MICHAEL JACKSON & SONY DIS – AGREEMENTS

 To better figure out Michael Jackson’s relationship with Sony Music, we have to pass through how artists’ contracts with record labels evolved. 

The record companies ripped off the musician, songwriters, and producers from the ’20s through the ’70s. Artists signed contracts in terms of one year with an option of further four. And recording contracts were possibly intentionally complicated and non-transparent. Artists thought to have a five-year contract with the record company, but it was not the case. The record company didn’t have to pick up the second year. There was a provision ( a very tiny one, the typical one nobody read) stated that during that contract year, the record company had the right to record one album on the artist and at their choice to record a second one. The second album had to be delivered within that one year, and the time would have been extended until completion.

 With the coming of MTV, videos became popular, and record companies decided that an artist, instead of releasing an album per year, could do one every two or three. It was becoming fashionable to make a video on each single and make three or four singles on an album over two years. The album sales continued over two years, and the related videos broadcasted. In the ’90s, despite some lawsuits brought up to record companies and widespread discontent, things did not change: the year plus became period. It meant that the first period would be the time it took to record and release an album plus some months, to let the record companies check the album reception in the marketplace before picking up the option for the second period. And during each period, the artist was required to record one album. So, there was no real difference between the two things. Artists were still bound with very long contracts.

The most flagrant example was Prince that in 1993 stopped going by his name and just went by a symbol. Prince was the first vocal example of what was happening between artists and record companies. He participated on the Today Show and had “slave” written on his face.

He felt that record companies signed artists with extended agreements and were treating them like slaves due to the exclusive rights to their recording services and for much too long time. His public behavior was tentative to raise awareness in the artist’s community and start advocating for more fairness, more transparency!

Credit: Photo by Brian Rasic / Rex Features  PRINCE

His first contract with Warner Brothers Records dated 1977 and didn’t end until he negotiated a settlement in 1995 and still owing two albums to them. Prince then was able to release one single, “The Most Beautiful Girl in the World,” through an independent distributor, Al Bell’s Bellmark Records. That record became very successful. It was what the industry calls a “one-off.” After he ended the contract with Warner Brothers Records, Prince became the one artist who could have one-offs with various major record labels. In short, he could have released albums with different companies each time. Very few artists could do that, but his example gave the possibility of that happening.

That gives some kind of an idea of the length of the contracts and why artists were upset about provisions that required them to stay with one company for such an extended period and possibly their whole career.

It was also one of the reasons why Michael Jackson could not change the record company in the ’90. Though the seven years had elapsed from the first agreement, his contract expired, and California law could have been on his side,  Michael still owed CBS 4 more albums. And CBS could have had sued him for damages and ask an average compensation for loss of profit, taking into account the sale figures of Off the wall, Thriller and Bad.  Too much money even for someone like David Geffen.

The exclusive recording services mean that whoever makes that mechanical reproduction and distributes it – usually the record company – has to get a license for the mechanical reproduction from the publisher of that particular song. Publishers do that by issuing licenses to record companies to be paid the mechanical royalty for sale and distribution of the recording of their songs.

But usually, the transference of ownership clauses sound like this:

A “master license deal” means the label takes 15-25% of all licensing earnings. It secures the master license revenue to the record company while allowing the artist to retain the majority revenue and the control of his master recordings, free to take it away from the record label and get into the distribution agreement with another or even sell it.

But contract negotiation key it always comes down to the artist leverage. If the artist has sold many products, if he is very popular and become an essential asset to the record company, he’s in a position to negotiate better terms. That’s how the record companies dealt with artists.

MJ surrounded himself with a bunch of famous lawyers in double-breasted suits ad had much leverage. Right? Well, apparently, not anymore.

Michael Jackson lawyers negotiated the 1991 renewal recording contract in the new fashion offered by major labels at that time: sign a six-album deal. And usually, a smart attorney could negotiate with record companies a lesser number. Nevertheless, it was the record company that had the right to pick up the option. Record companies wanted the freedom to pick up the options because they claimed to invest much money over the artist in recording, producing, marketing, distributing the record. So they wanted the right to try to get profit from the initial investment.
The contract with Sony contained obligations on MJ’s part to deliver finished CD’s and a certain number of required songs. Sony also had certain rights to repackage Jackson’s back catalog. Their contractual power was forceful but not absolute, and they needed MJ’s agreement for any greatest hits compilation released. So, Sony had to keep Michael Jackson happy.

You can read the loudly-trumpeted contract details delivered by Sony to the press here: https://www.latimes.com/la-me-jacksontimeline-sony-story.html#page=1

Since Motown Records times, MJ’s relationship with the record label had always friendly. Jackson and CBS CEO Walter Yetnikoff had been associated and closed for years. In some way, due to his leverage and the friendship with the executive, he was always able to do pretty much whatever he wanted.

While under the CBS contract, there are several examples of MJ’s behavior: the ET production where he sang the storybook of the movie. It resulted in a lawsuit between Universal and CBS. Or Captain EO, with Yetnikoff, that brokered a half-baked solution of partial promotion with Disney that satisfied nobody. And even with Sony at the beginning was very good. MJ and Sony founder, Akio Morita had a real warm relationship.
    cbs-sued

After the Chandler story, rumors say that Sony wanted to release a Jackson’s greatest hits, while MJJ insisted on a batch of new songs. The “History” album appears to be the compromise of it. After much delays on June 15, 1995, Michael Jackson’s long-awaited new album, HIStory, was released around the world. Five days later, it entered the US Billboard LP Charts at number one, like in many other countries around the world. “Scream” and “You Are Not Alone,” went on to create chart history worldwide. But something was already wrong behind the curtain.

On November 4, 1995, Michael performed for the first time “Hearth Song.” at the European show, Wetten Dass…? in Germany. The song was released throughout the world, except for the USA. Besides the long wait for the singles releases, MJ rose up in no uncertain terms against Sony’s refusal to release Earth Song in the US, holding Sony responsible for bad marketing choices that got the record to fall off US charts. To recover the damage and try to improve the sales, Sony gave to Radio stations promo copies of the song, backed with mixes of “This Time Around.” It was a spectacular failure of Sony USA, and American fans did not forgive them for not allowing the American public to decide whether or not the song was a top ten material. Earth Song video, became MTV America’s most requested video, usually unheard of for a song that hasn’t been released. Not to mention the mess raised by the Jewish community following protests asserting the record was anti-Semitic, which brought Michael Jackson to change the lyrics to the song They Don’t Care About Us and make public excuses.

On March 19, 1996, at a press conference held in Paris, MJ announced plans for his new company, Kingdom Entertainment, jointly owned with Saudi Prince, Al-Walid bin Talal bin Abdul Aziz al-Saoud.

The company was founded aimed to use the film deals that MJ had with Sony/Columbia. Instead, Ghosts was presented in its first version, initially exclusively in the United States between 25 and 31 October 1996, together with copies of the film The Eye of Evil (Stephen King’s Thinner) only in some selected cinemas owned by Sony. Ghosts short film distribution, and many other projects with Columbia Pictures did not go in the right way.

MJ took money out of his pockets, promoting his latest album, “HIStory” and financing the related videos. According to insiders, Sony advanced Jackson at least 2 million dollars for music videos supporting the marketing drive, but he spent at least 9 million dollars more of his own.

“HIStory” is the most crucial album in Michael’s career, after what he had to go through in 1993. And it’s without a doubt the most personal. Michael told his story about the false allegations, the lies, the greedy people, tabloid, and Jackson’s case. The album proved why Michael was the world’s greatest entertainer.

But Michael Jackson’s dispute with Sony Music started long before the “Invincible” production. That had only been the tip of the iceberg.

In 1997, only two years after ‘HIStory,’ Sony released the album Blood on the Dance Floor – HIStory in the mix. Critics called it a hybrid record. Before recording started, Sony, through exec Tommy Mottola invoked its right to ten new songs knowing that Jackson, who was already experimenting with a different attitude from his record company than he had enjoyed in the past, would refuse.

And sure enough, MJ did not agree with Sony’s interpretation of their contract. After negotiations with Jackson’s advisors, the compromise resulted in a CD containing five new songs plus eight remixes of tracks from ‘HIStory.’ However, what seems to be a usual negotiation process was actually part of the campaign to manipulate Jackson in the interests of Sony. Usually, the benefits of the artist and the record label coincide, or they should. In the case of Jackson and Sony, they were now massively divergent.

And the release of Blood on the Dance Floor was a mistake even if it proved the turning point in his professional career.
The new generation was reinventing American pop music through hip-hop and rap. MJ was going with this flow with his usual pioneering approach. In fact, by the end of 1997, Michael Jackson began working on an entirely new set of songs.

It was the end of May 2001, when Michael Jackson finished recording what would become his latest album Invincible: his last studio album with unreleased material.

The exact content of Michael Jackson’s recording contract with Sony Music is unknown; I never found it in any lawsuit exhibit up to now. But I spent a lot of time setting up a timeline based on other documents linked with the recording contract to have gained enough knowledge of rights and obligations on both of the parties convey.

The release of the album coincided with a dispute between him and Sony Music Entertainment. The conflict originated from Jackson’s inability to obtain the masters to his records, even though he believed that he possessed this right in his contract with Sony.
But there’s an explanation for everything, and sure enough, it does not come from what Media divulged.

Stay with me…

Sources:

  • John Kellogg, Music Business Second Legal Aspects
  • Digital Technology and the Allocation of Ownership in the Music Industry. The Centre for Market and Public Organisation 09/228, Department of Economics, University of Bristol.
  • Transaction Costs Determinants of “Unfair” Contractual Arrangements. American, Economic Review, Klein B.
  • https://futureofmusic.org/article/article/major-label-contract-clause-critique
  • Linton Guest: The trial of Michael Jackson 2006

MJ’s ADVISER MYUNG-HO LEE, AND HIS ALLIANCE WITH MAUREEN ORTH

Maureen Orth is the fraudulent journalist that reported false stories on MJ for most of her career. She also implied that Michael Jackson intoxicated a 13-year-old boy, Richard Matsuura, with wine served in soda cans. Matsuura went on TV denouncing the story as completely false. And the father corroborated the son’s statements. The place these reports deserve is a dedicated parodies site of fake news. And it’s still Maureen Orts, the sloppy researcher that together with FX and Netflix is currently being sued for defamation by the Versace family over her portrayal of Versace in a show.

Among the vultures that surrounded Michael Jackson for most of his life, Myung-Ho Lee turned out as one of the central figures regarding financial malpractice against MJ. History tells they met in Seoul in the fall of 1996. But Mr. Lee’s first documented presence in the commercial MJ universe appears on a company called Jackson International LLC which shows him as “President” in 1998. With the resignation of Mr. Tarak Ben Ammar from the co-trustee position in the MJ/ATV trust on January 16, 1998, Mr. Lee’s fill the hole on December 23, 1998, just in time to co-sign a loan of 60 million over an already open line with the other co-trustee Mr. Branca.

On this occasion, Bank of America required MJ to put his 50% of Sony/ATV Music Publishing as collateral. And wanted Sony to agree on the loan as co-guarantor, being the other partner in the company. Sony/ATV officialized the bank request with an amendment in the Operating Agreement.

It consisted of Sony’s obligation to pay off the loan Capital to the bank only in case of MJ defaulted to reimburse. It recites that from December 1, 2005, and on or before February 28, 2006, MJ could require the Sony Music Publishing Members to purchase his company interests for a purchase price of $140,000,000 (the “Put Price”). If MJ did not exercise the Put Option on or before March 1, 2006, Sony Music Publishing could require to MJ, from March 1th, 2006 to May 31, 2006, to purchase their SMP Interest in the Company (Sony/ATV) for a purchase price equal to the Put Price.

On April 5, 1999, MJ announced an investment of rumored 30 million dollars in Tickets.com Inc. partnered with other companies through his Jackson International LLC. He owned 20% of Ticket.com for a short period. Right after this investment, Ticket.com’s losses started to grow. MJ likely lost or sold his shares. In brief: he lost money.

On September 29, 1999, a new credit line facility of 30 million was put in place using as collateral the trust MJPT, which included among others his catalog MIJAC. As usual, the security agreement was signed by Lee and Branca, and additionally, there was a continuing, unconditional guarantee provided by MJ.

On July 1, 2000, it was reported that MJ invested in HollywoodTicket.com through Jackson International LLC company. The service was designed to give space to young movie artists and give the fans a chance to get closer to their idols.

The website got blank in early 2001, and managers of the project sued MJ for alleged unpaid bills. Both the site and the company behind had been shut down in January 2003.

In December 2000, a third increase of 45 million dollars guaranteed by the MJ/ATV trust at the rate of 7.14 % per annum. Signature by Lee/Branca.

MJ fired Lee in August 2001 to rehire him almost immediately. It’s unclear when they separate their ways for good, but it occurred sometime between fall 2001 and the filing of Lee’s lawsuit in April 2002.

Lee sued MJ alleging had signed a document to pay him 12 million of arrears. Court documents immediately available to the press caused the diffusion of some specific facts of Jackson’s private life.

In December 2002, MJ lawyers presented a complaint against Lee’s claim. In March of the same year, the judge ruled in favor of Jackson, who could go ahead to countersue Lee for breach of contracts and fraud. In an affidavit, Jackson denied that he signed the deal, saying he was “not even in Los Angeles” that day. Jackson alleged that someone forged his name on the agreement Lee introduced to the Court. He added to have paid Lee for his services 3.5 million, but he wanted more. MJ alleged that Mr. Lee stole millions from him. Jackson lawyers asked the judge to toss away the suit.

The 140 million dollar loan hoax had ignited the imagination of journalists to the point of messing up a growing proliferation of millions while divulging a story much closer to the multiplying of loaves and fishes described in the Gospel than fair and informative reports. Except the situation was unpleasant anyway, I guess MJ would have had much fun reading it.

https://www.foxnews.com/story/hard-numbers-show-jacko-in-constant-financial-peril

https://nypost.com/2002/07/27/king-of-debt-suit-jacko-owes-200m/

Here the mess transpired in the press:  

  • Lee alleged claimed having arranged a 140 million dollars loan for Jackson in 1998 using as collateral “the complete catalog of Beatles’ songs.”

In reality, MJ already had the Beatles catalog since 1985. And the loan was far from being a new one. And it was not organized by Myung-Ho Lee but by “the only and the one” John Branca. Michael Jackson was a well-known client of the bank, having an escrow account where EMI credited the catalogs royalties. A credit facility with NationsBank, then absorbed by Bank of America, was already in place since 1993 and guaranteed by some of Michael’s assets. The 140 million of December 23, 1998, so much trumpeted by Media was nothing than a restated and consolidated Loan Agreement with the 90 million loan facility already in place. In short, there was an additional 60 million disbursement. The expiring date of the loan remained December 20, 2005.

It is common practice to open, close and expands credit facilities when you have commercial activities. When MJ expanded his operations and purchased the Northern song’s publishing in 1985, he sold a small catalog of about 6 million and borrowed something like 40 million dollars from Chemical Bank.

His companies always worked with banks, credit lines, loans, direct or indirect. Michael Jackson was a brand, a creator of services in the entertainment world, a music industry producer, a marketing genius. He was an International Corporation. I’m not going to list the number of companies he headed, directly and indirectly, the web has all these lists. What I care to point out is that when it came to business, MJ was not the sensitive, fragile, and the childlike guy showed in public.

Thanks to Chandler extortion, Michael’s life changed sharply. Countless of frivolous litigations arrived on his desk (from alleged false molestations claims to crazy women allegedly pregnant or with an already done child by him). I think many of us underestimate how desperate people can be. The entertainment industry is rife with beggars and hangers-on who leech themselves to a celebrity looking for power, fame, money, and opportunities. MJ tried to contain the whole lousy publicity, paying settlements and tremendous fees to lawyers. He was billed tens of thousands every month by the PR consultants and advisors.

MJJ Productions and Kingdom Entertainment, produced the short film GHOSTS coming from an old project of 1993 the “Addams Family Values.” Michael Jackson recorded a horror-themed song for Addams Family Values and filmed a music video to promote it, he invested a large amount of money in the project, which was then shelved in the wake of the Chandler child molestation allegations.

GHOSTS  “entire project cost Michael a reported 15 million straight out of his pockets, but he wouldn’t see much of a financial return. Television stations were offered the film as part of an hour-long special but were put off by the high price”.

  • Lee alleged that in the middle of 1999 procured for Michael a $30 million line of credit.

In reality, in February 1999, the promissory note of 140 million been reinstated per the same amount. It means that interests and fees been paid regularly, and the reinstatement was due to amend company documents. The applicable interest rate of the loan was 6.16 % per annum, provided that any overdue amount on principal, interest, and fee was payable on demand, at a rate equal of 2% per annum. Signature: Lee/Branca. And on September 29, 1999, Bank of America opened a new credit line facility of 30 million that was put in place using as collateral the trust containing MIJAC. As usual, the security agreement signed by Lee and Branca, and there is a continuing and unconditional guarantee signed by MJ.

  • In October 2000, Lee alleged to be able to raise the original loan by 60 million — with the provision that Jackson uses 30 million dollars of the increase to pay off the credit line, which was now due.

In reality, in December 2000, there a third loan over the MJ/ATV Trust of 45 million at 7.14 % per annum, provided any overdue amount on principal, interest, fee, payable on demand, at a rate equal of 2% per annum. Signature: Lee/Branca.

Once Myung-Ho Leech (sorry Lee) was fired for fraud and incompetence MJ liquidity shortage is evident.

On September 30, 2002, there’s reinstatement of both loans with the relevant security agreement. (which mean that all matured interests and fees were paid, and the principal amount reinstated) and a loan increase of 11.5 million under the MJ/ATV facility. What ‘s weird about this third loan? That the only purpose was to fund the cash collateral account as per the loan contract, pay the amendment fees, and the remainder to finance MJ’s professional and personal expenses.

Most of MJ royalties and incomes derived by his compositions and the licensing of the publishing catalogs were linked as a collateral of the various investments he went through his career. Michael Jackson earning estimation was around 20 to 35 million annually. Despite records sales reduction and losses in doubtful and insecure transactions, he could still manage the coverage of the bank interests and fees and deal with his life. The 11.5 million borrowed look as a Sony/ATV advance guaranteed distribution not received from Sony due to one of the many priorities at the company benefits. MJ was entangled with them in excess, and they had control over most of his assets and money.

The roughly 115 million dollars Sony had to pay to reach the parity on Sony/ATV shares seem to have been settled in several installments over the years. Most of the money remained in the company books to capitalize on the company and to serve operational costs. That’s was the situation Michael Jackson was at that point.

Meanwhile, South Korean Myung-Ho Lee had become Maureen Orth “adviser,” a woman representing the definition of trash journalism, as her sole competitor is Diane Dimond. Lee told Orth an incredible number of stories. Among many, one was about Jackson cleansing himself with sheep’s blood. Another, that Jackson sent Lee in Switzerland, to wire 150,000 dollars to an African witch doctor named Baba to perform a “voodoo ritual” intended to curse twenty-five people of a Jackson’s alleged “enemies list.” Orth spared no details such as Baba’s curses had been sealed with the blood of forty-two ritually sacrificed cows.

In April 2003, Orth targeted MJ writing the article on Vanity Fair magazine. Being a magazine of international resonance, and the article content highly ridiculous, news had a full day of laughing. (at that time).

What is more incredible is that her shit binge was once again rehashed the moment Leaving Neverland mockumentary appeared.

Despite Jackson nearly had Lee’s lawsuit thrown out, the Korean attorneys successfully scheduled a deposition of Michael Jackson in June 2003, where the singer’s finances would have been fully explored. It was an obvious tactic to scare the Jackson camp into settling before the expensive trial started. And it worked: the day before he was to be questioned, he ended out of court Lee lawsuit. A predictable Hollywood story.

Knowing how MJ used to keep his private life out of tabloid headlines, what Myung-Ho Lee delivered to the press, it was nothing also that pure poisoned retaliation aiming to extort some extra money to him.

Had he a spending habit? Who wouldn’t have got it, when earning for millions of dollars since he was a child? Then note that “burn” 90 million dollars in 4 years means 22.5 million per year. And Michael Jackson was a Corp, giving jobs to hundreds of people. There’s nothing sensational in the amount when you read the way money was employed.

The group of floaty vultures around him are guilties. Most of these former advisors are sitting on their ass, counting the millions of dollars they made and still make on his dead body. Whatever it turns on Michael Jackson’s financial issues, his former advisors, are far more than outrageous individuals.

Sources:

Avram vs Jackson Case no. 1007622 November 4, 2002 pacermonitor.com/case/16787632/Prescient Acquisition Group, Inc v MJ Publishing Trust et al 2006-2008Joe Jackson objection documents case no. bp 117321 November 10,2009

THE INAPPROPRIATE EXPLOITATION OF MJ’S CATALOG IN THE NINETIES

When MJ and his brothers left Motown Records, they signed with CBS Records in 1975.

After the Off The Wall album Attorney John Branca negotiated for Michael Jackson a separated contract and new agreement with BMI, a company that collects artists’ royalties from songs public performance. Meanwhile, Thriller became the biggest selling album of music history. And with such success, MJ invested in Northern Songs Catalog (ATV was one of them). But as record Labels began to consolidate, this precious investment became a severe problem. And this is how it manifested itself.

MJ record contract was negotiated several times, and one of the benefits he had was to obtain the ownership of his all masters recording. CBS reverted the master’s recording, and by setting up a joint-venture with MJ had the exclusivity to license them.

MJ, at the peak of his career, became increasingly influenced by David Geffen, which was the principal reason for John Branca’s replacement in 1990 with three specialist attorneys of Geffen camp. Reports of that time tell that MJ was unhappy with his CBS contract, which John Branca been trying to renegotiate. You can read some stories here: http://articles.latimes.com/1990-11-15/business/fi-6098_1_cbs-records.

In March 1991, news announced that MJ renewed the contract with Sony and inside sources revealed he was guaranteed an advance payment of 5 million per record plus a 25% royalties from each album based on retail sales. The contract bridged recordings, movies, and video software. http://articles.latimes.com/1991-03-21/news/mn-654_1_michael-jackson.
Then MJ got 18 Million dollar advance for the album Dangerous. Great deal, right? Well…NO. That’s when the games started. 

Here a short recap of the events where you will find few names resorting pretty often in the music world and MJ professional life: 

  • 1985 – MJ bought  Northen Song Catalogs
  • 1986 – CBS publishing interests are purchased by a company, SBK. The acronym of this company means Stephen Swid, Martin Bandier , Charles Koppelman.
  • 1987 – Sony bought CBS Records with a host of subsidiaries, including Epic Records, which was MJ’s label.
  • 1988 – CBS was renamed Sony Music Entertainment

As  Lynton Guest penned in his book, “Michael Jackson became entangled with the Sony Corporation almost by accident.”

From there, MJ was submerged by any kind of controversy. His mental state was questioned, and he was embroiled in legal issues.  Gossip’s headlines regarding his expensive lifestyle and the various lawsuits he was subjected to, speculating he had cash flow problems, and when his ATV Music Publishing Company merged with Sony Music Publishing did not help his cause.

David Bowie, as well, was looking for solutions to the financial issues that caught up with him by the turn of the century. His expensive lifestyle in New York had led him to migrate to Berlin for a while, but financial freedom became a priority. In 1997 David Bowie found himself in need to immediately get a large amount of cash to be able to buy from his ex-manager Tony De Fries 50% of copyright on his albums from 1972 to 1976.

His business manager William Zysblat investigated other financing options. Zysblat discussed an asset-backed bond issuance with David Pullman, the managing director of New York’s Fahnestock & Company’s structured asset sales group, and attorney Richard Rudder, head of the securitization practice at New York’s Willkie, Farr & Gallagher. The three managers determined that an asset-backed bond issuance would be more beneficial to Bowie’s interests than a traditional distribution agreement because it would afford him more significant financial gains. As a result of this deal, Bowie received $55 million.

It’s interesting to note that Michael Jackson struck a more dominant deal merging half ATV for 115 million and getting a place on the board of the company. And considering he purchased 100% of ATV for 47 million just ten years before the financial result was terrific. Still, the difference between Bowie and Michael Jackson headlines are pretty stunning:

The Bowie bonds were issued at a fixed rate of 7 .9 percent and had an average life of ten years, reaching maturity at fifteen years. The bonds were sold privately to Prudential Insurance Company.  Selling the bonds privately eliminated many cumbersome reporting requirements. Upon the maturity date of the bonds, the copyrights reverted to Bowie.

The possession of the copyrights of the musical compositions was the key to structuring the Bowie bonds deal because the royalty income generated by the copyrights and received from music publishing licenses and record sales were the assets that support the bonds. Bowie gained tax advantages and a higher present value of the royalty payments by receiving the cash before the periodic royalty payments. Furthermore, the acquisition of the lumpsum enabled him to diversify his income, and he could make investments that would generate revenue beyond the music industry. EMI’ s fifteen years licensing deal for Bowie’s back catalog was used as credit enhancement. After fifteen years, the ownership of the master tapes reverted to Bowie. 

Pullman, who organized the deal, viewed such asset-backed transactions as an alternative to traditional bank loans because they generated more capital and may either had a fixed or a floating interest rate. Additionally, banks usually require personal guarantees to loan money based on the liquid assets of a borrower.

Michael Jackson already retained the masters and copyrights ownership of his back catalog of music and, also, owned the publishing right of all his catalog. Therefore MJ theoretically had a situation much more viable than Bowie, having only an agreement with Sony for the distribution rights and the exploitation of his intellectual property.

After the Bowie bonds came into the spotlight, rumors of a possible bonds deal on MJ intellectual property emerged in the Newsweek of November 1998. The magazine claimed that Jackson was about to sign a bond deal.

 Two years later, in May 2001, there was an article on the Mail on Sunday describing a deal that could raise  500 million dollars by issuing bonds backed by the copyrights of his songs and those of the Beatles in what was described as the Holy Grail of showbiz bond deals. The story was later denied.

However, every time good news came out, there was 10’000 bad news against him. For example: on January 6,  2002,  The Sunday Times, published an article asserting Michael Jackson turned to his record company for a loan, borrowing 200 million dollars using the Beatles’ catalog as collateral, to fund his Neverland Ranch in California and make the album Invincible, released in September 2001.  It was even suggested that he might face bankruptcy. The bullshit was so big that Sony had to publicly deny.

In reality, the effects of a possible bankruptcy were considered unappealing and reduced the attractiveness of a bond deal to potential investors sharply. That’s what does it mean the use of BAD PRESS. David Pullman also pointed out that such transactions take many months to arrange and that Jackson’s need was probably more immediate.

So, while The Bowie Bonds earned a triple-A bond rating from Moody’s, on September 29, 1999, Michael Jackson Publishing Trust opened a credit line initially of 30 million with the usual Bank of America: a traditional financial instrument loaded with massive interest and management costs. Surely it happened because he was entangled with too many intricate agreements with Sony and the bank. And his business management did not care to look for valid alternatives.

But who had an interest in setting up this multiple news? Not MJ for sure. So, was it a case of intense verbal diarrhea coming from some executives mouths in charge to disclose messed up stories against him?  The timeline was suspicious because reports used to come out just after or just before some update in the documents of the financial transactions. And it was clear since 1995 that his 50% of Sony/ATV was pledged totally to BOA.

The Sony/ATV loan went under consolidation and reinstated many times. Sony was co-guarantor – being the other company shareholder but never loaned directly any amount under the BOA facility. So the options are only two: messed up revelations were distributed on purpose or media is populated by a bunch of people not able and deliver decent job. Saying that info was not verified is a euphemism. 
Eager to airing MJ dirty laundry, they filled pages and pages of their rags passing off as a jumbo loan nothing but an inter-creditor agreement related advances that generally record companies give to artists. It was a few million advance against the royalties over the merchandising. Usually, there is an advance over a royalty rate of X percent, if enough merchandising would be sold, it recoups the advance to pay themselves the advance, and then begin to get royalties. It this case, Sony Signatures claimed not to have recovered the advance, so they put themselves in a queue as a junior creditor with BOA.  The next blogs show it might be all these kinds of invoices that generated a debt toward Sony.

In May 2003, there was more speculation about Jackson’s finances in the media, and again it was suggested that he might face bankruptcy. And actually, something was up for him.

Goldman Sash‘s made an offer through Jackson’s adviser of that time, Charles Koppelman, to purchase MJ catalogs just around April 2003. All of them. They asked the consultancy of John Branca. The proposal was that MJ had to put all his interests of Sony-ATV and MIJAC to a newly created vehicle such as “Music LLC” in partnership with Goldman Sachs Capital Partners. Goldman would have provided 135 million in cash, which MJ could have used to repay part of his Sony/ATV liabilities to Bank Of America and 35 million to pay off the whole MJIAC credit line. They proposed to secure the difference of Sony/ATV loan with MIJAC to reduce the 200 million balance but still with 132 million balance to be paid to them. MJ would receive 3.5 million per year for five years apart for the first year, where he would have received 12 million due to 9 million proceeds from Goldman.  And an initial 50% common equity stake in Music LLC in partnership with GSCP for future wealth creation opportunity.

There’s no surprise why Michael Jackson flat out the offer, right?  At that time, Mr. Branca was not working for MJ being dismissed previously in February 2003. But knowing his former client very well, sent a letter to the Goldman people advising that they might receive a refusal.

MICHAEL JACKSON PUBLISHING TRUST LOAN

The credit line with Bank of America initially bore an annual interest rate equal to one month LIBOR + 3.00% at the beginning.

The security collateral of MJPT Loan was:

  • All his musical compositions, MJIAC Music, Miran Publishing Inc, Miran Publishing Corp, and Mystical Light music, including all music, musical compositions, lyric versions,  arrangements of music and translations including air vocal lyric versions or adaptation of lyrics, and all properties and things of value pertaining and all replacements and substitutions, and products end proceeds, acquired or produced.
  • All copyrights, rights in copyrights, interests in copyrights and renewals, extensions, application and registration of copyrights, domestic and foreign, and the right ( but not the obligation) to make publication thereof for copyright purposes, to register claims under copyrights throughout the universe and perpetuity, end the right (but not the obligation) to register, renew and extend each copyright, and the right (but not the obligation) to site for past, present and future infringement of copyright. Most of these rights were included and governed by Warner with the Stewart Agreement dated June 30, 1983,  between Michael Jackson and Warner/Chappel Music. Inc. and  The Warner Agreement dated as of June 12, 1990.
  • A personal guarantee

As usual, the bank did not fall short on anything regarding the guarantees department—Overcollateralized to excess.

On September 29, 1999, Bank of America made an initial loan to MJPT of 30 million dollars.
Through some subsequent agreements, the principal amount of the loan was increased, and the due date extended.  Ultimately, under an agreement dated March 25, 2004, BOA wound up lending an aggregate principal amount of $72,500,000.

The Third Amended and Restated Loan Agreement between BOA and MJPT, dated March 25, 2004, bore interest at an annual rate equal to one month LIBOR + 3.00%.

  • Upon an Event of Default, the MJPT Loan bored default interest rate of Prime + 4.00% per annum. 
  • The MJPT Loan was due and payable in full, together with all accrued and unpaid interest thereon, on December 20, 2005.
  • MJPT Trust Agreement provided that MJPT’s principal assets consisted of music publishing catalog MIJAC formed by Michael Jackson in 1976, Miran Publishing Inc, Miran Publishing Corp, established in 1978 with his brother Randy, Mystical Light music, and the right to receive payments under the administration agreements between MJPT and third parties.
  • BOA’s remedies upon an Event of Default included its right to resort to all of the collateral and to exercise the rights of a secured party according to applicable law. Further,  MJPT  would be obligated to pay to BOA a default fee of $1O million, and BOA could, at its discretion, publicly or privately sell the MIJAC Catalog and the Administrative Agreements upon such terms as BOA deemed commercially reasonable.

On February 24, 2004, the New York Daily News reported that Michael Jackson, beset with legal problems, was again considering securitizing his song catalog. But still, the rumor was false. What happened in that period was one of the usual extensions, which increased the principal amount from 70 million up to 72. But Bank of America’s conditions became more and more impossible, as well as the shortages into the accounts and withdrawals of too high bank costs.

Michael Jackson was not a newbie, neither a naive nor ignorant. He knew the business very well as growing up in the music industry and saw the music industry growing up with him. Sadly be aware of what surrounded him was not enough.

Sources:

MJ AND THE NEW ECONOMY

The Michael Jackson projected into the New Millennium was no longer the man who shared the podium with the then President of the United States, Ronald Reagan. Aside from the new artistic maturity and quality of content production, ten years later, he was “poorer.” (poor in the broad sense, considering his privileged status).

 

The New Economy, the dot.com, the iPod, the cell phones, and the Palm Pilot was the 1990s American illusion led by private-sector spending and independent-sector employment. In the attempt to exploit the services arising from investment and speculation, Michael Jackson’s revenue streams became financialized from 1995 onwards. It was a fashionable exercise for many other wealthy Americans. It was a way to stay relevant through the transition from the American Economy of Industrialization to the financial Bubble Economy that around 2000 lead the world into the “Great Recession.”

 

Finance is often confused with the boring accounting entries; instead, studying the market and monetary flows can be creative. And in mid ’90, “finance” got creative. Maybe too much… In the wake of the New Economy, financial institutions began marketing mortgage-backed securities and sophisticated derivative products at unprecedented levels. In just a few years, they doubled the amount of money and debt in the economy. Lending large sums, especially into the property market, pushed up the price of houses along with the level of personal debts.

 

One form of financial creativity apparently suitable to Michael Jackson came straight from Wall Street: the David Bowie Bonds is the best example of securitization of intellectual property of that time. Michael Jackson did not jump on that wagon, even if it was reported he had thought about many times. Unfortunately, he was already entangled in something more conservative and maybe not planned at best for his personal and corporate needs.

 

In November 1995, after the merger of ATV catalogs with Sony Publishing catalogs, Sony Venture Capital Corporation – an investment arm of Sony Corporation – issued to Bank of America a bank guarantee in favor of Michael Jackson to facilitate corporate loans and serve fresh working capital. The guarantee amount was about abt 148 million dollars. To reach 50% membership in the newborn Sony/ATV, there was a discrepancy of 115 million in favor of Mr. Jackson’s that Sony had to recognize to reach the desired parity. That shows how valuable the about Michael Jackson’s 4000 songs were, compared to Sony Publishing. Mr. Branca confirmed so. In a deposition of February 2017 during the trial with IRS, Mr. Branca summed up Sony/ATV general rules and provisions.

Exhibit B of the Sony/ATV Operating agreement gives us a better understanding of the joint-venture MJ got into with his record label. It describes the total ownership percentage by catalogs and countries. Sony Music Entertainment operated the company to 10% higher than any other publishing company, and 50% of these hefty expenses were for Michael Jackson’s account. Shareholders could not buy each other for ten years, and it was going to expire in December 2005.

 

Sony made substantial cash injections inside the company (Sony/ATV), not personally to Michael Jackson or his companies. And by the minute the company became operative, Sony Music Entertainment (SME) started charging the company (Sony ATV) with administrative expenses and other extraordinary cotillons. Sony itself expanded its credit lines borrowing heavily from banks – since Kyoto trees have no money under the petals. The major exercises were purchasing new catalogs for the company project expansion, debiting massive operating costs to the company, generated huge company liabilities, which resulted in a lower market value of the entire catalog and excellent move for tax benefits. Michael Jackson, being a partner at 50%, had to handle half of all of it. The term “merge” means to combine or join together, not to sell, and that’s what happened between ATV catalogs & Sony publishing.

 

There were rumors that later in 1997, MJ yielded another 2% of his foreign catalogs to Sony, and therefore, the Joint-Venture situation would be reversed. There are NO documents either amendments in the “operating agreement” that confirm the transaction. All the loans describe a 50% membership by both parties. It should be clear by now that when someone searches pieces of information on Michael Jackson, we mostly find hacked and manipulated news. In synthesis, bull shit spread around by whom had interested to put down MJ reputation. An evil quirk that Sony must’ve developed within the company’s compliances.

 

Michael Jackson’s financial “pressure” as Mr. Branca called it, were lawsuits against him piled up in between ’92 and ’94. L.A. Gear filed a 10 million suit against Michael Jackson and his companies, accusing him of fraud and breach of contract in a deal for a failed line of sneakers. MJ countersued them 44 million, and a settlement was in need. Promoter Marcel Avram sued him for $20 million for canceling his Dangerous world tour. A Chilean promotions company sued for $5 million for canceling two concerts of the Dangerous Tour, one in Chile and another in Peru. Smith-Hemion Productions sued the Jackson family for the musical benefit show Jackson Family Honors. All lawsuits settled around 1994. Not to mention the huge amounts disbursed to lawyers and investigators derived by Evan Chandler’s blackmail and extortion.  It was enough to burn almost his entire business and career, and the weight of the whole period crashed his soul and his confidence.

 

The infamous 115 million 

 

Zia Modabber – an attorney that despite being fired in 2002 by Michael Jackson for negligence still works for MJ Estate, involuntarily confirmed that between 1995 and 1998 not even a shadow of the 115 million got into Michael Jackson coffers, if not for the incomes of the History Tour and the related album. If he had received 115 million, he would have cleared out the pending matters and started with a clean slate. Instead, he borrowed almost immediately the first 90 million from the Sony guarantee. In synthesis, he merged his ATV catalogs against a guaranteed loan. Of course, Sony /ATV value raised sharply in few years – as well the corporate company debts, but it looks as Michael Jackson’s entourage didn’t plan the transaction with an eye toward his corporate needs and standard of life.

 

However, looking to the amounts and dates of Bank of America documents, these loans likely corresponded to a financial project built around a table, with all participants interested to exploit the publishing catalogs the same fashion of commodities and derivatives. Many people think it was a long-range of “operations” finalized to strip away Mr. Jackson assets. I tend to believe it was something in the middle since Mr. Jackson was a smart and seasoned businessman. Sometimes a business start with the best intentions, then time and other issues change prospects and priorities. Anyway, these loans were not opened to cover the holes of a pathological big spender as media, books, and biographers keep claiming.

 

The Loan Guaranteed BY 50% of Sony/ATV.

 

Between 1995 and 1998, there were four restated and consolidated loan amendments due to amount increase and document revision. The structure of Michael Jackson’s business undergone various modifications and some new trusts were created. The loan of 140 million consolidated in 1998 bore a Prime Rate of interest at 6.16% per annum. The loan term had a due date of December 2005.

 

Note: a long-term loan provides working capital to a business it can use to purchase assets, which can then create additional income for the business. A company takes on long-term debt to obtain immediate capital. A long-term loan provides higher loan amounts, a lower interest rate, involves collateral submission, repayment in installments, and tax benefits.

 

Before you think Michael Jackson touched the entire amount, a bitter interlude needs to be open, which is not the bank interest rate but the commissions Michael Jackson “vultures” team used to take. This time was Mr. Branca and Myung Ho Lee, being both the trustees of the MJ fund. The only published and sure information is related to Mr. Branca percentage and contractual agreement. All the rest remain a rumor. The documents tell that Mr. Branca, as per agency agreement with Michael Jackson, among other things, used to pocket 5% of the principal amount of the loan. Besides it, he was entitled to take directly from Sony/ATV as follows:

 

  • 5% of all MJ “guaranteed advance.”
  • 5% of all MJ “excess of cash flow.”
  • 5% of the “Put Price” amount if the clause would ever be exercised.

 

However, to facilitate the 1998 loan documentation, “generously” waived the direct payments from Sony until September 2005, to reclaim the whole “package” – principal capital and accrued interests – at expiring date by issuing a UCC lien for 50 million of dollars on Michael Jackson publishing assets. Business is business: especially in the United States, no doubt on this, but here there is a deep consideration to make: these two were friends once.

 

Why Mr. Branca needed to reiterate his very existence in Michael Jackson’s life at the very time when MJ was already up to his neck in it? It was not about money. Mr. Branca accepted 13.5 million – not the original amount requested – and without making additional troubles. So what it was: revenge? Power affirmation? (you fired me, but I exist). Or was he part of the already in motion mechanism to open the bankruptcy procedure and compel MJ to sell off to Sony? The contract enforcement was a means. The motivations might be others. Who thinks Mr. Branca made this action for greed is a naïve, narrow mind. These people do not need the money and do not sue for money, even if, apparently, it shows as the motivation. Power, revenge, and favoritisms are much more likely.

 

  • In February 1999, there was another change in the Michael Jackson Trust structures. The company MJ LLC merged into the newly constituted MJ-ATV Publishing Trust.
  • In December 2000, there was an additional amount added to this loan in the principal amount of 45 million. The loan bore Prime Rate of interest at 7.14% per annum.
  • On September 30, 2002, the third loan of the principal amount of 11’650 million. The loan bore prime rate of interest at one month LIBOR + 2.00% per annum. With it, there was the second amendment reinstated and consolidate loans and agreements for a whole 200 million.
  • The fourth loan by September 2005 was already planned in the loan agreement. (but events changed sharply, and MJ credit facilities were already in Fortress hands).

Why going from a fixed rate on a fluctuating one? Because in 2002, the LIBOR rate was lower than the US prime rate, and although floating, there was good chances of speculation. With a hedging contract, the risks of an increase in rates should limit the damage.

In short: Libor + spread rate, the hedge contract costs, the amendments cost, and bank services: everything for MJ accounts. Absolutely normal, just financial practices. Banks always cover themselves. But Michael Jackson’s Bank of America loan was really overcollateralized. Here the details:

Collaterals pledged

 

  • MJ-ATV Trust pledged to Bank Of America all MJ ATV’s rights, titles, and interest in Sony/ATV. That meant all the economic interest in Sony/ATV, all distributions, all deposit accounts, including the interest-bearing the cash collateral account. All security accounts and investment accounts, all notes, certificates of deposit, deposits, accounts, checks.
  •  Account Collateral: all interests, dividends, cash, instruments, and other property from time to time received and receivable.
  • All the rights to the Hedge Contract Agreement.
  • The right to exercise the “put option” outlined in Section 7. 9 of the Operating Agreement of Sony/ATV.
  • Neverland Ranch was also added.

 

Debtor’s Covenants

 

  • Until full payment of all obligations under the loan, MJ-ATV Trust could not, without the prior written consent of Bank Of America sell, lease, assign, trade, dispose or transfer any portion of its assets.
  • MJ/ATV Trust had to agree, that payments of Sony ATV Operating were transferred directly to the Cash Collateral Account. All revenues received by the MJ ATV in connection with the Operating Agreement had to be received in trustier the benefit of the Bank, be segregated from other funds, and be forthwith paid over to the Bank in the same loan as received.  
  • MJ ATV had obligations to maintaining the cash collateral and investment accounts. Had to perform and observe any term provision of Sony ATV Operating Agreement to be performed relating to the collateral company. Had to deliver to the bank all the financial statements relating to Sony ATV, inform if he received any “guaranteed advance” or “Excess guaranteed advances,” specifying the amount.
  • If an event of default occurred where MJ-ATV failed to pay in full when due principal or interest due, Bank Of America had the right to resort to any or all of the Collateral and to exercise any the rights of the secured party. At its discretion, the bank could sell MJ/ATV’s interest in Sony/ATV within commercially reasonable terms.
  • If the MJ ATV would have failed to pay the outstanding principal amount and the interests of the Loan at the maturity date, the Bank had the right, at any time from and after December 21, 2005, and within to February 21, 2006 (the “exercise Period’), to exercise the Put Option under Section 7.9 of the Sony ATV Operating Agreement, causing MJ ATV to sell to the Sony Music Publishing his Membership Interest. The Bank would have received the entire Put Price.

 

Apart from the old Infos, I read in countless “investigations,”, articles and books trying to give reasons to it – in real -, Sony played long with MJ.

 

The bank had Sony involved to pay the principal loan amount, only in case MJ would have defaulted. But it is crystal clear that the whole loan focused on the expansion project and the grown on the value of Sony/ATV, which is classic financial speculation. The documents tell that MJ never touched the “guaranteed distributions” in 10 years due to the bank agreement. That’s why Mr. Branca talks about “a forced savings. “

But money was not there, or the transfers were not sufficient, since too often there was never enough to cover the interests. And this is not an opinion. There are at least four key testimonies, one of the MAN himself, who testified that money was missing.

The profits of the exploitation of Sony/ATV would have been a successful outcome for Michael Jackson only if the distributions had been equally allocated among the shareholders. It wasn’t like that at all.

You will read it in the upcoming blogs that will show you in detail the documents I mentioned here.

Sources:

Transcript MJ Estate v/s IRS John Branca/Zia Modabber: teammichaeljackson.com Unfinished Business-Judith Hamera Sony/ATV Operating Agreement BOA Security Agreement 98/2002 The Road to America’s Economic Meltdown-Raymond Beresford Hamilton Money creation in the modern economy – Bank of England