Michael

Published in the Bangkok Post, July 19, 2009

In his life Michael Jackson was probably the greatest musical performer for a generation and perhaps of the modern age.

But in death he may also have unwittingly given the world a dramatic lesson in basic financial management.

Financial planning

At its simplest, financial planning means living within your means and setting aside income for future expenditure including retirement funds.

It is estimated that Michael Jackson’s lifetime earnings were perhaps as much as $700m. His Thriller album had sold more than 109 million copies (before his death) and yet there are reports that he may actually have died bankrupt or very close to it.

While details of much of Jackson’s lifetime income, from musical Royalties, performance fees etc, are a well reported, less is known about his lifetime expenditure and his overall indebtedness.

Got to be there

Much of his money was spent in the creation and maintenance of his 2,600 acre Neverland ranch in Santa Barbara County, built on the scale of a European stately home.

It is not uncommon for people to financially overextend themselves when it comes to their home. The current housing crisis in the US in particular is due in part to people borrowing the paper profits on their home price, which at best were used to finance home improvements and at worst were used to supplement incomes.

At one stage Neverland employed over 150 staff. As his musical career wound down, Jackson borrowed hundreds of millions of dollars secured against his Neverland ranch and from stakes in Sony/ATV and another of his companies that owns all of the rights to his songs. He was at the brink of default on loans from Bank of American in the amount of $270m when they were sold to Fortress Investment at the eleventh hour.

Most people aren’t able to borrow this kind of money but they can cause a similar degree of damage with credit cards and bank overdrafts and with the same effect. Bankruptcy is bankruptcy.

Don’t stop ‘til you get enough

The Jackson Five Reunion World Tour that was due to begin this summer is perhaps an indication of how desperate things had become financially.

The tour would have been grueling for someone half Jackson’s age. It seems that his health was such that it was only possible to arrange life insurance cover for the first few of his planned appearances. The tour may have been in part an attempt to get Michael financially back in the game.

Ironically, Jackson’s net worth will likely to be greater in death than in life. Elvis Presley’s estate is said to have grown by perhaps 10 fold in the 10 years after his death.

The Reunion World Tour organizers, in a clever bid to avoid bankruptcy are offering to deliver the concert tickets, to the original purchasers, in lieu of a refund.

Estate planning

Estate planning ensures that when someone dies, their estate passes only to those chosen by the deceased and with minimum cost and delay. Estate planning can also mitigate or even eliminate death taxes that can arise due to nationality and/or place of residence at the time of death.

Trusts, foundations and offshore companies, the subject of articles earlier this year, are the most common estate planning tools. Assets held in these types of structures are not usually subject to death taxes on the death of the original owner of the assets.

There are reports that it may take years (and perhaps tens of millions of dollars) before the administration of Jackson’s estate is concluded.

His assets are likely held both personally and in special structures like companies etc. Just to produce a complete list of assets is likely to be a truly monumental task. If he didn’t leave a will or there are personal assets missing from the will……

One day in your life

Michael Jackson made one of the most astute investing decisions in entertainment history when in 1985 he purchased ATV (Associated Television Company) which owned the publishing rights to over 200 songs by John Lennon and Paul McCartney, for 47m.

In 1995 ATV and Sony merged their publishing businesses to become Sony/ATV.

Rock with you

In the summer of 1988 Jackson played an unprecedented 7 concerts at Wembley Football Stadium in North London on his BAD tour. This achievement was recognised in the Guinness World Records.

It was probably the peak of Jackson’s performing career and his ‘finest hour’.

The author of this article has fond memories of that tour because at the time I was employed in London by a specialist accounting and tax consultancy firm, whose clients were drawn exclusively from the entertainment industry. Jackson was one of their clients. On concert days we monitored the revenue protection controls inside Wembley Stadium and then got to watch the concert for free.

I watched the concert from the opposite end of the stadium, about 100m away. It didn’t matter. The atmosphere was electric and even without attending the concert anyone living within 10km of the stadium could have been forgiven for thinking that they had been in the presence of greatness.

In memory of Michael Jackson (1958 – 2009)

Gone too soon

Richard Colburn DipPFS is a UK qualified financial adviser and Managing Director of Sterling Assets the specialist wealth management consultancy serving the expatriate community in the Far East.

Questions to the author can be directed to:contact@sterling-assets.com

www.sterling-assets.com

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Published in: on July 15, 2009 at 1:05 pm  Leave a Comment