This is a question I have never really pondered for more than 5 seconds, because frankly, I don’t care, or at least I didn’t until I read this Forbes article that explained how they go about estimating his worth.
For our upcoming Celebrities issue, FORBES estimates Donald’s licensing income to be approximately $60 million. This includes earnings from books, ties, cuff links, mattresses, speeches, Apprentice producer fees and royalties, and earnings from the Miss USA, Miss Teen USA and Miss Universe. This does not include any of the licensing deals from real estate, which we are in the process of investigating. By such estimate, Donald’s brand is worth $120 million. Note that the number will likely rise by a few hundred million when we account for his real estate licensing earnings.
I’m not going to dispute that $60 million number because again, I don’t care that much. What I would like to dispute is how they get from $60 million/year in non-real estate licensing income to a $120 million valuation for the brand. This is not exactly rocket science. If you look at the $60 million as a simple stream of cash flows, pick a discount rate, and say it lasts 10 years (not totally unreasonable), and discount it back to present value, the value of the brand is around $350-$400 million. If you jack the discount rate up to 15%, assume each successive year that his licensing revenue is going to drop by 25% (I think an extreme assumption), that annuity stream is still worth over $225 million! Even if we only assume cash flows will last for 5 years instead of 10 (using the same, very conservative assumptions), the value of the $60 million/year comes out to over $130 million!
Where Forbes gets $120 million from $60 million/year is really beyond me. I’m not an intellectual property valuation expert, but if I could buy all the licensing rights to The Donald’s various
crap collections for $120 million – and I can’t believe I’m actually saying this – I’d jump at the chance!
This is to say nothing of his various real estate holdings and real-estate licensing income. I’m not even going to attempt to ballpark either of those numbers, since they are not easy to find, and taking Donald’s word for it would be akin to taking ethics advice from Charles Rangel. The numbers may sound good, but they might be completely made-up.
UPDATE: A comment on Business Insider brought up that this quick back of the envelope number crunching exercise doesn’t consider taxes. I left them out because I assume the licensing revenue comes into a corporate (or several), which is not necessarily (all) on-shore, making it difficult to estimate the effective tax rate at which the income is subject.
But, for fun, let’s give it a shot and assume the effective tax rate is 25%, and the income declines by the same amount each year, with the same assumptions mentioned above. Using these numbers, we get a value of $126 million, still above the number used by Forbes, but only slightly. The point is we can massage the inputs to get any output we want, and unless Forbes starts learning how to be transparent (doubtful), we can do nothing besides question their assumptions and methodology, especially when they seem suspect.