Richard Branson: Building an Empire on Other People’s Money

Richard Branson waves to the crowd after landing at the $209 million spaceport that New Mexican taxpayers are building for him in 2010. From left to right are then-New Mexico Gov. Bill Richardson, NASA Deputy Administrator Lori Garver, Apollo 11 astronaut Buzz Aldrin, and then-New Mexico Spaceport Authority Executive Director Rick Homans.

The Observer’s Richard Wachman asks an interesting question I’ve been wondering about a lot lately:

Virgin brands: What does Richard Branson really own?

The sprawling business empire that makes up Richard Branson’s Virgin investment group consists of about 400 operations, a tangled web of enterprises owned via a complicated series of offshore trusts and overseas holding companies.

Branson’s finances are difficult to penetrate because of their complexity and opaqueness, with few of his large companies wholly owned by Branson himself. His big-branded firms such as Virgin Atlantic, Virgin Money, Virgin Media and Virgin Trains have other major shareholders. In some cases, he simply licenses the brand to a company that has purchased a subsidiary from him, and these include Virgin Mobile USA, Virgin Mobile Australia, Virgin Radio and Virgin Music (now part of EMI). In return, as the licence holder of the Virgin brand, he receives annual or triennial fees that can amount to hundreds of millions over time.

By forging partnerships with cash-rich allies, Branson has established new businesses without depleting the group’s reserves and spending little to establish new ventures in sectors such as mobile telecoms. But initiatives come straight from Branson, who prides himself on his ability to spot a gap in the market. He is not a numbers or a details man and leaves the everyday running of his firms to a group of lieutenants.

Which brings us to Virgin Galactic. And the numbers there are really interesting.

We’ll start by taking a look at the big picture, investment wise.

2009Aabar InvestmentsAbu Dhabi royal family$280 million31.8 percent ownership share, Virgin Galactic
2011Aabar InvestmentsAbu Dhabi royal family$110 million37.8 percent ownership share, Virgin Galactic
2005-PresentNew MexicoNM taxpayers$209 millionspaceport, $1 million annual rent over 20 years, user fees
2004-PresentVirgin GroupRichard Branson??Two-stage-to-suborbit space plane, 62.2 percent ownership share
TOTAL:$599 million

So, Branson’s gotten investors and taxpayers to pony up just short of $600 million to make his dream of flying into space a reality. Since the Virgin Group is so opaque on its finances, precisely how much Branson and his company have put in is difficult to say.

However, thanks to statements by Virgin Galactic officials, we do a bit more about the cost side. We know that, as of October, that roughly $270 million has been spent on the program. And the most recent estimate on cost, as of about 10 months ago, was roughly $400 million. Now, let’s see how this stacks up against known investments not funded by taxpayers….

Aabar Investments: $290 million + $110 million = $390 million

WOW! That’s like really close. The Abu Dhabi royal family’s investment covers virtually the entire estimated development cost. And for that, they own only 37.8 percent of the company.

Now, there’s many unknowns here. Such as, what did Virgin Galactic spend between 2004 and Aabar’s investment in 2009? Have overall program costs risen above $400 million since last year’s estimate? How much of that investment is being spent on The Spaceship Company? Selling tickets? Customer relations? Licensing the technology from Paul Allen? Outfitting the Virgin Galactic Gateway to Space?

But, it does seem clear that Branson has succeeded in getting others to pay most of the cost of this venture. He’s got what’s most valuable: his name, the Virgin brand, and the rights to the technology.