First hip-hop billionaire did well on his own but the real sting in this 50-50 California split will be what happens to yet another huge Silicon Valley payday.
Dr. Dre does not seem to be fighting his wife of 24 years, even if it means he stands to hand over as much as $800 million.
After all, she says they’ve discovered irreconcilable differences in this pandemic age of forced togetherness. Maybe he wants out too.
And while paying a big settlement hurts, it’s always less bitter to split a huge fortune than haggle over percentage points on a small one.
Dre did well in the music business. But the real bulk of his fortune came from Silicon Valley. Given the choice, I think he’d rather give Nicole the cash and even the stock if it means keeping his label.
Complications and absolute simplicity
Dre’s financial situation is a lot more complicated than basic “net worth” numbers suggest.
The bulk of his fortune comes from the headphones and streaming music company he built with Jimmy Iovine. When Apple paid $2.6 billion in cash to buy it out, he was rich.
However, the specific size of Dre’s partnership stake remains vague. We know he and Iovine kept about 55% of the company after giving their parent label Universal a 14% taste and selling another 31% to the private equity Carlyle Group.
From the way they talk, I think the founders were more or less equal partners, or at least close enough to equal that it didn’t really matter.
That means Dre probably got about $700 million in cash. But he was also entitled to a similar slice of a pool of 5.1 million shares of Apple stock earmarked to keep “certain executives” motivated during the process of building out what is now Apple Music.
That stock was only worth $400 million six years ago. Now, there’s roughly $1 billion in equity here. Cut it in half and add dividends and it comes close to doubling Dre’s initial cash payout on the deal.
Granted, we don’t know if Dre stuck around to vest. He might’ve gotten so bored that showing up for a few years just wasn’t worth letting those massive golden handcuffs weigh him down.
But what I know about Apple makes me think that if he was unhappy, they would have just handed him the stock to buy his silence. Keeping everyone smiling makes the trillion-dollar company tick.
Of course, Dre might’ve sold out once he got the shares. Merely a $500 million stake doesn’t even move the SEC needle here and his role was nebulous enough to dodge formal “insider” status.
In that scenario, he’s got cash instead of stock. Either way, factor in his label and six years of appreciation on the $700 million and it isn’t outside the realm of possibility to say he’s now worth $1.5 billion.
California divorce rules, no prenup applicable
Or rather, he and Nicole are collectively worth that much. They married in 1996, before streaming music was even a rumor.
People say there is no prenuptial agreement. They went all in at the beginning and then there was no easy way for one partner to lock the other out as new ventures evolved.
He could fight it. But I think he’d much rather take this one easy.
Stock and cash are nice, but beyond a certain point the numbers become arbitrary, at least from a psychological point of view.
Six years ago, Dre was maybe worth $120 million factoring out the company he ultimately sold. Most of that wealth was tied up in his record label.
He can sell stock. He can write a big check. But while Nicole married him a few months after he started the label, she was around for nearly all of its success.
She could make a stink around demanding half of that company. If a divorce court were to agree, co-ownership of a working venture is rarely conducive to success when the parties have already gotten tired of each other in their personal lives.
Odds are good that he’d end up paying at least $100 in cash anyway to buy her out and avoid that scenario. Valuations would probably get inflated because he loves it so much and she knows it.
Giving her all the liquid assets she asks for keeps the label safe. That’s the real goal here.
The Silicon Valley payday
He just turned 55. Even if he only keeps $800 million out of a $1.5 billion marital fortune, he can live extremely well on minimal dividends and bond coupons.
Could he live twice as well with the whole thing? Sure. But psychologically, the difference between $8 million a year in income and $15 million isn’t that vast.
The hard part is getting to that friction-free income stream. He’s already there, even if he splits it and he and Nicole build separate households.
Every decision beyond that point is all about passion. His passion is in the label, not some abstract pile of Apple stock.
It’s a classic Silicon Valley moral. Look at Steve Jobs, obsessed with running Apple for $1 a year while a mountain of Disney shares sat ignored and generating dividends.
Disney was just for cash. Apple was for love. With Dre, Apple is the dividend stream and producing hip hop is the real passion play.
Or look at Jeff Bezos, who is still a Silicon Valley divorce on a far more massive scale. Splitting the stock with his ex-wife was only all right if he maintained the voting rights and the side projects like the rocket company.
Amazon and rockets are his passion. Beyond a certain level of wealth funded by selling about $1 billion in shares a year, he doesn’t care about the money.
That’s the difference between bona fide billionaires, many of whom are born in Silicon Valley, and garden grade celebrities. Celebrity pays well. Building a business is where real money happens.
And when you have that real money, you don’t quibble over a few million dollars here and there. That’s where Dre is.
Why did Nicole decide now is the time to file the papers? They’ve been trapped together for months in quarantine. We’ll probably see a lot of high-net-worth divorces play out later this year.
I only hope they’re as cordial as this one seems to be.