Hip-hop moguls livin' large and in charge

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In the '80s, it was the leveraged buyout; in the '90s, technology. But at the beginning of a new century, it's the selling of "cool" that is building empires and making moguls.

Russell Simmons, Sean "P. Diddy" Combs, Damon Dash, Jay-Z and Percy "Master P." Miller have yet to achieve the stupendous wealth of Bill Gates or Warren Buffett, but they're shaking up the business world and corporate America by making millions with what is surely the coolest widget around: hip-hop.

Hip-hop, which sprang out of America's black ghettos 30 years ago, was a fringe youth culture that realized itself in rap music, DJing, baggy street fashion, break-dancing and graffiti. The so-called fad never was expected to become America's pop culture, and it definitely wasn't supposed to yield magnates.

But in the past two decades a handful of visionary black entrepreneurs have been able to leverage the lifestyle into a multibillion-dollar industry that has spread to fashion, film, personal finance and even politics.

Today's hip-hop moguls are a cadre of high-profile, jetsetting businessmen who exercise considerable control of the hip-hop industry through myriad business ventures, political campaigns and philanthropic initiatives.

"Most entrepreneurs are singularly focused on one thing," top American designer Tommy Hilfiger said. "But these guys have pushed the boundaries of entrepreneurship when it comes to hip-hop."

Making it big

Indeed. Simmons, who started off as a promoter of rap concerts in the '70s, went on to co-found Def Jam Records in 1984 and later built Rush Communications, a multimillion-dollar media company that hawks the hip-hop lifestyle through clothes, sneakers, cell phones and an energy drink.

Combs, who throws million-d ollar bashes in the Hamptons every year, heads up Bad Boy Worldwide Entertainment Group, a $315 million company that houses an award-winning clothing line, a record label, restaurants, a film subsidiary and now a 3,800-square-foot retail store in Manhattan.

Damon Dash and rapper and producer Jay-Z preside over the $450 million Roc-a-Fella Records, which they cobbled together in nine years. Subsidiaries include a clothing line, a film division, a vodka distiller and a fledging magazine.

Although his original label went bankrupt, Master P., who started afresh with new label New No Limit Records, continues to oversee a clothing line and steers the music and television career of his superstar son, Lil' Romeo.

"It's not surprising that hip-hop has created moguls," said Shawn Prez, who heads up 32 Power Moves Inc., a Manhattan marketing company. "Hip-hop exudes competitiveness. It's about excess, bling and bravado."

To be sure. All of hip-hop's chief executives run their empires as if they are the eye in the proverbial storm. Their offices are often jammed with corporate executives, marketing agents, music artists, fashion experts and a swirl of personal assistants who attend to their every need. And as cell phones trill, public-relations people pitch and the television blares the latest video, they are usually hammering out another multimillion-dollar deal on the phone.

It wasn't always like that. For decades, black entrepreneurship in the entertainment industry has been spotty and short-lived. Stories of chart-topping black artists who died penniless because they didn't have the financial wherewithal to own their own product or the ability to compete with mainstream record labels are legion. Institutional racism, lack of resources and political clout were also at fault, industry experts said.

"But then a lot of those barriers came down," said Clarence Avant, who founded Sussex Records in the 1970s. "Simmons and these other guys also had what some people didn't have: great business acumen. They were able to take their businesses to another level."

The rise of hip-hop's chief executives occurred just as racial and class barriers in youth culture began to melt away. And an increasing global economy broke down similar divisions in the business world, experts said. "The only color anybody was thinking of was green," said Tru Pettigrew, who leads marketing company AMPDi.

Diversify and multiply

Simmons took his cues from self-made entertainment billionaire David Geffen, who built record labels and movie studios, opened nightclubs and produced Broadway musicals. Simmons realized early on that he would have to diversify away from the cyclical record industry and align himself with large corporate companies in order to branch out in other areas. He also made sure to cut deals in which he still had a sizable stake in the alliance and was able to reap fees or royalties.

"This," Geffen said, "is what made Simmons an excellent businessman. He didn't need hip-hop to build an empire. He could have done it with anything." Combs, Dash, Jay-Z and Miller would later emulate and build on Simmons' business strategies.

Such moves have put them and Simmons at the top of hip-hop's $10 billion industry, which includes CDs, DVDs and clothes, according to a Forbes magazine estimate. And others are scrambling on the bandwagon.

Moguls-in-the-making include rap star Nelly, who has his own clothing line, an energy drink and a stake in the NBA's Charlotte Bobcats. Pharrell Williams, half of the producing team the Neptunes and chief executive of the Star Trak recording label, has a new fashion line, Billionaire Boys Club, and a high-priced sneaker called Ice Cream. Eminem is putting out his own clothing line, Shady Ltd. Still, the pioneers continue to have considerable market. Here's a glimpse inside their businesses:

RUSSELL SIMMONS

Title: chief executive, also known as the "Godfather of Hip-Hop" Company: Rush Communications Annual Revenue: N/A Number of Employees: 75

Called the Godfather of Hip-Hop because of his pioneering efforts in building the hip-hop market. Simmons, 47, is one of the few CEOs who will answer tough business questions with spiritual answers or explain corporate strategy by referring to the Bhagavad Gita, a Hindu religious text.

"The universe says there is plenty of wealth to go around for everyone," Simmons says after being asked about the increasing competition to Rush Communications. Simmons performs a spiritual ritual every morning, practices yoga every day and is a vegan. But make no mistake, he's a hard-nosed businessman.

Simmons created the blueprint for hip-hop moguls, which is: partner with corporate giants, maintain partial ownership in the venture, get royalties or fees and expand into new markets.

Earlier this year, he sold Phat Fashions, his hip-hop clothing line, for $140 million to apparel giant Kellwood and continues to oversee the subsidiary as its chairman.

He later moved into television ("Def Comedy Jam"), theater ("Def Poetry Jam"), movie producing ("The Nutty Professor") and finance (the Rush Card and Baby Phat debit cards). He also puts out an energy drink, a line of snazzy pink cell phones and luxury watches. His philanthropic arm gives away millions each year and his Hip Hop Summit Network is registering voters in droves.

Simmons helped create the $10 billion hip-hop industry when he began promoting rap acts in the 1980s. In 1984, he partnered with Rick Rubin, a rich white college student who was running a record label out of his dorm room at New York University. Their collaboration created Def Jam Records, which produced some of the biggest rap acts, including Run-D.M.C., LL Cool Jay and Public Enemy.

In 1990, a lucrative deal with Sony Records -- in which Sony and Def Jam split the earnings down the middle -- provided enough capital to fund Rush Communications and enabled Simmons to move into other venues. In 1999, he pocketed $100 million after he sold his stake in Def Jam to Seagram Universal Music Group.

"Russell was one of the first people in the business to realize the importance of ownership and the power of the joint venture," said Brett Wright, who leads marketing firm Nu America. "People who didn't own their stuff got left by the wayside; those who did got rich."

"I really don't know that much," said Simmons. "But I surround myself with people who do. I would never go into a new business without first hooking up with an expert in that field."

SEAN "P. DIDDY" COMBS

Title: chief executive Company: Bad Boy Worldwide Entertainment Group Annual Revenue: $315 million Employees: 600

If Russell Simmons is the "Godfather of Hip-Hop," Sean Combs, 34, also known as P. Diddy, is its fashion tycoon. His clothing line Sean John, which is upscale and chic, recently bagged the top fashion award from the Council of Fashion Designers and is one of the top-selling urban clothing lines, according to the NPD Group, a research company.

It also is the crowning jewel of Combs' company. Other subsidiaries include Bad Boy Records, which oversees the careers of artists Mase, Faith Evans and Black Rob; Bad Boy Films, and two restaurants called Justin (named after his oldest son) in New York and Atlanta. His marketing company, Blue Flame Marketing and Advertising, has clients Pepsi, Microsoft and Calvin Klein.

Combs is perhaps the savviest at leveraging his personal celebrity into a brand. His annual Hamptons shindigs, gossip-page social life, last year's charity marathon run, acting stint on Broadway and globetrotting to star-studded getaways such as St. Tropez have kept consumers rapt and constantly buying.

Jameel Spencer, chief marketing officer at Bad Boy Worldwide Entertainment Group, said Combs is focused, driven and "not one to take 'no' easily." "In fact, 'no' makes him want to do it more," Spencer added.

In 1991, 19-year-old Combs got into the business after begging Andre Harrell, then president of Uptown Records, for a job as an unpaid intern. He rose to A&R director in two years, but was eventually fired by Harrell. He rebounded by launching Bad Boy Records, which quickly made a name for itself after former crack dealer-turned-rapper Notorious B.I.G. began churning out hits. By 1996, he had hammered out a 50-50 partnership with Clive Davis' Arista, which kept him in charge and gave him the right to buy Bad Boy's master recordings. Ownership of master recordings, which few artists have, is a boon for any entrepreneur who continues to reap royalties and fees whenever a song is used.

In 1998, he started the Sean Jean clothing line. And last month he opened a 3,800-square-foot retail store in Manhattan, which sells $495 leather jackets, $200 jeans and rhinestone-studded dog collars that go for $65 a pop. He plans to open stores across the country and later Europe.

DAMON DASH and SHAWN "JAY-Z" CARTER

Title: chief executive and major partner Company: Roc-A-Fella Records Annual Revenue: $450 million Employees: 500

Damon Dash is striding through a spacious townhouse with a cell phone glued to his ear and reading Kanye West the riot act. West, a Roc-A-Fella rapper who has his own clothing line thanks to Dash, is trying to conduct business from his cell phone as opposed to coming into the office to attend to details. "Yo, man, you can't do business like that, man," Dash says heatedly on the phone. "You don't make demands on the phone and expect business to happen. It doesn't work that way."

A pugnacious sort, Dash is not good at sugarcoating. But when it comes to nailing a sweet deal, he's a pro. The 33-year-old, along with star rapper Jay-Z and Kareem "Biggs" Burke, head Roc-A-Fella Records Enterprises, which has ventures in music, fashion, film and publishing. The company's biggest money maker is Rocawear, a 5-year-old company that Dash decided to start after becoming frustrated with the flagging profits in the record industry.

Still, it was the music that got him started in hip-hop moguldom. Dash started Roc-A-Fella Records when he couldn't find a record label willing to sign a tall, gangly, unknown rapper from Brooklyn named Shawn Carter. The move was a smart one. Jay-Z, 34, exploded eventually, selling 17 million albums and making millions for the label. Later Dash was able to move into other venues, including Roc-a-Fella Films, started in 1999, production company Dash Films in 2001 and Armandale Vodka in 2002. This year he launched America magazine, which focuses on fashion and culture; a jewelry line in which the Tiret watches cost as much as $130,000; and he's acquired the licensing to sneaker line Pro Keds.A cigar line, a European cable TV channel, and a sports and boxing promotion company are also in the works.

Known for his brash and aggressive style, Dash doesn't get high marks for being a great boss or a great partner, some say. His manner reportedly has strained his relationship with Jay-Z, fueling rumors that the rapper -- who announced his retirement last year -- will leave to start his own company.

"Those are just rumors," Dash told Newsday. "But if Jay-Z leaves, he leaves." If the rapper does leave, he will have plenty of fodder to start his own hip-hop empire.

"Jay-Z has such a loyal following he can start anything and people will follow," said Emil Wilbekin, vice president of brand development for Marc Echo development and former editor of Vibe magazine.

Jay-Z's other ventures includes an upscale sports club called 40/40 in Manhattan and a stake in an arena for the Nets basketball team near downtown Brooklyn. He has also collaborated with Reebok to put out the "S. Carter," sneaker line, which has become the company's fastest-selling shoe. The deal marks the first time a major sneaker company has signed an artist rather than an athlete to market its product.

PPERCY "MASTER P." MILLER

Title: chief executive Company: New No Limit Records Annual Revenue: N/A Employees: N/A

Out of all the hip-hop moguls, Master P., 34, is the one most likely to be overlooked, primarily because he is from the South and his once-thriving enterprise is the first of all the hip-hop empires to face serious financial woe.

But just a year ago, Master P., born Percy Miller, was the wealthiest hip-hop mogul, eclipsing at one point even Simmons, the industry's pioneer. He has made several appearances on Fortune's "40 Richest Under 40" his most recent in 2003, which estimated that he had $361 million in holdings.

And in 1998, the Guinness Book of World Records listed him as the richest music producer, who at the time had a net worth of $56.5 million.

Ten years ago, Master P., who grew up in the drug-infested projects of New Orleans, took a $10,000 inheritance and opened a record store. Early on, he display the business acumen, which soon turn him into a hip-hop mogul. The store later evolved into No Limit Records and Miller kept the rights to all of his master recordings. In the past eight years, No Limit has sold 50 million albums, 12 multiplatinum, 10 platinum and 12 gold records. Some of its artists have included Snoop Dogg and now Mystikal, Silkk the Shocker and C-Murder.

Later, Miller expanded into clothing with his subsidiary No Limit Sports; and No Limit Films, which has put out a line of profitable direct-to-video movies, and feature films. He has since managed the career of his son Lil' Romeo, who has sold 2 million CDs and has a series on Nickelodeon called "Romeo!" He is also wrapping up two film deals with Walt Disney.

But the past year has been full of challenges for Miller, who tried out twice for the NBA. His brother, rap star C-Murder, is embroiled in a high profile murder trial. Earlier in the year, Miller pleaded guilty to tax fraud charges, and in December, his original label, No Limit Records, filed for bankruptcy. In February he emerged again touting a new company New NoLimit Records and switched distributors, leaving Universal for Koch.

"Yeah, I shut down No Limit because it made good business sense," Miller told ESPN. But "How can Master P. be broke? We've got our own television show on Nickelodeon, we've got our own clothing company, our own jewelry company, property, real estate -- so what if one thing doesn't work, we work on another?"

Copyright © 2014, Los Angeles Times
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