Monday, October 26, 2009

michael jackson massive debt ??

News media accounts that Michael Jackson was "debt-ridden", without providing further explanation, gave the impression that the King of Pop's financial situation was something the general public could identify with or readily understand.

But far from it. Jackson's so-called "massive debt" was something that hardly any of us will ever be fortunate enough to experience. I dare say most in the general public have never heard of Jackson's category of indebtedness, better known by some as "acquisition debt".

Acquisition debt involves multi-million dollar purchases of ventures where a significant percentage of the purchase price is financed through "leverage" borrowing. The assets of the acquired company are used as collateral for the borrowed capital.

When Northern Songs - a music catalog holding thousand of songs, including the Beatles' back catalog - was put up for sale, Jackson took immediate interest in the catalog. He was warned that he would face strong competition. "I don't care. I want those songs," Jackson said to his entertainment attorney John G Branca. "Get me those songs, Branca."

Jackson eventually beat the rest of the competition, including Paul McCartney, in negotiations for the Northern Songs catalog, which lasted 10 months. He evenually purchased the catalog for $47.5 million.

Jackson used equity in his own catalog, MIJAC, along with the acquired assets from Northern Songs for loan qualification, with the newly acquired assets structured for equity to flow towards servicing the debt.

In 1995, Jackson merged his Northern Songs catalog with Sony's publishing division creating Sony/ATV Music Publishing. This deal gave Jackson half ownership in Northern Songs as well as half ownership in Sony/ATV. It also included distribution rights to thousands of more songs. With the merger, Sony/ATV became the third largest music publishing venture in the world. Both Jackson and the Sony people were equal partners and vowed to become the world's largest catalog.

Late in 2001, Jackson and Sony acquired Tony Martin's Baby Mae Music catalog of 600 songs.

In July 2002, they bought country music publisher Acuff-Rose for $157 million. The venture included publishing rights to 55,000 songs.

And in November 2007, Jackson and Sony bought Famous Music LLC from Viacom. This deal gave the King of Pop rights to songs by Eminem (a C-rated entertainer who once made light of him), Shakira and Beck, among others. The venture included the assumption of a $30 million debt. They purchased the business for $370 million.

Bottom line. If Jackson was debt ridden, it makes more sense to believe his indebtedness of "$500,000,000" resulted from acquiring multi-million dollar ventures, and not, as media myth makers would have it, "lavish spending."

by Larry Carter is an Old School scholar, life-long follower and avid fan of Michael Jackson.
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1 comment:

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