The Biggest Celebrity Money Mistakes
The rich and the famous are not always rich for life. In fact, many stars and athletes have gone from the spotlight to the streets within years of making it big1. Although some have managed to recover, others have yet to really learn their lesson in financial mistakes. Instead of following in the footsteps of these celebrities, let’s highlight some of their biggest blunders and hopefully learn from their mistakes. Here are ten of the biggest financial “riches to rags” stories of Hollywood.
Photo by Wikipedia
Known for sitting alongside Johnny Carson on the Tonight Show, Ed McMahon fell victim to the stock crash in 20082. Well into his senior age, he defaulted on a home loan for his four million dollar mansion in Beverly Hills.
When asked about how he lost all his money, in interview with Larry King, he stated: “Well, if you spend more money than you make, you know what happens. And it can happen. You know, a couple of divorces thrown in, a few things like that. And, you know, things happen. You want everything to be perfect, but that combination of the economy, I have a little injury, I have a situation. And it all came together.”
According to those that know the man, McMahon’s biggest downfall was his big heart3. He was known for tipping well at restaurants or hotels, and helped launch his third wife’s clothing company, which eventually fizzled out. All these incidents, coupled with a broken neck from an accident that occurred in 2007, and McMahon was officially living outside of his means. Sadly, despite ongoing legal battles against a hospital that treated his injuries, Ed McMahon passed away in 2009 after being hospitalized for pneumonia. He was 86 years old.
Smokey and the Bandit star, Burt Reynolds, is a happy spender. On his private villa, which he named Valhalla, Reynolds displayed car replicas, movie memorabilia, and stacks upon stacks of his favorite books in his private study.
Yet, his life since the early 90’s has been fraught with financial struggles, primarily in relation to his multiple homes and his divorce with actress Loni Anderson.
Divorce lawyers, frivolous spending, lack of incoming acting gigs, and alimony all led to a 1996 lawsuit from CBS. Reynolds had taken out a loan, and was failing to pay it back. He eventually filed for Chapter 11 bankruptcy.
His Hobe Sound, Florida, home, Valhalla, was foreclosed on in 2011 after the bank claimed that he owed them $1.2 million. A few years later, in 2014, his 153 acre rural property in Palm Beach, Florida, was rezoned for public use as he continued to pay off his debtors. He has since auctioned off most of his memorabilia to help pay off his debts; both to the creditors and Loni Anderson.
In the end, Burt admits that his biggest cause for expense was women. In a Vanity Fair interview in 20154, the actor stated: “I’ve lost more money than is possible because I just haven’t watched it,” he says. “I’ve still done well in terms of owning property and things like that. But I haven’t been somebody who’s been smart about his money. There are a couple of actors who are quite brilliant with the way they’ve handled their money.” He smiles. “But they’re not very good actors.”
As is common with the young and famous, the spotlight hit Britney Spears hard and fast. Her famous — and almost understandable — meltdown from 2007 exposed her tumultuous spending habits and lack of control over her finances5. Everything was in disarray, and she temporarily lost custody of her two sons.
Due to her mental health struggles and addiction problems, the courts put her father in charge of her finances indefinitely in 2008. To this day, James Spears is the conservator of her finances, but Britney is as healthy as ever and doing just fine living off the checks she receives from her music contract in the Las Vegas hotel, Planet Hollywood.
Photo by Wikipedia
Baseball fans might be familiar with the tragic story of Lenny Dykstra. The center-fielder played for the NY Mets and Philadelphia Phillies throughout the late 80’s and into the mid-90’s, and suffered from a slew of bad financial decisions and family drama6.
After experiencing some injuries near the end of his baseball career, Dykstra left the game and began a series of business ventures. He created a partnership with his brother, and started a car wash in Simi Valley, CA, which he later sold in 2007. Between his retirement and subsequent financial downfall, Lenny also came to create “Team Dykstra Quick Lube Centers,” a ConocoPhillips fueling station chain, and a real estate development company.
Despite their partnership, the brother’s business pact with the car war was later severed due to a debt of $4 million that Lenny owed for the creation of the car washing business. In the dust of the fight with his brother, Kevin Dykstra, and subsequent selling of his shares of the business, Lenny was found trapped in another legal dispute: this time about substance abuse during his baseball days.
He denied everything, but his brother ousted his frequent drug and steroid use to the authorities. It seemed Lenny’s ego was too big to hide.
Kevin Drystka told the New York Times7: “Lenny’s whole thing was that he always wanted to be bigger, in every way. After baseball, he was just never happy with what he had. He had a $4 million house, but he had to get Gretzky’s house. He had nice cars, but he had to have a Maybach. He flew first class, but he wanted his own private jet.”
As his life started to unravel, Lenny took his career to the stock market, appearing as a savant on the “Mad Money” CNBC show with Jim Cramer. Despite his success and prowess at navigating the stock market, his life was already leading downhill too fast.
It appeared his financial troubles all stemmed from his impulsive purchases. A private jet, the purchase of a “glossy” magazine print that offered financial advice to professional athletes, all eventually led to his bankruptcy. His wallet couldn’t keep up with his desired lifestyle.
Throughout the years, Lenny also appeared to be stealing his family’s credit card information to keep up with his high-class lifestyle. No wonder his brother eventually turned on him. However, his treachery reached outside his family, too8. “According to court records and press reports, Dykstra and confederates had obtained automobiles from various car dealerships using falsified bank statements and stolen identities.”
“Dykstra, 48, faces federal charges of bankruptcy fraud and obstruction of justice, along with state charges of identify theft, grand theft auto and possession of drugs. He has pleaded not guilty to all counts.” This was reported in mid 20117, and in early 2012, he was found guilty by the courts. However, despite his 3 year sentence, he was out within 6 months and has since taken regular drug tests and passed through probation.
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Mike Tyson was a world heavyweight champion and worth $300 million at the height of his career9 in boxing. However, he was also a heavy spender.
After his career options dried up in 1997 (after the legendary fight against Evander Holyfield, where Holyfield’s ear was bitten off), Tyson’s ridiculous spending habits continued. With little to no money coming in, he didn’t last long. He still managed to spend far beyond his means. He purchased expensive jewelry and merchandise, but never actually paid for it. Vendors and salesmen assumed he would be good on his money, simply because of his name.
By 2003, Tyson was in a world of financial trouble9 with multiple parties, including the government and was forced to declare bankruptcy. The New York Times reported.10: “In 2003, Tyson owed money to nearly everyone. The IRS demanded $13.4 million, British tax authorities were owed $4 million. Seven law firms were owned more than $600,000 and the treasuries of Georgia and Michigan were owed $317,201 by Mike Tyson Enterprises.”
In 2004, Tyson sold his million dollar home (which has had a string of buyers that later end up in bankruptcy; maybe it’s cursed?) and moved to Arizona. Since his bankruptcy in 2003, the star has devoted his life to his religion, Islam, and is surviving merely off of his image in pop culture.
Some of the more ridiculous things Tyson purchased includes: over $4 million in cars, $2 million on a golden bathtub for his first wife, and $140,000 on two white bengal cubs11.
Nicole Eggert and Pamela Anderson
Baywatch costars, Nicole Eggert and Pamela Anderson, share similar financial woes.
Nicole Eggert, for one, was faced with a massive debt of $850,000 due to accruing unpaid loans. After she filed bankruptcy in 2014, she was able to sell her home to pay off the debt and have a more fresh start since leaving show business12. She now has an ice cream shop in LA that she opened with her daughters.
Pamela Anderson on the other hand, who is also known for her stint with Playboy, is suffering from her own hefty spending habits. Her overall net worth is strikingly low compared to what many people would expect; at only $5 million dollars.
In 2010, she was hit with an income tax charge of almost $500,000, and struggled to pay it back13. Although she has yet to file for bankruptcy, her rich and famous lifestyle is struggling to keep up with her incoming checks.
Photo by Wikipedia
Musician and activist, Willie Nelson, has always been vocal about his disdain for the government. However, that came to a head in 1990.
Known for his country and folk-style tunes, no one would have suspected that the downhome country man was slighting the federal government when it came time to do his taxes. Yet year after year, he failed to file properly, and by 1990, the man had garnered a debt of over $16 million in back taxes. The trick? He was claiming a deductible for a tax shelter investment that was later found to be illegal14.
After a federal raid was performed on his home, taking and auctioning off all his belonging (except for his favorite guitar, Trigger), Willie decided to make a deal with the IRS to finalize all the debt that remained after the auction. As Forbes reported in 201314, “the two sides reached a rather unusual compromise: Nelson would release a compilation album and would share the proceeds with IRS. The album, called The IRS Tapes: Who’ll Buy My Memories?15, was written completely by Nelson and recorded with – what else – Nelson’s trusty guitar, Trigger. It was the first (and maybe only) record album ever released under a strict revenue-sharing agreement [with the] IRS. The album, which could be purchased by dialing (800) IRS-TAPE, retailed for $19.95.”
This unique deal, coupled with a lawsuit against Price Waterhouse, helped dig Nelson out of his financial hole. Now he’s just as successful (and skeptical) as ever.
Photo by Flickr
Master of the early 90’s rapping game, MC Hammer is a grand-master at spending money.
He hit fame around 1991 with his first rap album, Please Hammer, Don’t Hurt ‘Em. At the time, he was making close to $33 million a year, and that didn’t last long16.
After building a $30 million mansion from the ground up, buying and housing 19 purebred Thoroughbred horses, and hiring a staff of 200 people, Hammer’s bank was hurting. To top it off, he was sued from multiple parties for ripping off their music in his hit album.
In 1996, Hammer was forced to file for bankruptcy and sell his home. Since then, he has found a new home in the startup business industry and is doing well, but let his lesson for sudden spending be a warning to anyone that suddenly comes into money: be smart.
Photo of the haunted LaLaurie Mansion by Wikipedia
Nicolas Cage is one big, and notorious, spender in Hollywood. Over the height of his career, from 1996 to 2011, the man owned: 15 estates around the world, two private bohemian islands, two albino cobra snakes, a shark and a crocodile, two European castles, a famed haunted house in New Orleans (pictured above), a tombstone in New Orleans, and a few dinosaur skulls17. The man had money, and boy was he willing to spend it.
Unfortunately for Cage, the superstar met financial ruin in 2009. He blamed his sudden bankruptcy on his financial manager, but many others said it was his spending habits17 that led him down the road to ruin.
The IRS slapped him with over $6 million in back taxes, which led Cage to suing his money manager for fraud and poor financial handling.
Despite having to sell many of his belongings, Cage is now doing well financially. According to the latest Hollywood Gossip18, Cage enjoys a humble living in Las Vegas with his wife and son, no longer living it up in mansions around the world.
The Financial Lessons
Thanks to these celebrities, everyday folk can learn a bit about the do’s and don’t’s of handling money. Here are the four takeaways from these ten celebs:
- Spend within your means
- Don’t forget to file your taxes
- Don’t try to outsmart the IRS
- Be careful about who does your finances
6. http://time.com/money/3983997/famous-athletes-bankruptcy/ <
Image source: https://www.flickr.com/
Katie McBeth is a researcher and writer out of Boise, ID, with experience in marketing for small businesses and management. Her favorite subject of study is millennials, and she has been featured on Fortune Magazine and the Quiet Revolution. She researches SEO strategies during the day, and freelances at night. You can follow her writing adventures on Instagram or Twitter: @ktmcbeth
This post was updated May 10, 2017. It was originally published February 16, 2017.