Weekly Thoughts: Celebrity ROI and Donahoe Reflections
Here are two things that caught our eye this week:
As investors, we’re always keen to apply the lens of returns to many facets of life, whether it be global markets, individual companies, restaurants, or exercise regimes. As such, we were interested to read Forbes’ annual ranking of the most overpaid actors, which attempts to analyze return on investment of movie stars by looking at their pay relative to box office earnings, the results of which yield some interesting insights. For instance, Johnny Depp is statistically the most overvalued actor, with his last three movies returning only $2.80 at the box office for each dollar paid to him. Will Smith ranks as the second most overvalued actor, returning $5.00 at the box office for every dollar earned, followed by Channing Tatum ($6.00), Will Ferrell ($6.50), George Clooney ($6.70), and Adam Sandler ($7.60). As Forbes notes, “These returns might sound good to a bond or stock investors, but Hollywood accounting means they are worse than they appear. Considering studios can keep as little as 50% of global box office, once exhibitors have been paid, and that production budgets do not include the hefty costs of marketing, actor pay can quickly seem disproportionate.”
While we can see the appeal of hiring a high-profile actor for a leading role in the hopes that brand power will broaden audience appeal and therefore box office revenue, the hefty associated price tag means that the film must be a hit just to break even. Based on the data, it seems that the perceived safe bet of going with an established actor actually decreases the film’s margin of safety from a profitability standpoint. From a business operations perspective, this is similar to the notion of growing revenue by bringing on marquee accounts at the expense of bottom line profitability. While at times this type of growth can be seductive, we must always remind ourselves that at the end of the day, nobody cares what happens above the line.
We’ve often observed that many highly accomplished individuals tend to present their personal backstories without any commentary regarding the uncertainties and messiness they experienced along the way. We find these stories of inevitable success to be frustrating because we believe that one’s ability to muddle through the varied challenges associated with everyday life is a big contributor toward the achievement of long-term self-actualization. As such, we were happy to listen to a lecture delivered by retired eBay CEO John Donahoe at the Stanford Graduate School of Business that offered some refreshing insights into the realities and common misconceptions associated with career trajectories.
In the talk, Donahoe shared insight into times when he felt out of his depth (his first couple years at consulting firm Bain & Co), overloaded (he had his first child when he was entering his first term finals at business school), and conflicted (he and his wife have consistently struggled with how to optimize for dual careers). As Donahoe noted, “There’s no perfectly woven theme. Hindsight is really easy. There wasn’t one moment during the last 30 years where I was certain I was doing the right thing. There wasn’t one moment when I was in the middle of it that I felt, ‘Great, I’ve got this all figured out.’ I still don’t.”
Upon reflection, Donahoe noted that a broader focus on building not just a great career but a great life — maintaining friendships, exercising regularly, investing in community — are what allowed him to handle the inevitable challenges he faced along the way, noting “if you want to be world-class, you have to invest in yourself.” At Chenmark, where the personal and professional are interwoven in countless ways, we try to internalize Donahoe’s commentary continually and hope that more business leaders are compelled to share similar stories of struggle alongside success.
Have a great week,
Your Chenmark Capital Team