5 'Dumb Bets' That Eventually Made the Bettors Insanely Rich
But history has shown us that what may seem in the short term as a bad deal can turn out to be highly profitable in the long run.
1. A Long Time Ago
In 1976, George Lucas was a young director who had just come off of "American Graffiti," his first successful film. Though Lucas had high hopes for his next project -- which he described as a "western set in space" -- studio executives didn't feel the same way. Lucas took advantage of this skepticism and offered to cut his $500,000 directing fee down to $150,000 in exchange for two concessions. He wanted to retain all merchandising rights, plus the rights to all sequels.
It seemed at the time a good deal for the studio. Movie merchandising up until that point had been a break-even business at best, and the studio didn't think his space western had any chance to be successful, let alone spawn sequels. Of course, "Star Wars" did both. The movies and their merchandise have generated more than $27 billion in revenue, and in 2012 Disney (DIS) bought the franchise from Lucas for $4 billion.
2. Could You Use a Navy Blue Background?
In 2003, underground artist David Choe arrived in Tokyo and within 24 hours found himself sitting in a prison cell, the result of punching an undercover security guard. It was not a particularly unusual series of events for Choe, who was known a rebellious nonconformist in his art and his life.
A high school dropout who had spent much of his youth drifting across the U.S. and Europe, later in life Choe became known for presenting edgy and often obscene exhibitions of his work in nontraditional settings such as ice cream stores.
In 2005, Choe was approached by a young company to paint murals at its corporate headquarters. Despite the fact that he thought this Internet startup's focus was "ridiculous and pointless," he opted, when given the choice, to get paid in stock options instead of $60,000 in cash.
Seven year later, when Facebook (FB) went public, Choe's stock was worth roughly $200 million. Ironically, the murals Choe did were not initially a hit with Facebook executives. Sean Parker, then president of Facebook, called them "schizophrenically distracting" and even asked Choe when he was finished, "there's nothing more you can add to it?"
3. D'oh! Why Didn't I Consider Streaming Video?
Since debuting in 1989, "The Simpsons" has become one of the longest-running shows in the history of television. Thanks to a shrewd move, co-creator Sam Simon is still making a mint off it even though he has had no involvement with it since 1993.
Simon, a writer and producer on hits like "Taxi" and "Cheers," created "The Simpsons" with Matt Groening and James L. Brooks. Simon famously predicted to a "Simpsons" staffer that it would be "13 and out," meaning after 13 episodes, the network would cancel the show. Though Simon now claims he only said that to "take the pressure off" the writing staff, at the time it rubbed Groening the wrong way and led to a progressively more contentious working relationship.
Eventually Simon was asked to leave the show. But in negotiating his exit, Simon asked for and received profit points and an executive producer credit on the show in perpetuity.
But perhaps his most profitable move was his demand that he receive a percentage of all home video sales. In 1993, during the era of videotape ,when the idea of downloading video would have been science fiction, this seemed like a minor concession. Times change. The deal has earned Simon $500 million and generates between $20 million to $30 million annually.
4. The $800 Million Shot from Beyond Half-Court
The American Basketball Association was an upstart hoops league created in 1967 to challenge the venerable NBA, and originally consisted of 11 franchises. Although the ABA brought an exciting attitude toward the game –- among other things, it invented the slam-dunk contest -- most of its teams struggled to stay viable.
By 1976, only seven ABA teams were left when the NBA agreed to merge leagues: the Indiana Pacers, New York Nets, Denver Nuggets, San Antonio Spurs, Kentucky Colonels, Virginia Squires and the Spirits of St. Louis.
However, the NBA only wanted the Pacers, Nets, Nuggets and Spurs, which meant that those teams had to settle with the remaining three -– per the ABA owners' agreement -– as a condition of a merger. The Squires went out of business weeks before the merger was completed, and the Colonels agreed to a lump sum payment of $3 million.
%VIRTUAL-pullquote-"Perpetuity is a long time." - Donnie Walsh%Dan and Ozzie Silna, the owners of the Spirits, recognized their now-advantageous position and negotiated a one-time payment of $2.2 million cash and a one-seventh share of the television revenues from the four surviving ABA teams, in perpetuity.
Televised basketball wasn't considered a very valuable commodity in the 1970s, and even playoff games were often aired on a tape delay. But, as Pacers president Donnie Walsh has since commented, "Perpetuity is a long time."
With former ABA players like Julius "Dr. J" Erving showcasing a new type of basketball theatrics, the viewing public began to take notice. In subsequent years, the Larry Bird-Magic Johnson rivalry and the emergence of basketball phenom Michael Jordan drove the NBA's Nielsen ratings to unprecedented heights.
Despite numerous attempts over the years by the four franchises to buy out the contract, the Brothers Silna refused to budge. Finally, in early 2014, after amassing more than $300 million in revenue since 1976, they agreed to terminate their contract for a final payment of $500 million.
5. Complicated Collar Was Well Worth It
Mark Cuban is widely known as the outspoken owner of the Dallas Mavericks, as well as one of the "sharks" on "Shark Tank." But what many people may not know is that Cuban made most of his money thanks to a business decision that at first appeared to have cost him a fortune.
%VIRTUAL-article-sponsoredlinks%First, the backstory: Cuban co-founded Broadcast.com, an Internet radio company, in 1995. It was eventually bought in an all-stock deal by Yahoo! (YHOO) for $5.7 billion. Cuban's stake netted him $1.4 billion in Yahoo! stock, then trading at $95 per share. The terms of the deal included a three-year lock-up period during which Cuban was forbidden to sell his stock.
What Cuban did next is the stuff of legend. Not content to let the whims of the market determine his fate, Cuban created a complex option strategy, known as a collar, which capped both the upside and downside values of his stock for those three years.
Initially, it looked like a bad move as Yahoo shares soared as high as $237 a share in January 2000, but then the bubble burst, and shares dropped as low as $13. The collar ensured that the lowest price he would get when he sold would be $85 a share, which meant he captured almost 90 percent of his position's value and retained his "billionaire" title.
Rumors at the time said that constructing the collar cost Cuban a cool $50 million, though Cuban now disputes that, saying the cost was negligible. Either way, it certainly was a move worthy of a shark.
Brian Lund's blog offers more on small business, the stock market, investing and the secret to eternal life.