Howard Hughes is one of the most iconic American business tycoons of the 20th Century. Born in 1905, he became a prominent film producer, aviator, and philanthropist. You’ve seen him in pop culture – Leonardo DiCaprio played him in Martin Scorsese’s The Aviator, and both Bruce Wayne and Tony Stark are based on him.
But do you know how Howard Hughes made his money?
The famously reclusive billionaire is known to be eccentric. He died at 70 aboard an airplane due to kidney failure, possibly caused by malnutrition and sustained drug usage. His life is often glorified, even in the low points. His obsessive-compulsive disorder caused him to live in a dilapidated state.
Still, Hughes built a legacy that long outlasted him. Both the Howard Hughes Medical Institute and Howard Hughes Corp (NYSE:HHC) are still operational today. Who is behind this man, the myth, and legend? How did he acquire so much money and become such an iconic character.
How Howard Hughes Got Started
The Hughes you know is actually a Junior and the son of Howard Robard Hughes Sr. The elder Hughes founded the Hughes Tool Company, which invented the rotary tri-cone rock bit used to drill for oil during the Texas Oil Boom of the early 20th Century.
Hughes Sr. died of a heart attack in his office at the age of 54 in January 1924. This left Hughes Jr. as 75 percent owner of the company, while the late Hughes’ parents held the other 25 percent. Hughes Jr. was only 19 years old at the time.
From 1934 through 1951, the company held 100 percent market share of the rock drill bit, making Hughes Jr. one of the richest people in the world. Meanwhile, he was learning to fly, tightening his golf game, and generally being a wealthy playboy.
Although he owned his dad’s company, Hughes had other ambitions and set out to make money in his own way.
How Did Howard Hughes Make His Money?
Hughes only inherited an estate of about a million dollars from his father. It wasn’t until a decade later that the company created the rock drill that made his fortune. Of course, Hughes Sr. secured the patents all the way back in 1909.
It was the classic scenario – sell picks during a gold rush and drill bits during an oil rush.
This fortune turned him into a mogul as he gained attention through the entertainment industry.
After Howard Hughes sold the tool division of Hughes Tool Company in 1972, it merged with Baker International to form Baker Hughes Co (NYSE:BKR). The merged company is still one of the world’s largest oil field service companies.
Meanwhile, Hughes’ remaining business interests were rolled into a holding company called Summa Corporation in 1972. Think of how Warren Buffett used Berkshire Hathaway (BRK.B) – Hughes did much the same with his dad’s tool company.
But before all of this, he pursued his Hollywood dreams. Hughes produced several films in the 1920s and 1930s, including the original Scarface in 1932.
By the 1950s, Hughes Tool Company owned RKO, a vertically integrated movie company involved in production, distribution, theaters, and radio.
In many ways, Hughes is an innovator of influencer marketing. Hotel heiress Paris Hilton followed his lead. Except he was a lot wealthier than the Hiltons.
Was Howard Hughes a Billionaire?
Hughes created a massive fortune that totaled $1.5 billion, which is equivalent to $6.74 billion in today’s dollars. In fact, he was the richest person in America from the 1960s to 1980s, unseating oil magnates H.L. Hunt and J. Paul Getty for a time.
Getty would eventually amass a $6 billion fortune ($27 billion inflation-adjusted), but Hughes still created several successful business ventures, including aerospace and real estate through the Howard Hughes Corporation (which is the Summa Corporation renamed).
As you’ll see in a moment, even more companies were owned by Hughes through his corporation. It includes casinos, aviation, and more.
How Was Howard Hughes So Rich?
Hughes inherited a small fortune when his dad died. His father passed on a relatively modest million-dollar estate, along with the tool company.
That company’s rock drilling bit patent became its most valuable asset, as massive reserves were found in Texas that put the U.S. in the global market.
As 75 percent owner, most profits went straight into Hughes’ pockets. He was also a major stakeholder in Trans World Airlines (TWA), which was one of the biggest west coast airlines until Hughes basically ran it into the ground.
After he gave up control in the 1960s, TWA bought Hilton International and Century 21 before going defunct. Carl Icahn even owned the failed airline for a bit before American Airlines bought it in December 2001.
Interestingly, the fight for inheritance of Hughes’ estate lasted longer and wasn’t settled until 2010. Most of the money went to the Howard Hughes Medical Institute, which is one of the best funded philanthropic organizations in the U.S. with a $22.6 billion endowment.
It got this money from both Hughes’ personal estate and by divesting its ownership of the Hughes Aircraft Company over time.
What Companies Did Howard Hughes Own?
Hughes Tool Company became a holding company over time and was eventually spun off. Many of its holdings still exist, just in different forms.
TWA, for example, is now held by American Airlines. The Howard Hughes Corporation is now focused on real estate, but it also once held a variety of Las Vegas casinos. These casinos were demolished from the 1980s through 2000s to create the modern Strip.
It also owned the Las Vegas CBS affiliate, Hughes Helicopters, Hughes Sports Network, Hughes Electronics (now known as DirecTV and owned by AT&T) and Hughes Aircraft (purchased by General Motors).
While it looks much different than in his day, many of the businesses Hughes started are still around today. His dad’s tool company made a fortune in the aftermath of the Great Depression selling drill bits in an oil rush.
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