George Clooney's $1B Hobby Business Earned 400% A Year, How Did Your Clients Do?

Private equity still works harder than just about everything else. As long as enough cash keeps flowing, there’s nothing wrong with helping HNW families invest in themselves and reach for the truly spectacular returns.

The ultra-premium tequila bottler Diageo just agreed to pay up to $1 billion to take over barely even started out as a business proposition.

George Clooney and a couple of friends started Casamigos four years ago as the equivalent of a house wine label. They wanted something to drink that suited their tastes perfectly, and since nothing like that was on the market, they made it happen on their own.

Now that the hobby has turned into a craze, they’re walking away with a huge paycheck. It’s the kind of outcome all high-net-worth investors with a little adventure in their veins would envy.

And if your clients want that kind of thrill, it’s hard to argue that they can’t have it — provided, of course, that all the legal structures are in place and the venture fits into their overall financial framework.

Passion project done right

From a portfolio perspective, the risk/return profile here is almost textbook territory. Each of the original partners kicked in a $600,000 starting stake to get the company off the ground.

Clooney is easily worth $160-$220 million on the right day, so that initial seed investment wasn’t exactly going to break the bank if it went nowhere.

Putting 0.3% of his fortune on the tequila table cast the same shadow on his overall net worth as a more market-oriented investor swinging to 100% cash for a couple of weeks. The rest of his fortune would simply need to work a little harder to replace the lost income — or, horror of horrors, Clooney would need to earn back the cash.

We’re looking at a human talent that can command $25-$40 million to shoot a movie. He’d recover $600,000 extending his coffee commercial contract an extra month.

So on that level, the worst-case scenario for the tequila thing was that the “investment” burned through its cash without creating anything to show for it. Clooney would have needed a new hobby. Maybe the next year he’d buy a boat or get into racehorses.

But the point is that this was mad money. The partners didn’t need the cash. This wasn’t a way to stretch their savings — taking on risk to chase higher returns — and it wasn’t a mid-life career change either.

It was strictly a way to get better tequila into the house and have a little fun. As long as the venture met those hobby-oriented goals, it could have operated as a cost center forever, taking the occasional cash replenishment when it ran dry.

However, the partners are the kind of guys who throw themselves into their hobbies with at least the same level of dedication that they approach their work. Shortly after they started bottling for their own consumption, they were sending so many cases out of Mexico that they needed commercial export and distilling licenses.

At that point, the “hobby” was already as big as a lot of for-profit start-ups. Since they needed the commercial paperwork to operate at that scale, Clooney and company went for the gusto and turned the toy business into the real thing.

It took two years of talking about it and another two years to ramp up, but from that point, the cost center swung into a revenue center. That’s a great timeframe for letting these projects evolve.

If everyone’s still having a whole lot of fun at that point, maybe it’s worth exploring whether to take it to the next level. Otherwise, the hobby business stays a hobby.

Fringe benefits, huge returns

And it was fun.

Clooney got to flex his “most sophisticated man in the world” routine and sell the tequila as another must-have component of the global good life. 

All the partners got to run a company making a product they actually cared about. It probably felt mighty good. 

They still got all the perfect tequila they could drink or give away as gifts, but suddenly there were extra bottles available for sale to outsiders. 

Other entrepreneurs feel a lot of pressure to grow the business in order to pay the bills. Because these guys had already made their fortune elsewhere, they had the freedom to curate a world-class brand without looking too hard at the quarter-to-quarter bottom line.

As long as the venture wasn’t hemorrhaging cash, the motivations looked a lot like philanthropy. Don’t get me wrong, these guys enjoy money. They like to make it and they love to spend it. But this was their way to invest in their own taste and their own talents.

Think of all the high-net-worth families you know who prefer to invest in themselves instead of investing passively in other people’s management skills.

Sometimes that urge plays out in true hobby businesses — the art gallery that loses money year after year because family wealth subsidizes the rent, the design firm, the boutique manufacturer. 

The operation may never be 100% serious about turning a profit. But if your clients are 100% serious about earning a living, it’s probably easier and safer to start collecting fast food franchises.

Clooney and company were serious about tequila. That commitment turned a starting $600,000 stake into a quarter share of $1 billion in four short years.

That’s the power of sweat equity and talent. They turned a dream into something the big liquor companies will pay a big premium to take over. And they did it without sinking endless capital into vineyards and other “working” property.

Figure that $600,000 invested in the S&P 500 might have generated a 70% all-in-return over the last four volatile years. For clients who need that money to pay the bills, that’s not bad at all.

Beyond the bills, reaching for something more earned the tequila boys an internal rate of return north of 6X broad stock market performance. An advisor who talked them out of it back in 2013 would have cheated them out of a huge thrill — in Clooney’s case, that 0.3% allocation may generate a windfall that doubles his net worth.

Plus they got all the perfect tequila they could drink in the meantime. That’s the perfect outcome. 

Can your clients all get it? No. But if they have the cash to play with, maybe they’d welcome the chance to try. 

You can help. Structure the accounts right. Think about the long-term tax implications. Weigh in where you have the expertise, and at the end of the day, everyone’s had an adventure.


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