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Opening the chamber of secrets: J.K. Rowling's mystery billions

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In 2012, Forbes dropped J.K. Rowling after eight years on its authoritative billionaires list, saying high British taxes and large charitable contributions had eroded her fortune.

Forbes may want to rethink that.

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Follow the adventures of writer Newt Scamander in New York's secret community of witches and wizards seventy years before Harry Potter reads his book in school.

Last weekend, Fantastic Beasts and Where to Find Them - the first of a new, multi-film franchise, with a script by Rowling - opened to a strong $US225 million weekend internationally. Hugely popular Wizarding World of Harry Potter attractions have opened at Universal Studio theme parks in Orlando, Florida, Hollywood and Osaka, Japan. There is also a Potter attraction at Warner Bros Studio Tour London.

The two-part drama, Harry Potter and the Cursed Child, is a smash hit in London and is scheduled to open on Broadway next year. A book based on the play was an instant No.1 bestseller. Warner Bros recently licensed the television rights to the Harry Potter films to NBCUniversal for as much as $US250 million.

Any estimate of Rowling's fortune is at best informed speculation, and most previous attempts I've seen don't seem very informed. Rowling is famously private, especially about her financial and business affairs. She denied being a billionaire after Forbes first anointed her, telling the television interviewer Katie Couric in 2005 that "I've got plenty of money, more money than I ever dreamed I would have. But I am not a billionaire." She has remained publicly silent on the subject since.

So I set out this week to assess the size and scope of her fortune, not to invade her privacy but because she's that all-too-rare commodity in the ranks of the ultrawealthy - a role model. Not only has she made her fortune largely through her own wits and imagination, but she pays taxes and gives generously to charity. At a time of bitter disputes over rising income inequality, no one seems to resent Rowling's runaway success.

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"It's an impressive story," said Steven Kaplan, a professor at the University of Chicago Booth School of Business and an author of It's the Market: the Broad-Based Rise in the Return to Top Talent, a study of wealth generation in the digital age.

"She struggled as a single mother," he said. "Then, she created this amazing franchise. She had tremendous talent, and she's reaping the rewards. People don't mind that. What they resent is when chief executives get paid for failure."

Rowling has also been backed by some high-powered negotiating and marketing muscle - Scholastic, which published the Potter books; Warner Bros, the studio behind the Potter films and now the Fantastic Beasts franchise; and NBCUniversal, which opened the Wizarding World attractions at its theme parks. Neil Blair, a former Warner Bros executive, has represented her and fiercely protected her interests since he founded the Blair Partnership, a literary agency, in 2011, with Rowling as his most prominent client. Blair did not respond to requests for comment.

Along with other famous authors, entertainers and sports stars, Rowling has also benefited from globalisation and technology advances, the same forces that have squeezed the working class.

"Thirty and 40 years ago, entertainers and sports figures didn't have that kind of money," Kaplan said. (He noted that Bob Hope was the only entertainer on the original Forbes 400, and he made most of his money in real estate.) "Thanks to globalisation, the internet and social media, they can reach a much bigger market today," he said.

A close look at Rowling's sources of income suggests that she's worth more than $US1 billion, even allowing for a large margin of error. I came up with the estimates by interviewing a range of publishing and entertainment executives and agents. Some of them have negotiated with Rowling's representatives and knew what terms they were seeking. No one was willing to be identified because pretty much everyone hopes to do business with Rowling. "She's a sacred cow," one executive said.

To start with the obvious, there's the source of her wealth: The seven Harry Potter books have sold an estimated 450 million copies, with estimated total revenue of $US7.7 billion. At a standard 15 per cent author's royalty, she would have earned $US1.15 billion. These books continue to sell strongly years after they were first published.

Rowling has presumably been able to negotiate better deals for her subsequent books, which include adult mysteries under the pseudonym Robert Galbraith, published by a Little Brown imprint, as well as numerous Potter spinoffs. These works probably contributed at least an additional $US50 million.

Rowling's deal with Warner Bros is a closely guarded secret, but it has been reported that she sold the film rights to the first four Potter films for just $US2 million. Nearly all such deals, though, also include a percentage of the net profits, which were substantial. The first four films grossed close to $US3.5 billion and generated an estimated $US2.5 billion in profit. If she managed to achieve a 10 per cent net profit participation, that's $US250 million.

The next four Potter films were far more lucrative, generating well over $US4 billion in revenue. By then, she was one of the rare talents who probably had negotiated a deal providing her a percentage of a film's gross revenue. At 10 per cent, that's an additional $US400 million.

She almost certainly, according to the people I spoke to, managed a similar deal for the Fantastic Beasts series. Even if the first film generates just $US500 million in revenue, less than half the highest-grossing Potter films, that adds $US50 million to her fortune, bringing the film total to $US700 million.

Warner negotiated Rowling's theme park deals on her behalf. That deal with NBCUniversal is also secret, but she is one of the unusual examples of someone who is also a "consultant" and gets a percentage of the gate. (Steven Spielberg, the only other known example, gets 2 per cent of ticket sales at Universal Studios.) She also received a one-time licensing fee estimated at $US60 million to $US80 million and annual development fees. Like Spielberg, Rowling also gets a percentage of gross sales of merchandise, food and beverages.

NBCUniversal does not break out revenue from the Wizarding World attractions, but attendance has more than doubled since the first Harry Potter attraction opened in 2010. Last year, NBCUniversal's parent, Comcast, said overall theme park revenue jumped more than 60 per cent to $US1.4 billion.

If half of that comes from Wizarding World, and Rowling gets 2 per cent, then her take last year would have been $US14 million. Since 2010, when the first attraction opened, I'd estimate she has earned at least $US30 million on ticket sales, which would bring her total theme park earnings to roughly $US100 million.

NBCUniversal also bought exclusive television rights to the eight Harry Potter films this summer in a deal valued at as much as $US250 million. Rowling presumably received a large piece of that, at least $US125 million. That replaced a deal with Disney estimated to have been worth $US50 million or more to her.

That brings her total estimated earnings from books, movies, theme parks and television to more than $US2.2 billion. Assuming that she paid Britain's top individual tax rate of 45 per cent, she would have been left with $US1.2 billion.

Rowling also has other income. She did not write the play Harry Potter and the Cursed Child but no doubt earned a licensing fee and is a profit participant. Long-running hit shows can generate enormous income - the composer Andrew Lloyd Webber has an estimated net worth of $US1.2 billion.

She earns licensing fees on all Potter-related merchandise. She owns the e-book rights to her books, sold on her proprietary website, Pottermore. Pottermore loses money, but it said this week that it expected to earn a profit in 2017.

And, of course, Rowling has substantial investment income and unrealised capital gains given the long sharemarket rally. An average 8 per cent return on invested assets of $US1 billion would generate $US80 million a year, and it compounds. Rowling has given generously to charity - Forbes estimated a total of $US160 million by the time it dropped her from its list in 2012 - but there's no indication that the contributions have even offset her investment income, let alone seriously dented her net worth.

Whatever the precise size of her fortune, Rowling is enormously wealthy. In this post-election holiday season, maybe her self-made success is something everyone can feel warm about.

"It's not going to happen to everyone, but it's an inspiration that if you work hard and have talent, really good things can happen," Kaplan said. "It's kind of like her books: Good triumphs over evil."

New York Times

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