Obama $65M Book Deal Juices Otherwise Dry Presidential Estate Plan

Obama $65M Book Deal Juices Otherwise Dry Presidential Estate Plan

After the White House, the really big paychecks come from publishing and public appearances. But unless the Obamas have been concealing a lot of both cash and ambition, they’re going to need a lot of time to catch up with the Bushes and Clintons alike.
Barack and Michelle Obama left the White House with matching his-and-hers book deals worth up to $65 million, which is the kind of windfall that should have every financial planner in the free world angling for a referral.
After all, even with a Nobel Prize, two law degrees and a decade in politics, until now the Obamas would have a hard time buying a typical Manhattan apartment -- at least on paper.
And with massive precedents to follow, that $65 million is going to need plenty of professional help if his posterity is going to measure up.
From “professional” to the big leagues
The net worth numbers the Obamas have reported over the years are granular enough that those who squint hard enough can spot the kinds of mistakes that academics and other self-made professionals tend to make.
Unless there’s absolutely diabolical effort going on behind the scenes, the disclosures paint a picture of a family who’s doing better than all right but still manages to spend practically everything it takes in.
That’s why a book deal of this magnitude is more of a lottery win than a natural progression from the career so far. All they need to do is deliver the manuscripts and the publisher bears the risk of selling enough copies to break even.
In theory, a mega-bestseller or two could earn out the advance and even earn additional royalties, but the bar is set mighty high if either member of the couple wants to get even a seven-figure follow-up offer.
After all, we live in a world where the typical bestseller sell maybe 300,000 copies in hardcover, which maybe justifies an advance of $4 million on the generous side. The Obamas may need to move 2 million copies apiece -- which the ex-president has proved he can do.
Maybe they each write a book every two years for the next decade or so. They’re still not going to sustain a career at that level.
What this really resembles is a classic high-powered CEO payout, only instead of agreeing to “consult” for a few years, the lump sum is structured as compensation for a presidential memoir.
And speaking of memoirs, the Obamas are going to have to start from statistically close to zero if they want a presidential library like the ones their predecessors’ foundations built.
That’s where the numbers need to add up to hedge fund master of the universe levels. Otherwise, I suspect the Obamas could retire comfortably with that $65 million nest egg plus a $200,000 government pension and the miscellaneous accounts they’ve amassed.
But the library could cost $1 billion to endow. The last time the foundation filed its numbers, it only had $2 million in net assets and the trend was actually going in the wrong direction.
To grow the balance sheet by a factor of 500 fast enough to break ground, Obama in particular is going to need to turn the charm back on and start raising funds.
It’s a staggering goal. Just to match the George W. Bush Foundation’s endowment, he’s got to bring in $500 million upfront -- and in a non-election year.
Even after that point, he’s got to keep shaking hands for checks. The Bush library took in a gross $63 million in grants and contributions last year and even started charging admission fees, but with $49 million in annual expenses that flow of cash can’t stop.
Going back a little farther in history, the libraries generally get more modest. The Clinton Foundation is of course in a class by itself, growing out of the initial library endowment into a $2 billion family humanitarian organization.
But at this point, the foundations supporting the George H.W. Bush and Ronald Reagan libraries are roughly breaking even with $200-$300 million on the books. These are numbers that could run sustainably with a little outside funding.
Either way, big speeches and other public appearances have turned into the conventional route to big funding. The Obamas may go that route.
Back-of-the-envelope calculations have indicated that the Clintons booked an average of $10 million a year on the speaking circuit. That doesn’t seem like Obama’s style, but it’s hard to predict.
After all, the Clintons practically treated their publishing as a tax shelter, giving away all royalties from the books while reaping the PR rewards.
The Obamas might reverse that strategy, building significant wealth on the publishing while treating the PR as a necessary marketing evil.
Whatever gets the library built is probably good in any event.
Personal needs become a rounding error
Meanwhile, the $65 million infusion transforms the family finances even if it barely makes a dent in their institutional commitment to history.
We’re looking at the first First Family to really take advantage of all the tax-advantaged programs they tried to promote to the American people. They weren’t planning a billion-dollar legacy as much as looking to stretch their retirement funds and the girls’ college accounts.
The most inflated estimates of their net worth “only” came to $6-9 million during the White House years. Taking a closer look at last year’s disclosure, I wouldn’t be surprised if they were really worth $2 million or less.
Granted, all of this is going from the public numbers, so if you’re convinced they’ve diabolically hidden massive amounts of money off the books, you’ll find the next few paragraphs extremely boring.
But at a salary of $400,000 a year and with a few good publishing deals on the books, it takes time to amass even a few million dollars.
Most of that money is in distinctly middle-class vehicles: at most $1.5 million in his-and-her IRAs, a small Illinois state pension, big enough college savings accounts to pay the girls’ way through Harvard or the school of their choice.
He kept just about all of the family’s other reportable assets in actual cash. There’s a big interest checking account in his name, a few smaller his-and-her household accounts and that’s really it.
That cash allocation has been a disaster for the family’s ability to accumulate real wealth. He could be sitting on a half million dollars earning less than 1% a year.
I’ve seen similar behavior among even Nobel laureate economists and other academics. The brain trust can be shockingly risk averse, preferring to squirrel away assets instead of invest in anything more complicated than bonds.
In fact, Obama’s disclosures reveal that he’s been burned by risk aversion. He seems to have parked his Nobel Peace Prize and other income in Treasury bills for most of his presidency, but even in the good years near-zero interest rates ensured that those "investments" earned practically nothing.
Lately he started selling that paper at a loss in an apparent rush to catch up on his retirement savings and buy a $5 million D.C. house. He missed the entire stock market rebound in the process.
He’ll need about $200,000 a year to fully replace his presidential salary. On that basis, he needs to go back to work if the family retirement accounts are going cover the gap.
Of course he’s still only 55 and has at least a literary career to fall back on. He could always go back to teaching, law, you name it.
But if he wants the girls to have a personal legacy, he really needs a good advisor to make it happen. Otherwise, the library may be the only lasting inheritance future generations will have to remember him by.

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