THE REIGN OF JAY-Z

You would never have known it was a bad week for Jay-Z. There he was, two days after the election, at P. Diddy's birthday bash (held on Wall Street, of course), styling and profiling in a custom-made pinstripe suit, as if that other expensive suit--brought against him by R. Kelly--were just a minor annoyance. He and Kelly had planned a fall tour together, but Jay-Z blamed Kelly for showing up late, canceled shows and finally kicked him off the bill. Kelly, in turn, accused the rapper's posse of sabotaging his equipment and dousing him with pepper spray. (See you in court.) Oh, yes, and Kelly wants $75 million for wrongful termination of his contract. Yet Jay-Z, looking even more dapper than his host, grooved and mingled with the likes of Usher, Naomi Campbell, Donna Karan and Bruce Willis like a genial CEO--which is exactly the role he's got his sights on now.

At the age of 34, with an estimated fortune of nearly $300 million and enough awards and platinum albums to fill even one of his several palatial homes--not to mention his romance with the bootylicious superstar Beyonce Knowles--Jay-Z, born Shawn Carter, is living a life that must have been hard to imagine when he was growing up in the crime-ridden Marcy projects in Brooklyn. Earlier this year Carter announced his retirement from recording--a move insiders saw coming--and he has now been offered the top job at Island/Def Jam Records. (According to sources familiar with the deal, he's mulling over the details.) He's also busy running his own Roc-a-Fella enterprises (including the Roc-a-Fella record label), which generates about $1 billion annually, and he's a part owner of the New Jersey Nets. No wonder he gave up his day job. "I think Puffy became a businessman so he could become a rapper," says one industry executive. "Jay-Z became a rapper to become a businessman. That was his way of getting into the game, because who wouldn't want to hire the most popular guy in hip-hop? His face alone would get the deal done. That wouldn't have happened to a kid coming straight out of the ghetto--he never would have had a shot."

Jay-Z readily admits that his long-term game plan always went beyond the recording studio and the concert venue. "The business of business has always been something I focused on, and rightly so," he says. "Rap is a young man's game, and I thought about that even when I was young--it has to come to an end. Whatever job you have, be it hustling on the street or working at the mall, you gotta have a plan for when it's over." But he won't be checking the want ads any time soon. With a huge fan base, the rapper with the boy-next-door looks and cooler-than-ice demeanor has inspired a generation of inner-city kids to ditch their NBA hoop dreams for an equally unrealistic fantasy of rolling in Bentleys and quaffing Cristal with beautiful women. Aware of his impact, Jay-Z began visiting urban high schools across the country, encouraging kids to stay in school and out of trouble. "I wanted to set them straight on the likelihood of them making it," Carter says. "I broke it down to them by saying that they even had a better chance of being an NBA player than they did a rapper. I was, like, 'Keep it real--there are about 200 or more NBA players getting a check. There are only about 10 to 20 rappers that are in the game making money with album after album. Do the math and get your education'."

These days Carter hands out between 12 and 20 college scholarships to students from his old neighborhood. "We're the first generation of hip-hop guys to really make the big money," he says. "The generation before us never made this type of cash, so it's on us to keep it going and give it back." And as it turns out, he's even become a role model for his fellow role models. "Jay-Z is just that guy that makes it look so easy and cool," says NBA star (and would-be rapper) Allen Iverson. "When I first saw him, he represented another side of hip-hop that wasn't angry or tripping. He just seemed to be having fun. That's why the kids want to be Jay. Half of the NBA wants to be Jay."

One person, though, who's apparently less than beguiled by the Jay-Z mystique is R. Kelly. Kelly and Carter collaborated on the 2002 R&B/rap CD "Best of Both Worlds," but their planned tour and TV appearances were canceled when Kelly was arrested for possession of child pornography. This fall's tour was to have been their reunion, but sources close to the tour say Kelly's ego took a beating when audiences seemed to warm more to Jay-Z. "The only reason Jay went out on this tour is because he took a lot of flak for pulling out of the tour two years ago, when Robert had his trouble," says a Jay-Z insider. "Then this guy starts tripping and acting like a diva. It takes a lot to make Jay mad, so the fact that this got to the boiling point shows how bad it was." Kelly could not be reached for comment--presumably the lawsuit speaks for itself. Carter will say only that he gets "a lot of love from my fans. That's what it's all about, and there's enough to go around. Unfortunately, what looked good on paper didn't work out that way in reality." He's continuing the tour, with various artists like Usher now filling Kelly's shoes.

The idea of bringing Carter to Island/ Def Jam looks good on paper, too, but it's not yet a done deal, and no one really knows how he might perform on this larger and more complicated playing field. "Any record executive knows that Jay-Z in the boardroom brings another level of respect from within the industry," says a vice president of another label. "But the real key isn't just whether or not Jay-Z is able to find and sign the talent. It's whether he can really do the business part, which means staying within budget and bringing in a certain amount of revenue. That's the test for Jay." Scary. But he hasn't flunked one yet.