"Rich" Is Not The Same As "Wealthy"

Hello! This is Deep Pockets #21.

Last week, I unveiled my patented 4-step strategy for holding on to a huge fortune:

• Step 1: Make a huge fortune.

• Step 2: Get married, have kids, enjoy life, etc.

• Step 3: Hire an excellent financial advisor.

• Step 4: DO NOT FALL IN LOVE WITH A STRIPPER.

Unfortunately, several “Deep Pockets” readers complained that “Step 1” skips a few steps. As one reader put it:

“I need to know HOW to make a huge fortune before I learn how to KEEP it!”

Fair enough.

Today, I’m going to tell you how to make a huge fortune. It’s actually a very simple strategy. And while I can’t guarantee following this strategy will earn you a huge fortune, I can guarantee that you won’t ever earn a huge fortune without it.

To illustrate the strategy, I’m going to tell you a story about Oprah Winfrey.

Have you ever noticed that Oprah’s daytime TV host competitors from the 1980s and 1990s (Jerry Springer, Phil Donahue, Sally Jessy Raphael… etc.) got rich, but not EXTREMELY OPRAH rich? Her contemporaries each made fortunes in the tens of millions of dollars. Today, Oprah Winfrey’s net worth is $4 billion.

What’s the difference? Oprah followed the simple strategy.

DEEP DIVE: How Oprah Went From Employee To Billionaire

Orpah Gail Winfrey was born in January 1954. Note that her name in the previous sentence was not mispelled. Her birth name is indeed “Orpah,” which was a reference to a biblical figure from the Book of Ruth in the Hebrew Bible. As a child her name was constantly mispronounced and misspelled as “Oprah,” so she eventually just went with it.

Oprah’s television career started when she was just 19, at a CBS station in Nashville. When she was 22, in 1976, she was recruited to be the co-anchor of the evening news for an ABC station in Baltimore. She did not get along with her co-anchor and was soon relegated to hosting her own show on the weekends.

Inspired by the success of Phil Donahue’s daytime talk show, in 1978, ABC Baltimore gave Oprah a morning show called “People Are Talking.” She initially didn’t want the job because daytime was considered a step down from the evening news, but mornings quickly proved to be the perfect platform for Oprah. She had earnest conversations about everything from crime to a new recipe for muffins. She listened and emphasized with guests and audience members.

Amazingly, by 1980, Oprah was not only #1 among the local Baltimore daytime shows, but she was actually beating Phil Donahue’s nationally syndicated show in the market.

In 1983, ABC Chicago affiliate station WLS lost its host for a show called “A.M. Chicago.” One of the producers at WLS was a woman named Debra “Debbie” Di Maio. Debbie had recently been hired away from the ABC Baltimore affiliate. She told her boss, station manager Dennis Swanson, that they absolutely had to hire her old Baltimore colleague, Oprah Winfrey. Oprah did a test show. Dennis Swanson was blown away.

A 4-year contract was drawn up. The contract paid Oprah $220,000 in her first year. That’s the same as making around $700,000 today after adjusting for inflation. If the show was a success, there was a plan to syndicate it nationally and her salary would increase by $30,000 to $250,000.

The Oprah-led version of “A.M. Chicago” premiered on January 2, 1984. Within a month, the show had gone from last to first place in the local Chicago ratings.

As you can imagine, Oprah was ecstatic. How could she not be? She had come from wretched poverty and pulled herself up by the bootstraps to earn an enormous salary and was on her way to becoming a national TV star. The American dream come true!

Wealthy Vs. Rich

Not long after the contract was signed, Oprah sensed something fishy was up. The biggest red flag was that soon after signing the contract, three separate ABC executives stopped by the studio to tell her how easy her agent was to work with and how great the new contract was. She was not thrilled by the image of her agent and the executives he was supposed to be drilling getting along so swimmingly. Furthermore, in her entire career to this point, no executive had ever told her she had a good deal. Quite the opposite. After all previous contracts were signed, executives would spend months bemoaning how much more money they now had to pay her.

Oprah mentioned her fishy feeling to fellow Chicago TV personality, film critic Roger Ebert. Roger confirmed the deal was bad. First and foremost, Roger pointed out that if her show was ever nationally syndicated, ABC’s profits would increase 40X, while her salary would stay fixed at $250k a year.

Frustrated, Oprah reached out to Bill Cosby about the situation. Bill was especially struck by her description of the agent and network getting along so well. In his view, the agent and executives should hate each other. Contract negotiations should be knock-down, drag-out brawls.

Cosby explained:

"When they see my agent coming down hallways at TV studios, networks, anywhere, people get scared. My agent is a piranha. You need a piranha. I know a guy. He’ll explain to you why I’m wealthy. They’re just offering to make you rich.”

Oprah immediately fired her longtime agent. In his place, she hired a local entertainment lawyer who had a reputation for being a “piranha.” His name was Jeffrey Jacobs.

Jacobs looked at the contract and bluntly reported back:

"This is a slave contract. Slaves work for a fixed dollar. They're willing to bank on a national show. This contract is for 4 years, totaling $1 million, an effort to make you a highly paid slave.”

He then told Oprah one of the best quotes of all time if you’re looking to make a huge fortune:

“Don’t be talent for hire. Own yourself. Don’t take a salary. Take a piece of the action.” 

Write that down 👆

Jacobs went into ABC and told them the contract was a pile of crap. He demanded to renegotiate right away.

This was a huge risk. Think about it. Oprah was a black female regional TV host in the 1980s. She wasn't Bill Cosby-famous. Nothing was stopping ABC from simply firing her on the spot. Even if they had to pay out her full contract, $250k a year was peanuts.

Salary Vs. Ownership

She wasn’t fired. In fact, “A.M. Chicago” was already so popular that syndication was already in the works through a production company called King World Productions, the same company that produced and syndicated “Jeopardy” and “Wheel of Fortune.”

Jeffrey Jacobs had another bomb to drop. And this bomb is what would ultimately make Oprah a multi-billionaire.

Oprah didn't merely want a salary boost, she wanted ownership. She still wanted to work with ABC/King World, but the roles would be reversed. She would cover production costs, and ABC/King World would be paid a fee for providing distribution and marketing.

As these negotiations were going on, “A.M. Chicago” kept smashing every ratings indicator. At one point, literally HALF of every household in the greater Chicago area that owned a television tuned in to her show every morning. An unprecedented audience.

Oprah’s star had also been recently boosted thanks to her Academy Award and Golden Globe nominatated performance in the Steven Spielberg film adaptation of “The Color Purple.” Needless to say, she was in the power position.

ABC and King World had no choice but to accept her demands.

…..

As a result, Oprah switched from being an employee to being an owner.

Write that down 👆

……

But wait. In 1986, Oprah wasn’t rich enough to self-fund a nationally syndicated television show. She was a 32-year-old daytime TV star whose highest salary up to this point was $250,000 per year. Where was she going to find tens of millions of dollars that would be needed to a) build a production studio and b) film a season of television?

It was time to get creative.

Oprah and Jeffrey raised the money like a startup pitching venture capital investors. Their startup was called Harpo Inc. (“Harpo” is her name spelled backward), and the product was “The Oprah Winfrey Show.”

But unlike most startups pitching VCs, they didn’t offer equity in exchange for an investment. Instead, they offered up the show’s first three years of estimated future profits as collateral. If successful, that would amount to a projected $30 million per year for the first three years. For the rest of time, Harpo Inc. would be owned 90% by Oprah Winfrey and 10% by Jeffrey Jacobs.

Their plan worked. On September 8, 1986, “The Oprah Winfrey Show” debuted from a rented studio in Chicago.

It was syndicated to 120 channels around the US, reaching a daily audience of 10 million people. In its first year, the show grossed $125 million. Harpo’s share of that first year’s profits was $30 million. Right on target.

Debbie Di Maio, the woman who originally suggested Oprah for the job, served as one of her executive producers through 1994. Dennis Swanson, the WLS station manager who put it all together, did not stay on the ride for very long. In 1986, he became the president of ABC Sports. During his time at ABC, Dennis came up with the idea of staggering the summer and winter Olympics by two years (instead of happening all at once) to create two major television events. He helped create the college football Bowl Championship Series, and he hired Al Michaels to be the play-by-play voice of "Monday Night Football.” Later in his career, he also discovered and syndicated “Judge Judy.” He retired in 2016. When Oprah was honored with a Golden Globe Lifetime Achievement Award in 2018, Dennis Swanson was the first person she thanked, before Quincy Jones, Steven Spielberg, Gail King, and her longtime partner Stedman Graham (in that order).

The theme of the very first episode of “The Oprah Winfrey Show” was “How to Marry the Man or Woman of Your Choice.”

That wasn’t the original plan. King World and ABC desperately wanted to make a splash with a big star as the first guest. The biggest TV star in the world at the time was Don Johnson, thanks to the series “Miami Vice.” After Don declined multiple pleas to appear on the show, Oprah decided to follow her gut and… “Do what we do best, and that is a show about and with everyday people.”

You can see the first few minutes of that first show at the 1-minute mark in the video below:

Meanwhile, Oprah and Jeffrey continued working behind the scenes to expand Harpo Productions and to physically construct Harpo Studios. On January 15, 1990, the first episode of “The Oprah Winfrey Show” was taped at Harpo Studios:

Oprah would go on to film thousands of episodes until the final taping in 2011. Over 25 seasons between 1986 and 2011, The Oprah Winfrey Show aired 4,561 episodes. Her shows typically drew a daily audience of 10-15 million viewers. For some episodes as many as 20 million people tuned in live. It was BY FAR the highest-rated daytime TV program in the US for its entire run.

In 1988, Oprah aired an episode titled “Diet Dreams,” where she discussed her journey to lose over 60 pounds. An astonishing 44 million people tuned in. This was before DVRs ad streaming. The population of the United States was 244 million in 1988. That means around 20% of the entire US population watched that single episode.

In 1993, Oprah conducted an interview with Michael Jackson at his Neverland ranch. An average of 60 million people tuned in concurrently and 90 million people in total watched. It still stands as the most-watched television interview in history. If you strip out Super Bowls, it’s one of the 10 most watched TV broadcasts of all time.

More Ownership

Oprah and Jeffery were not done acquiring ownership stakes for their empire.

In 1999, they negotiated a new deal where Harpo was given an equity stake in King World Productions. Later that same year, CBS bought King World for $2.5 billion. With the deal, Oprah made $100 million.

Jeffrey and Oprah also negotiated a deal with ABC that included books, movie productions, a magazine, and most importantly, the right to produce the shows that appeared before and after her own show. All production took place at her 3.5-acre Harpo Studios campus in Chicago. For better or worse, this deal would soon launch the careers of Dr. Phil, Dr. Oz, and Rachael Ray.

Oprah received a chunk of ABC stock in that deal. That stake became Disney shares in a later acquisition.

In 1996, Oprah launched her famous book club. Over the 15 seasons when “The Oprah Book Club” was part of the show, she recommended 70 books. Those 70 books went on to sell 55 million copies after they were recommended by Oprah.

In April 2000, Oprah and Hearst Communications launched “O, The Oprah Magazine.” Within a few months, the circulation was 2.7 million. O Magazine ended print publications in December 2020.

Multi-Billionaire

When you add it all up, by the late 1990s, Oprah was BY FAR the highest-paid television personality in the world, personally earning north of $300 million per year.

By 2003, she had officially crossed into billionaire status. She was America’s first female black billionaire and one of the first self-made female billionaires in world history.

After the conclusion of “The Oprah Winfrey Show” in 2011, she launched The Oprah Winfrey Network, which was appropriately abbreviated as “OWN.” The network was a 50/50 joint venture between Discovery and Harpo. In 2017, Discovery paid $70 million to up its stake in the network to 73%. In 2020, Discovery paid $35 million to up its stake to 95%.

Over the years, Oprah has acquired $200 million worth of real estate around the country. She owns 63 acres in Montecito on two different properties. One of the properties features a palatial 23,000-square-foot palace which she bought for $50 million in 2001. She owns an estate in Telluride, Colorado, and 13 properties in Maui. She has spent more than $60 million piecing together 900 acres of property in Maui.

Jeffrey Jacobs spent 18 years as Oprah’s lawyer and business partner. He stepped aside in 2002 to focus on philanthropy. His 10% stake earned him hundreds of millions of dollars over the decades. Jeffrey and his wife moved to Montecito at the same time as Oprah. They listed their first Montecito home for sale in 2015 for $13 million. They continue to own several properties in the area and a lake property in Michigan. Today he is an adjunct professor of Entertainment Law at Loyola University Chicago School of Law.

Oprah’s $4 billion net worth makes her the third richest celebrity on the planet behind only George Lucas ($8 billion) and Steven Spielberg ($9.5 billion). What do George and Steven’s fortunes have in common with Oprah’s? Their multi-billon dollar fortunes ALSO would not exist if they had not transitioned from highly paid employees to OWNERS.

In conclusion, here is my new 5-part plan for MAKING a huge fortune and KEEPING it:

• Step 1: Stop being an employee and start being an owner.

• Step 2: Make a huge fortune off the thing you own.

• Step 3: Get married, have kids, enjoy life, etc.

• Step 4: Hire an excellent financial advisor.

• Step 5: DO NOT FALL IN LOVE WITH A STRIPPER.

FINAL WORD

On the next edition of “Deep Pockets,” we’re going to tell you the story of a hedge fund billionaire who got the coldest revenge ever on his former boss.

Thanks for reading! Deep Pockets is brand new, and I appreciate you being part of it. I want it to be the best newsletter you’ve ever read.

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