, while building his $1 billion net worth. West’s income, on the other hand, has increased by an astounding 400 percent over the last five years. However, let’s assume a more reasonable income growth rate of 20 percent annually. Economists might suggest that JAY-Z is in a reasonable growth stage, with an annual income growth rate of approximately 7 percent. If both rappers have an effective tax rate of 40 percent, and they each grow their existing net worth by 10 percent net each year (by making investments and not doing a lot of risk-taking), it will take Kanye West just under 12 years to overtake JAY-Z in terms of net worth.

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