Is Rush Limbaugh really worth $400M? Careful...there are two right answers!

Read to the very end because the answers are different--for reasons you may not expect!

A couple of weeks ago, the news came out that Rush Limbaugh had inked an eight-year, $400M deal [or, about $50M a year, on average], to keep producing his daily talk-show.  The reason this caused such a stir in the media was because so many people who were talking [and listening] find his political views unappealing—and thus could find no justification to waste so much money on one man’s pay!  The objection to Mr. Limbaugh’s salary went something like this…”Look at how low third-grade school teachers get paid!  Or, for that matter, policemen or firemen!—if Mr. Limbaugh got paid a lot less...we might be able to pay third-grade teachers the salaries they deserve!” 

Have you hear those objections before?  I have. And, frankly they seem kind of dopey, but not because of any political opinion I may or may not have--it's out of an appreciation of how "value" in the wider world of business is considered.  Let me explain...

About the first right answer.  

So what if the question were changed slightly, say, to Oprah Winfrey?  Could she really be worth $275M a year [which is exactly what she's reported to receive]?  On the timeline of Mr. Limbaugh’s contract, that would be a whopping $2.2B…over five times Rush’s deal!  Depending on your politics, you might feel better about Oprah—the people who are put-off by Mr. Limbaugh’s income are not nearly as indignant that Ms. Winfrey makes a tidy sum like this one.  

So I pose the question again:  Is Rush Limbaugh really worth $400M over 8 years?  Or for that matter, is Oprah worth $2.2B? Tiger Woods, $8B? Or Simon Cowells [of American Idol fame], a mere $360M?  Some people still say no—but even if all of these celebrities were to fore-go half their reported income, I assure you, third-grade teachers still wouldn’t get any more money; indeed, if they gave up all of their income...third-grade teachers would still be paid the same.

I'd would propose that the answer to all of these questions is the same; and that is:  absolutely--and all for the same reason!  Simply put, in a free enterprise system an individual is worth what someone is willing to pay them.  If someone is willing to pay somebody, say, $100,000 [to use a simple, easy number] that means that the person receiving that amount is going to generate more than $100K—to the benefit of the person or organization[s] offering the $100K in the first place! 

Look at it this way:  If LeBron James were, by fiat, to have his current income slashed by 99.9 percent…and he only got $42,000 instead of his planned $42M, could you explain what would happen to the balance of the money, $41,958,000?  The answer is obvious:  it would be the men in three-piece suits, the ones who smoke cigars in the owner’s suite--they would be the ones who got the 99.9% he didn't!  It wouldn’t go to third-grade school teachers, or policemen, or firemen, or the fans!

So, it’s not a question of politics or social worth—it’s all a matter of value being determined by what someone will pay another individual, who in turn will generate even more value for the person offering to pay in the first place.  So, is Rush Limbaugh worth $400M over eight years—he most certainly is; it’s not even a close call!  

[BTW...Other interesting annual income figures to consider include:  Judge Sheindlin [i.e., "Judge Judy"], $30M; Steven Spielberg, $150M; Madonna, $110M; George Lucas, $170M; Phil Mickelson, $53M; and Alex Rodriquez, $39M.

The second-but-different correct answer: 

 So as to the question again...Is Rush Limbaugh worth $400M?...the technical answer is actually "no"!  Do you know why?  In a more precise sense, Rush Limbaugh is actually worth more than he's going to be paid--and, rest assured that the same is true for Oprah and Tiger and Simon and LeBron!  This is because he--and all the other "over-paid" people--are going to create more value, i.e., generate more money for somebody else [or some one or more organizations], beyond the public amount someone’s going to be willing to pay any one of them to start with.

So the next time you’re in a conversation where these kind of issues get tossed around, don’t be a dope and fall into the trap of talking about politics or under-paid third-grade school teachers or reducing the price of tickets for fans.  Those may be interesting issues to consider, but they just don’t help to answer the question at hand very well--or the explain what most people don't know or think about.  

But now you do! 

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