The cracks are suddenly appearing in the empire of former billionaire Nathan Tinkler, the richest person in Australia under 40.
Just months after launching the most audacious deal in a frankly remarkably career – his $5.2 billion takeover play for Whitehaven Coal – Tinkler has been forced to back away from the bid after apparently failing to stitch together the finance for the deal.
It compounds a horrible two weeks for Tinkler, whose Whitehaven Coal shares are now worth around $650 million. He missed an already extended deadline to buy a $29 million stake in a small coal explorer, he failed to flog his massive horse racing and breeding operation for a reported $200 million and he has been accused of not paying several building subcontractors working with one of his construction companies.
The former billionaire has kept his head down throughout. Tinkler is now based in Singapore, but it is not known whether he has returned to Australia to address the different issues in his businesses.
Part of the problem is that Tinkler is a man known to love doing deals by using as little of his own money and as much debt as possible. And despite the fact that his investments in the mining sector have made him rich on paper they have never generated much cashflow and Tinkler has spent cash at a phenomenal rate since emerging on the national stage six years ago.
Actually, "spent” might not be the right word to describe it – "pissed up the wall” is probably the way Tinkler’s colleagues from his days an electrician would express it.
From fast horses to fast cars, Tinkler has fallen into some of the classic money pits that attract the rich.
Most of these indulgences are fun, while the cash is flowing. But when the pressure ramps up, as it clearly is now, the laughs can quickly turn to something else.
Here are 10 money traps that Tinkler and other rich list members fall into:
Tinkler is estimated to have spent somewhere between $200 million and $300 million buying horses, stud farms and training facilities for his breeding and racing operation, Patinack Farm. While he was inspired by the Ingham family’s success in selling their racing operation for $500 million in 2008, Tinkler should have known that the Inghams were the exception rather than the rule and most wealthy people treat racing as a loss-making hobby. Tinkler’s not the only rich lister to try to build a racing business – Mark and Peter Rowsthorn also invested heavily in a racing operation, but have scaled back dramatically.
A decade ago, a vineyard was the must-have accessory for the wine-loving entrepreneur and no one embodied this more than Doug Rathabone. The Nufarm boss built a portfolio of wineries including the renowned Yering Station in the Yarra Valley, Mount Langi Ghiran in the Grampians, the Parker Coonawarra Estates in South Australia, and Xanadu Wines in Western Australia's Margaret River. The $100 million operation even had its own $30 million bottling plant in Port Melbourne. But the business was put on the sale block earlier this year after going from a $50.7 million profit in 2010 to a $2 million loss in 2011, due in no small part to Australia’s huge grape glut. Wine is no longer a hobby business – it’s just a hobby.
Nathan Tinkler is still the owner of the Newcastle Jets A-League soccer club, which has insisted it has no financial pressures. But Australian soccer teams have been an absolute money pit for the rich list owners – Clive Palmer, Geoff Lord, Tony Sage, Con Constantine and Rob Gerrard are among those to have poured millions into A-League clubs, for no (or very little) return. Perhaps that will change as the league grows, but don’t hold your breath.
Rugby league teams
Tinkler also owns the Newcastle Knights rugby league club, an organisation that he rescued 18 months ago from pending financial ruin. But it’s likely to be a long time before he makes any money – owners such as Peter Holmes a Court and movie star Russell Crowe (South Sydney), Michael Searle (Gold Coast) and Rupert Murdoch (Melbourne Storm, via News Corporation) can attest to the difficulties in keeping a club in the black. Revenue streams are limited, costs are high and profitability depends largely on on-field success – it’s not a recipe for wealth generation.
One of Tinkler’s silliest investments was in a business called in the Supercar Club, an organisation that allowed wealthy people to use a variety of luxury vehicles in return for $50,000 a year in membership fees. Tinkler pumped $2 million in between late 2008 and early 2009, but soon became embroiled in a legal battle with the founder and the business collapsed. Tinkler would later lose another sports car in June last year when his Ferrari was stolen and burned.
Top shelf wine
Wine fraud is the scourge of everyone who loves a great drop – dastardly scammers putting top-shelf labels on bottom-shelf wine is the sort of crime that makes one reconsider capital punishment. Perhaps the best known case of wine fraud in the world involves US billionaire William Koch, who has launched numerous legal actions over claims he was sold counterfeit wine that was supposed to have come from the cellar of US president Thomas Jefferson. The affair has been turned into a book called The Billionaire's Vinegar.
This year saw what was is believed to be the biggest price ever paid for a piece of art, when hedge fund manager Leon Black paid almost $US120 million for Edvard Munch's painting The Scream. Of course, most of us only hear about the big sales – art markets are notoriously fickle and have taken something of a beating since the GFC. Auction house Sotheby’s recently reported a 33 per cent drop in second quarter profits on lower art auction results. In Australia, Sotheby's recent Important Australian and International Art sale saw only 68 per cent of the 66 artworks sold, with the amount raised well below pre-auction estimates.
Polo is the iconic sport of the rich – partly because it is so expensive. Failed Gold Coast millionaire Michael King – he co-founded property and financial services group MFS – sunk $20 million into a huge polo complex on the Coast, grandly called Elysian Fields. It all had to be sold off when King’s empire collapsed, but guess who bought a slice? Nathan Tinkler.
Comedian Mel Brooks based the plot of his famous film The Producers around the idea that theatre productions always lost money. So it proved for Gina Rinehart, who was last year revealed to have lost $2.3 million after Xanadu the Musical collapsed just weeks into its Melbourne run. Tough crowd, big losses.
Pubs and restaurants
Running a pub or restaurant sounds like so much fun. But as anyone in the hospitality game will tell you, it’s hard work, with low margins, high costs, long hours and millions of things that can go wrong. Mark Alexander-Erber – known as Pub Boy – and Rick Munday were two pub owners who stormed on to the Young Rich list at the height of a pub boom that occurred around 2006. But when the economy turned and cashflow dried up, receivers were soon calling last drinks on their large debt piles.
James Thomson is a former editor of BRW’s Rich 200 and the publisher of SmartCompany and LeadingCompany.
RICH PICKINGS: 10 tempting traps for the well-to-do
In a week where horse racing was revealed to be costing Nathan Tinkler more than a sprinkle, it's worth considering other classic bottomless pits that can burn the rich.
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