Originally Posted by Colonels_Wear_Blue
Looking forward to this one.
Without Tesla, Westinghouse would be nothing.
In 1888 Tesla met with George Westinghouse and agreed to license his patents for the sum of $60,000, plus 150 shares of stock and a $2.50 royalty per horsepower generated by his AC motor. Tesla was also given a $2000 a month salary to work for Westinghouse, the equivalent of $48,000 per month today. Furthermore, the $60,000 lump sum was worth roughly $1.4 million in today’s dollars. But Tesla’s real windfall didn’t come from stock, salary or bonuses, it came from those royalties. As AC power slowly became more widely adopted across the country, Westinghouse happily paid Tesla hundreds of thousands of dollars in royalties each year. By 1890, just one year before his 35th birthday, Tesla had become a full fledged millionaire. To give some perspective, $1 million in 1890 would be worth a little more than $25 million today.
The War of Currents took a big financial toll on Westinghouse. Edison could weather the storm because he was backed by the millionaire financier J.P. Morgan. By 1907, after nearly 20 years of fighting with Edison, Westinghouse was more than $10 million in debt and teetering on the verge of bankruptcy. Out of desperation, George Westinghouse approached Tesla with a proposition. Westinghouse begged Tesla to lower or temporarily rescind his royalty in order to allow the company to survive. Westinghouse further explained that if the company went bankrupt, Tesla would be faced with the nearly impossible task of retrieving his royalties from a stingy bank creditor. To Westinghouse’s amazement, Tesla tore up the original contract on the spot. Tesla was grateful to Westinghouse for believing in him when no one else would. By tearing up the contract and relinquishing his royalties, Tesla single-handedly saved the Westinghouse Electric company. In return, Westinghouse paid Tesla a $216,000 lump sum for the right to use his AC patents in perpetuity (that’s worth roughly $5.4 million today).
In retrospect, Tesla may have been a brilliant inventor but he was a terrible capitalist. In 1907, when he tore up the contract, bankers estimated the value of his patents to be $12 million. Shockingly, $12 million in 1907 is equal to more than $300 million in today’s inflation adjusted dollars.
Obviously, the smarter move would have been for Tesla to offer a five year reprieve from the royalty payment to allow Westinghouse to get back on its feet and destroy Edison. Over the next decade, Alternating Current wiped out Direct Current and became the standard electrical system across the world. Had Tesla held onto his royalty over this time, he easily would have become one of the wealthiest people on the planet. Even by conservative estimates, he should have become the richest person on the planet and the first person with a $1 billion net worth. Had he not ripped up that contract, today those same AC motor royalties would generate billions of dollars every year for Tesla’s relatives.