Yes, entertainers can use their projected revenues as collateral, if
they own their intellectual property.
Michael Jackson has used both his own catalog of songs and the Beatles
song catalog that he purchased as collateral for loans, including a
$200 million loan from Sony.
Jacko Pawned $2 Million Watch to Raise Dough; Banker Claims: 'I've
Kept Him Alive'
"This revelation comes at a crucial time in Jackson's roller-coaster
career. It's already been acknowledged that he's used the *Beatles*
song catalog to borrow $200 million from Sony Music. At the same time,
Jackson is struggling with poor sales of his latest album,
/Invincible/, and Internet rumors that Sony is ignoring the album in
order to force Jackson's hand in turning over the catalog."
"Jackson's penchant for borrowing money does not stop there. On June
26, 2001, he filed another Uniform Commercial Code (UCC) Financing
Statement. This time, possibly because his credit was tapped out at
conventional banks, he took a loan from an outfit called Royalty
Advance Funding of Beverly Hills, Calif. (From their Web site: "There
is no minimum or maximum amount that can be advanced. Any songwriter,
publisher, composer, or producer is welcome to take advantage of our
music royalty/residual advancement service. No questions asked.")
The collateral was his music catalog, which contains hit songs such as
"Billie Jean" and "Beat It," as well as songs Jackson purchased some
time ago written by *Sly Stone* including classics such as "Everyday
People," "Family Affair" and others."
Another strategy for turning future earnings into immediate cash is
called securitization, a method by which an entertainer will issue
bonds based upon the income stream from a body of work. The bonds have
been dubbed Bowie Bonds, after David Bowie, who raised $55 million in
the first of its kind issue. David Pullman is the man who came up with
"Even David Bowie, to much fanfare last February, bundled up the
future sales of his early songs and sold them in a private placement
to Prudential Insurance for a cool $55 million. Crosby Stills & Nash
and the Rolling Stones are reportedly thinking of following suit.
This financial alchemy is called securitization, an ungainly term for
an increasingly important way that capital gets funneled around the
economy. Securitization creates a financial instrument, or security,
by pooling the cash flows from a number of similar assets, such as
mortgages, or credit card accounts, or the future sales of David Bowie
records, and putting them into a separate legal entity, often with
insurance or extra collateral in case the cash flows do not
materialize as expected."
"His two existing ten-year distribution deals were about to end.
Negotiations for a new deal were under way when David Pullman, of
Fahnestock and Company, a small New York City investment firm,
proposed bonds as a way to get money up front. While Pullman tested
the feasibility of a bond sale, Zysblat looked to see how big an
advance record companies would offer. Said Zysblat to the press, "His
numbers were bigger than my numbers."
Meanwhile, Pullman approached Prudential, the nation's largest
insurance carrier, because it was known as one of the few companies
willing and able to take on such an unusual deal, notes Prudential
Vice President Andrea Kutscher. Bowie is not exactly a perfectly
diversified product, but he did have a number of different assets,
including royalties from 25 albums and 250 songs, publishing rights,
sheet music, and movie rights, all across the globe. He and his record
company could also provide up to twenty years of sales data, which
Prudential was able to slice and dice, looking at first-year sales,
sales thereafter, and other trends, year by year. Kutscher also
conferred with several record companies for additional perspective. As
a result of its analysis, Prudential became convinced that there was a
predictable stream of income there. "A bond is just a promise,
anyway," one observer commented."
Who's Who in Bowie Bonds
"Ashford & Simpson
Songwriting duo and performers Nicholas Ashford and Valerie Simpson
are responsible for hits such as /Ain't no mountain high enough/ and
/I'm every woman/. Their copyrights to 247 songs were the backing for
a $25 million bond issue by the Pullman Group in 1999.
The "Godfather of Soul", ""Sex Machine" or "hardest-working man in
show business", as he has also been called, signed a Bowie Bond-type
deal with David Pullman in June 1999 netting $30 million.
The Isley Brothers
In September 1999 David Pullman arranged a deal to securitise the
Isley Brothers catalogue of over 200 songs, including 50 R&B hits.
In September 2000 the Pullman Group arranged a bond issue for the
estate of the late Marvin Gaye, whose musical legacy includes /What's
Going On/, /I Heard It Though The Grapevine/, and /Sexual Healing/.
The musician's widow and children shared the profits from the sale of
In September 1998 it was reported that Joan Jett
I Love Rock 'N' Roll /originally released in late 1981, was to be the
foundation of a bond offer being put together by David Pullman. The
deal, which also involved the song's writers, Jake Hooker and Alan
Merrill, was unusual in being based to such an extent on a single
song. Although most of the song's future earnings were expected to
come from airplay and the sales of Jett's record, any future cover
versions would also boost earnings.
Iron Maiden became the first heavy-metal band to has sell bonds when
it arranged a $30 million deal in February 1999. The deal was arranged
by , a lawyer with by the law firm, Thelen Reid & Priest
<http://www.thelenreid.com/press/releases/2_8_99_idx.htm> and Michael
Elkin, chair of the firm's Entertainment and Media Practice Group,
handled the negotiations.
In April 1998 the Financial Times reported that Rod Stewart was given
a $15.4m loan from Nomura Capital, which is backed by revenues from
his music publishing catalogue. The intention was that Nomura would
later issue a combined bond against Rod Stewart's future royalties and
those of other musicians.
In May 1998 Dusty Springfield made a deal, reputedly worth about $10
million, with Entertainment Finance International, a group formed by
Prudential Investments and rock management firm RZO involving rights
to her entire 275-song collection, including hits as /I Only Want To
Be With You/, /Wishin' And Hopin'/ and /You Don't Have To Say You Love
Me/. EFI was intending to bundle the deal with similar ones in a
single bond issue which would be sold to Prudential Insurance. Sadly,
Dusty Springfield died of cancer less than a year later.
Edward and Brian Holland and Lamont Dozier
A $30 million bond deal was announced in April 1998 for this
songwriting team who were responsible for some of the greatest hits of
Motown groups, e.g. the Supremes' /Stop in the Name of Love/, and The
Four Tops' /It's the Same Old Song./ Phil Gallo wrote in an editorial
in Variety <http://www.variety.com/index.asp?layout=upsell_article&articleID=VR1117885947&cs=1>
magazine, May 11 2003, that "Holland, Dozier and Holland, perhaps more
than any other songwriters in history, have shown considerable
business acumen." In the same article Brian Holland was quoted as
saying of their Bowie bond deal, "that's a tricky situation. /You
could almost write a James Bond novel from those documents/."
David Pullman arranged a bond deal for the estate of /Grapes of Wrath/
author John Steinbeck."