JAMES BROWN SHAKES HIS MONEYMAKER

A new financial plan helps Soul Brother Number One finally work it out

By Wickham Boyle

Hey, Papa's got a brand new bag and it's filled with money.  The Godfather of Soul.  66-year-old superstar James Brown was the recipient of a bag of money totaling close to $30 million.  How'd he get it?  He sold his future.  It may sound Faustian, but this is not a deal where he sold his soul, just the rights to 15 years of royalties on his cold-sweat-inducing music.

Deals like these, where artists securitize future rights for a chunk of money in the present, are a new twist on the old, mundane financial vehicle known as the bond.  In finance 101, a bond is a promise to pay.  It can be a promise from a municipality --- like the infamous Orange County, California, bonds that went belly up --- or a promise from the feds --- like Treasury bonds, which pay a consistent but low yield.  A bond is as good as the person or corporation backing it, and they get a rating of triple A to as many D's.

These new James Brown bonds, issued by Belly Bond, were rated by Duff and Phelps at 7.98 or single A, and the entire batch was snapped up at the offering this past June by the insurance giant Prudential.  What exactly went on to create a bond that has no corporation or government entity behind it?  A deal called securitization, which means something is securing or shorting up the promise of the bond.  It can be debt or mortgages or taxes but in this case it is the projected future income from royalties on James Brown's 15-year catalogue of music, which contains more than 750 songs.  

An innovative banker named David Pullman came up with the idea to securitize the future income of entertainers.  Pullman says he loves these deals "because they marry rock and roll and finance."  In 1997, he launched bonds backed by the future income of David Bowie.

Celebrity bonds are a natural extension of the $200 billion asset-backed securities market that began with home mortgages in the '80s.  It was during that decade that lenders began bunching thousands of home mortgages into a single unit and issuing bonds.  The issuers used the steady stream of mortgage payments to pay the interest, just as these bonds use the income from royalties.  Pullman followed the Bowie bonds with a $30 million deal with the Motown songwriting trio Holland-Dozier-Holland and a multi-million-dollar bond for legendary song critics Ashford and Simpson.

The celebrities receive an up-front payment from the bond issuance, and the money received is tax free.  It is basically a loan that the artists pays back over 10 to 15 years based on royalties.  And that's a great thing for an artists like Brown.  Long before the hip-hop generation figured out that he was "Soul Brother Number One" in terms of sampling, he had established his funky oeuvre, which remains a veritable cash cow in terms of royalties.  To say Brown "feels good" about this sudden bounty is an understatement.  "It's a blessing to reap these many rewards from life, " he says.  "God bless America."

It is a truly American deal that spins future song sales into gold for artists and allows them to have a pot of money to invest now, when the market is on fire.  Many other celebs are looking to innovative financial deals to give them control and security.  Pullman is unable to comment on the exact hit list for future bonds but does say, "The list of legendary artists would astound you.  All the people we work with are of similar status to those whose bonds we've launched.  Keep watching."

For now these deals are snapped up whole by giant institutional investors like Prudential and other insurance companies, but in the future mutual funds like the James Brown bond will enable folks to make investments with, as brother James would say, soul power.

CODE, December 1999, p. 64