The Reason Wealthy People Own Yachts May Not Be What You Think

Ten years ago, the world's wealthiest people spent a collective $22 billion on yachts. That's a lot of money—about the same as what most European countries spend in total on their armed forces. But why spend so much on boats for sale? What is the appeal of sailing over and above other ways of spending one's money such as fancy cars or mansions? The answer is surprisingly simple: unrivalled privacy.

The Emptiness of the Ocean

Do we live on a crowded planet? Ask most people and they will say yes, of course we do. But that's not actually the case when you look at it from the perspective of yacht owners. The surface of the Earth is very sporadically populated. Most people live in just a few concentrated areas. Regions such as Siberia, Greenland, Australia, the Antarctic, and the Sahara are virtually people-free zones. Unfortunately, these locations are difficult to access and have extreme weather. However, there is another wilderness that people rarely, if ever, consider (unless they are among the super rich) and that's the open ocean. The world's oceans are enormous. They cover some 70 percent of the planet, meaning that they offer more than two times the space of all of the Earth's land masses combined. What's more, no humans live on the sea (except other super wealthy people who can afford charter luxury yachts). So you can travel for a thousand miles and not bump into a single soul. For the wealthy, this is appealing. It's almost impossible for paparazzi and civilians to track yacht movements. Once a vessel is out to sea, it becomes enormously expensive for journalists to keep tabs on it. Usually, the only way to really get up close is to use a helicopter—and they're notoriously expensive. Some parts of the ocean are even more deserted than others. Major trading routes along the Atlantic and Pacific tend to stay within particular corridors which offer the best winds and most direct routes. Once you get away from these, the traffic thins out considerably; and some ocean regions do not see any regular traffic at all.

The Public Lives of the Super Wealthy

But why would the super wealthy crave such a solitary ocean existence? The reason comes down to the type of lives they lead. Unlike regular folk, they can't walk to the local store, do some shopping, and then hop in the car and go home. If they did, they would be swarmed with people. They might even be in danger. Therefore, yachts offer a kind of peaceful oasis where the ultra wealthy can go to avoid the crowds. They offer a break from their high-profile public lives and allow them to retreat with a select few people they trust. The wealth of ultra high net worth people is extraordinary. Many have more than $30 million in assets, and they spend around $1.1 million per year on luxury items. In total, they comprise around 20 percent of the world's luxury market, buying watches, jewelery, and so on. However, as a group, they comprise around 90 percent of the world's yacht market. In other words, yachts are almost exclusively for the super rich with virtually nobody else entering the market at all. The amount that people are willing to spend on yachts is truly staggering. Published data suggests that a Russian billionaire currently owns the world's most expensive luxury yacht, worth more than $1 billion by some estimates. It has multiple pools, restaurants, car storage, and even a gun turret for fighting off pirates. It's more than 536 feet long and has two helipads, just in case he wants to invite his wealthy friends onboard.

The Risks

While owning a yacht offers the super wealthy many benefits, there are also substantial risks. Injuries from boating accidents are surprisingly common, which is sad but also underscores the value that these vessels bring. Sailing also requires a lot of skill. You can't just pick up as you go along. It takes many years of training, particularly if you want to head out to the deep ocean. While the world's oceans are generally calm, sometimes waters can become choppy and cloud cover can reduce visibility. Furthermore, changes in weather conditions can make it hard to figure out where you are on the surface of the planet precisely. Larger vessels tend to have excellent communication tools, but smaller yachts do not. These factors all increase the risk of spending life at sea. There's also the issue that many of these boats are a long way from the nearest help. Some sail outside of country jurisdictions, meaning that there is little to no security coverage. This means that yacht owners often have to hire security as well, particularly if traveling through dangerous areas such as the perimeter of the Indian ocean. Of course, the more the super-rich spend on their luxury yachts, the more attention they draw. A recent yacht mooring attracted headlines and local people lined up to get a glimpse of it in the flesh.

The Superyacht Future

Because the superyacht market is so exclusive, it is sometimes hard for regular people to get a handle on how it works. There are only a few thousand individuals in the world with the financial means to purchase and operate such vessels without ruining themselves. However, researchers are slowly penetrating the market's elusive milieu. They're shadowing yacht brokers and using that to gain insights into how it works. The conclusion seems to be that yachts are a sort of tool for establishing the pecking order for the super rich. Unlike private jets (which are extremely helpful) or fine wine, superyachts are a status item that allows wealthy people to compare themselves to others. Those with the biggest and most elaborate vessels are at the top. Monaco makes a very visible show of this competition. In the harbor, dozens of large yachts line up with some especially gigantic vessels dominating the smaller pleasure craft in both size and prestige. Yachts are a depreciating asset, though, and extremely dependent on the wealth effect. When the super rich feel like they have more money (because asset prices are rising), they are often much more likely to take part in the yacht clubs market. However, if the economy takes a turn for the worse, they will bail, cancelling orders and selling their yachts to the highest bidder. The costs of running yachts are equally extraordinary—around 10 percent of the purchase price. So a super wealthy person who purchases a $100 million yacht can expect to pay $10 million per year in fuel, staff wages, maintenance and support.

According to industry experts, there is a distinct difference between a yacht and a superyacht. A superyacht is any pleasure craft with a hull measuring more than 24 meters in length. At this size, vessels typically offer multiple floors and special amenities such as cinemas and restaurants. The vast majority also have crew living quarters permitting the owner to travel in full luxury for weeks at a time. Yachts themselves operate as quasi-companies in the sole service of the millionaire or billionaire. There is a manager dedicated to ensuring that the boat is ready to set sail immediately and offer the high-net-worth individual all the services and meals that they expect. So, as you can see, there are plenty of reasons why wealthy people own yachts. Status is part of it, but that's not the whole story. The main reason is privacy which is something that is generally in short supply for high-profile figures.