Apple's Purchase of Beats and the Race to Mint a Hip Hop Billionaire

Dr. Dre might be about to come hip hop's first billionaire.

May 12, 2014 at 11:40AM

"The first billionaire in hip hop!" proclaims a celebratory Dr. Dre in a video released Thursday night on actor/musician Tyrese Gibson's Facebook page. The video has since been taken down, but has resurfaced on YouTube and was played about 2,000 times on CNBC on Friday.

The man behind N.W.A. and Beats Electronics, as well as dozens of projects in between, is in for a huge pay day if the rumors are true. Apple (NASDAQ:AAPL) is reportedly in talks to purchase the luxury headphones maker turned music streaming service for $3.2 billion.

Dr. Dre and co-founder Jimmy Iovine are majority owners of the company. Dre's stake is estimated to be between 20% and 25%.

If the buyout goes through, Dr. Dre will most likely climb to the top of the Forbes Five Wealthiest Hip Hop Artists. In fact, he'd be one of the wealthiest musicians of all-time next to names like Paul McCartney and Andrew Lloyd Weber. But if you look closely at a list of the wealthiest musicians, you'll notice a surprisingly large number of hip hop artists.

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Dr. Dre is worth $550 million according to Forbes. Source: Wikimedia Commons

Why entrepreneurship comes naturally to rappers
Bid Daddy Kane released a posse cut in 1993 called "Show and Prove" featuring a young Jay-Z among others. The premise of the song cuts to the core of early hip hop as well as entrepreneurship -- showmanship.

Battle rap was a popular form of rapping in the '80s when artists like Dr. Dre and Jay-Z were getting their starts. Engaging in rap battles is basically the entrepreneur's equivalent of being on Shark Tank ... every night. You get pretty good at refining your product and selling yourself after a while. It shouldn't be surprising, then, that most of the artists on Forbes' list grew up in the '80s -- three of them were born in 1969.

Although diss tracks have decreased in popularity since the '90s, braggadocio is still very much a part of rapping. That means every time a rapper picks up a mic or a pen, he's thinking of new ways to tell the world how great he is.

Furthermore, hip hop music is one of the few genres that still requires a huge amount of creativity to succeed. Hip hop often recognizes artists that break the mold -- see Rakim's use of internal rhyme or Eminem's use of assonance. Pop music, conversely, most often rewards artists that fit into a mold.

The creativity and showmanship of the world's best rappers often translates well into business ventures.

The first billionaire in hip hop
Although Dre claims he's a soon-to-be billionaire, the math isn't so clear. If Apple buys Beats Electronics for $3.2 billion, Dre's cut is likely somewhere between $640 million and $800 million. That's before taxes.

My guess is when the dust settles, Dre will still be worth less than a billion, depending on what he already has accumulated.

Not to take anything away from his achievements as a businessman, but $1 billion is hard to accumulate. He'll have a couple of big contenders to compete with in the race to $1 billion.

Sean

Diddy's net worth climbed to $700 million in 2014. Source: Wikimedia Commons

Topping last month's Forbes chart is Sean "Diddy" Combs. Diddy dropped out of Howard after two years of studying business to intern at Uptown Records. Two years of business education is apparently all he needed to develop Bad Boy Records into the empire that it is and to launch multiple clothing lines, develop vodka and tequila with Diageo (NYSE:DEO), and start a new television station, Revolt TV.

Images

Jay-Z isn't far behind with a net worth of $520 million. Source: Wikimedia Commons

Jay-Z is well on his way to billionaire status as well. His family's net worth is even closer with Queen B by his side. Mr. Carter sold off his Rocawear clothing line to Iconix (NASDAQ:ICON) (the company behind Joe Boxer and London Fog) for $204 million, and signed a $150 million contract with Live Nation Entertainment (NYSE:LYV) to create Roc Nation. The latter, Jay-Z's record label and agency, is a big money maker. Its roster includes artists such as Rhianna and athletes such as Robinson Cano (and his $240 million contract).

Still D.R.E.
Without Beats Electronics in his asset portfolio, Dre will have to find a new venture to work on. Maybe he'll finally finish the long-awaited Detox. Maybe he'll recruit new talent to his record label to diversify from Eminem. Maybe he'll dream up a new project, or be the man behind Apple's next great product. Regardless, he's well on his way to becoming a hip hop billionaire.

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Adam Levy owns shares of Apple. The Motley Fool recommends Apple, Diageo (ADR), and Iconix Brand Group. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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