The Bonds Formerly Known as Artists

By Brendan Weston

Forecast: Licensers will increasingly float bonds or other securities backed by future earnings in order to get cash up front. Pop musicians, accustomed to the ins and outs of royalties and licensing, are leading the way. Authors, athletes and other celebrities will follow.

Ziggy Stardust played Wall Street in February, 1997, when David Bowie issued $55-million (U.S.) worth of so-called Bowie bonds. The issue was backed by the royalties from Bowie's first 25 albums over the subsequent 15 years, and was rated single-A-3 by Moody's.

At first, however, it looked as if Bowie might be a one-hit financial wonder. Then, in April, 1998, David Pullman, manager of the Pullman Group and architect of the Bowie deal, completed a $30-million (U.S.) issue based on the catalogue of 1960s Motown hits by Edward Holland, Lamont Dozier and Brian Holland.

That opened the floodgates. Artsy types who have tapped the market since then include the Dreamworks SKG movie studio and the British heavy metal band Iron Maiden, who raised $30 million (U.S.) this past February. The Bowie deal also inspired a $600-million (U.S.) bond issue by the National Football League last October. And Chicago White Sox slugger Frank Thomas has pondered a financing based on his future earnings.

The theory is simple: Artists and athletes generate cash flow, just like oil wells, office buildings and fleets of trucks.

"Intellectual property is a $1-trillion market," Pullman boasts. Film libraries, television syndications and literary estates are all ripe for securitization.

Of course, there are risks, especially with fading stars. Stock issues based on Debbie Reynolds's casino and Wilt Chamberlain's restaurant chain both bombed. But one big advantage of song, book or television catalogues is that they don't deteriorate physically with age – or excessive drug use.

And while pop culture can seem a tad ephemeral at times, it often has more staying power than hard assets. After all, plenty of oil wells have run dry, and skyscrapers have been abandoned or demolished since Bowie released Ziggy Stardust in 1972.

ROB Magazine Reporter, May 1999.