What HNWIs can learn from rockers cashing in on their music catalogs
In his signature 1975 track “Money Blues,” Bob Dylan laments his inability to pay basic necessities like rent and groceries: “Where does the money go?“he asks. The answer?”Well, I give it to my wife / She doesn’t have it anymore.”
Apparently times are changing.
Many of America’s best-known agents of change have become some of its richest and most successful capitalists. Recently, Bob Dylan, Neil Young, Stevie Nicks, Shakira and several other famous musicians have cashed in by selling their music catalogs.
The 79-year-old Dylan’s catalog fetched $300 million. No longer a crazy young horse, Young, 75, has sold 50% of his catalog for around $150 million. Meanwhile, Nicks, 72, has sold 80% of his archive for $100 million. The list goes on among popular artists with a few major buyers and another 40 or 50 sellers to date.
Outside of a big payday, the question is, why are so many aging music icons selling out now?
As successful rock stars age, they realize that their song catalogs represent large, illiquid assets in their estate. Making this intellectual property liquid can save their heirs from having “fire sales” to pay massive property taxes after the artist dies. The sale also spares the artists’ heirs from having valuation disputes with the government or infighting with other heirs.
At first glance, it may seem hypocritical that Woodstock-era champions of social change sell themselves when they cash in big on their music catalogs. In fact, they are planning very smartly. Additionally, they realize that traditional music revenue models are changing. Even before the pandemic, aging musicians were touring less than before, and thanks to the internet, radio shows and album sales are virtually non-existent. Music is sold via streaming, and revenues are radically different and less predictable. This will not change when the pandemic subsides.
I’m sure there are a number of factors that weigh into each artist’s decision to cash in, in whole or in part. But, as an estate planner, I can’t help but think that wealth liquidity is a major motivator. Each artist turned an unknown and valuable asset into cash. For the artist, this should make the division of his estate easier and perhaps less contentious. For the artist’s heirs, trying to fairly value the music catalog and close a sale within nine months of their parents’ death – when inheritance tax is usually due – is no easy task. Fire sales are fire sales, after all, but strategic selling takes time.
Music catalogs have a rating metric if the artist is well known, usually a multiple of future earnings. But a lot depends on the artist and the expected popularity of the future piece. For the big names, there are many willing buyers, including major music publishers and private collectors (Michael Jackson once bought the Beatles song catalog), but the sales process often cannot be completed. within nine months of the artist’s death. Sorting through all offers can also take time.
Although many artists are still performing, they realize that their careers (and lifespan) are coming to an end. All but Shakira are well over 70. They know it’s time to get their house in order, and doing so with money should provide a resource base and certainty that didn’t exist before.
Also keep in mind that some sales are more of a strategic reduction of the domain; these are not sellouts out of desperation. As previously mentioned, Young retained 50% of its aftermarket catalog and Nicks retained 20%.
When music catalogs are sold, they are taxed at favorable capital gains rates, and yes, they can be donated to charity in a tax-efficient way. Conclusion: Clearly written wealth transfer instructions, whether by trust or other mechanism, are good planning. You don’t want your clients’ estates to end up like Aretha Franklin’s or Prince’s.
“And don’t criticize what you can’t to understand …
Your sons and daughters escape your orders. – Bob Dylan (The Times They Are a-Changin’)
Randy A.Fox, CFP, AEP is the founder of Two Hawks Consulting SARL. He is a nationally recognized wealth strategist, philanthropic estate planner, educator and speaker.