How are the Real Housewives of Beverly Hills Not Broke?

Over the holidays I’ve been at home indulging in a little (relatively) reality television. One of my favorite shows of this oeuvre, the Real Housewives of Beverly Hills, recently had its season premiere. The premiere was predictably excellent, but something was nagging me as I watched the show — how do these women, particularly Lisa Vanderpump and Dorit Kelmsley, afford to live like this? On the surface Lisa and her Lilliputian husband Ken Todd’s extravagant lifestyle is supported by their successful restaurants, while Dorit’s husband PK can pay for pink Bentleys from his earnings as Boy George’s talent manager. However, if we dig in a little bit the facade begins to crumble.

Let’s start with the Kemsley’s, the latest addition (not counting John Cougar Mellencamp’s daughter, I don’t think she sticks) to the RHOBH coterie. PK is a notorious entrepreneur in England. After working at Mike Ashley’s Sports Direct, he struck out on his own and founded Rock Joint Ventures, a commercial real estate company. His partners in this venture, the billionaire Joe Lewis and Tottenham Hotspur Chairman Daniel Levy, had deep pockets that enabled PK to pursue an aggressive property investment strategy. He founded the company in 1995, and the 90s and early 2000s were the salad days. PK grew Rock’s property portfolio from “the $1,800 I had left in my pocket” to over $750M, and in the Sunday Times Rich List he supposedly had a net worth of $180M.

However, during the global financial crisis Rock went bankrupt and PK resigned from the company. Things got worse from there as spread betting company SpreadEx sued him to collect on a $22M margin call after he borrowed large sums to wager that Lehman Brothers would recover from the mortgage crisis. He eventually filed for bankruptcy in 2012 listing expenses of $34k per month and personal debts ranging from $10M-$50M. He subsequently founded a talent agency, and bought into the New York Cosmos. However, the Cosmos have been bleeding cash, more than $30M since starting play in 2013 and losing as much as $10M in 2016 alone (http://soccer.nbcsports.com/2016/11/28/report-new-york-cosmos-on-brink-of-collapse-again/). While Boy George and Culture Club are cultural icons, but there aren’t enough Bar Mitzvahs in the world for Karma Chameleon to throw off enough royalties to wipe out his debts and to pay for Dorit’s pink Bentley.

Ken Todd and Lisa Vanderpump are successful entrepreneurs — they have owned and operated more than 30 bars and restaurants in both England and the United States, highlighted by their sale of a portfolio of restaurants in London to the Trocadero Group for $10.5M in 1998. Currently they own four (including TomTom) restaurants and bars in Los Angeles and run a successful beverage business selling LVP Sangria and LVP Rose. However, let’s dig deeper. Restaurants are some of the worst businesses to be in, as this excellent article describes: https://www.newyorker.com/business/currency/the-thrill-of-losing-money-by-investing-in-a-manhattan-restaurant. The restaurant in the New Yorker article grossed over $2M per year and was not profitable.

Let’s be charitable and assume that combined SUR, Pump, and Villa Rosa (which Lisa tried unsuccessfully to sell in 2015, see here: https://la.eater.com/2015/2/4/7980655/lisa-vanderpump-villa-blanca-beverly-hills-up-for-grabs) gross $4M each, for a total of $12M annually. The best full-service restaurants struggle to generate profit margins north of 10%, but let’s assume that Ken and Lisa know what they are doing and can hit that mark, which would mean their entire restaurant empire generates $1.2M annually in profit. Not bad! But wait — SUR, the biggest cash cow, is co-owned by Natalie and Guillermo! We can safely say that netting out their share of the profits would push Ken and Lisa’s tax to less than $1M annually, pre-tax. Villa Rosa cost $12M, let’s assume they put down 20% ($2.4M) and took out a mortgage for the rest ($9.6M). They bought the house in 2011 when the 10-year Treasury was significantly higher than it is today (3.39% vs. 2.42% today) which would imply a higher mortgage rate than today’s 4.15%. Let’s say that their annual interest rate is 4.5%. That rate would imply an annual mortgage cost (before property taxes and insurance) of $589,358.81, more than 50% of their pre-tax take from the LA restaurants! I’m sure that the Sangria and Rose, as well as her fee for RHOBH, generate significant income, but even generous assumptions for those business lines can’t cover her massive living expenses. Her ponies alone must cost several hundred thousand per year to maintain, never mind the rest of her animal menagerie.

Maybe Ken and Lisa and the Kemsley’s have sources of income that I can’t verify, and that income is sufficient to cover their lifestyle expenses. However, I have a hard time believing that there isn’t some funny business going on with the RHOBH finances.