Tuesday 4 May 2021

Valuation of the King of Pop's Image and Likeness: Not That High

The U.S. Tax Court released an opinion concerning the dispute between the U.S. Government and Michael Jackson’s Estate concerning the valuation of his image and likeness.  Notably, the court stated that the estate valued his image and likeness at $3,078,000, and the government valued it at $161,307,045.  That’s quite a spread and you can imagine that the tax bill looks very different based on the valuation.  The court ultimately valued Jackson’s name and likeness at $4,153,912.  The decision is over 250 pages and chronicles Michael Jackson’s rise to fame as well as the problems.  Importantly, the decision raises how even when Michael Jackson was enjoying commercial success as an artist that licenses of his name and likeness did not do well at all.  The decision states:

Jackson’s personal fame meant that he received numerous requests for merchandising licenses for his “image and likeness.” To handle these requests, Triumph International, Inc.--an S corporation with Jackson as its sole shareholder --was incorporated in March 1984. In July 1984 Triumph entered into a five-year licensing agreement with Sullivan’s company, Entertainment Properties, for the use of Jackson’s image and likeness on a variety of products, including a line of clothing and fragrances. Under the agreement, Jackson was to receive $18 million upfront, with a potential total of $28 million. Jackson, however, was the only winner in this deal. He got the $18 million, but the merchandise didn’t sell, and the deal ultimately proved disastrous for the Sullivan family.

Based on Michael Jackson’s success at that time, one wonders if there were management issues concerning the exploitation of his image and likeness.  After Jackson was sued for child sexual assault, the court notes that his next tour, while successful, did not have dates in the United States and was not sponsored.  The court states:

The tour did have one merchandising agreement. Triumph granted Sony Signatures “the sole and exclusive right and license to utilize the Licensed Marks in connection with the manufacture and [distribution]” of merchandise, with “Licensed Marks” defined as “name(s), symbols, logos, trademarks, designs, likenesses and/or images of [Jackson].” Sony Signatures paid a $6 million advance, and Jackson also got nominal amounts from a few other licensees. Sales of tour merchandise were, however, significantly less than the advance, and Jackson had to repay Sony Signatures nearly $4 million.

The court concludes that:

We have to look for the value of each of Jackson’s assets as if “in the decedent’s hands at the time of its transfer by death.” Estate of Simplot, 249 F.3d at 1194-95. The value we put them as of the day he died is, we acknowledge, much less than their value much later under the Estate’s management. Branca, a friend of Jackson’s for many years, but a practical man forever, credibly testified that as popular singers age their prominence declines. Jackson, at the time of his death, was not behaving as if this were true; even a rational and undistressed hypothetical seller would have been hardpressed to avoid fire-sale prices. But Branca is right. Older stars’ “fans are less apt to buy tchotchkes.” Older stars do get less play on the radio. And according to all the expert witnesses, the same is true about even Jackson. They predicted that, like most popstars, Jackson would have a foreseeable surge in sales of his songs when he died, but a surge that would fade with time. They are right. Popular culture always moves on. There will come a time when Captain EO joins Monte Brewster and Terry Forbes as names that without googling sort of sound familiar, but only to people of a certain age or to students of entertainment history. And just as the grave will swallow Jackson’s fame, time will erode the Estate’s income. It resurrected and then sold what became its most valuable asset to Sony before trial. The value of what it has left, no matter how well managed, will now dwindle as Jackson’s copyrights expire and his image and likeness shuffle first into irrelevance and then into the public domain.

I am not sure “radio” time is that important anymore—like on an FM station, but see the licensing information mentioned above.  The full opinion has a lot of information on valuation and is available, here. 

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