The 2002 scenario marked the public back and forth of the war and the problems between MJ, Sony, and CEO Tommy Mottola. MJ words on Mottola speak alone.
There is no need to comment any further, primarily because it must not be forgotten that Mr. Mottola was a hired man at the end of the day. Rumors tell of MJ and Masao Morita of Sony Entertainment Worldwide busy working on a video game with using the Invincible songs, and neither of them bothered to tell Mottola. But in the USA, the hard fight to destabilize MJ financially was officially on “screen.” 90% of the press was on random aspersions.
Also, people such as Russell Simmons and Ricky Martin had spoken out against Michael Jackson in his feud with Mottola and made in derisive public statements about him. Comedians like Dennis Miller and Robin Williams had bad mouth using comedic references to the allegations that MJ faced several years before. And even the people who have worked with him suddenly disappeared. No one stood up for MJ, and their non-support was uncannily the same when Michael faced molestation allegations. Only the Jackson family supported MJ and, in particular, Jermaine Jackson, who defended his brother in public fiercely.
Jackson’s attorney Martin Singer stated during an interview that a lawsuit against Sony was into consideration. They had enough forensic audits. There were claims for breach of the agreement and fiduciary duties, accounting claims for under-reporting of revenues, and other alleged improper accounting practices worth hundreds of dollars.
Sony has always been famous for this kind of practice with artists under contract with them. They did not get money from their hits because the record label said the artists owe them money. It was their consolidated skill being mainly aware that only a minority of artists would have been able to fund on its own the audits (we are talking about a few hundred thousand dollars).
Sony, methodically diverted revenues from Jackson’ and his companies disguising the revenues of reproduction, use of it, and exploitation of his musical assets, as “profits” instead of “royalties,” by removing the royalties from the pool of revenues upon which MJ royalties were calculated and purposely reducing the royalties and his Net Receipts. Jackson recording artist contract agreement also provided that Sony should credit to Jackson account an amount equal to the portion of the foreign tax credits attributable to Jackson royalties.
Another Sony game was the allocation of the available tax credits. An example is subparagraph 11.02 of Michael Jackson’s recording agreement. It provided that Sony would credit MJ’s account an amount equal to the portion of the foreign tax credits attributable to MJ’s royalties after a final audit by the IRS. Once the IRS completed its audit, it became evident that Sony did not allocate to Michael Jackson a portion of the available tax credit.
Contracts must be written in plain and understandable language and cannot contain unfair contract terms. The complexity of contractual clauses was instead the winning tool of the Sony strategy. And the issue with MJ lay in between good-faith interpretation and the abuse of the right.
The same story of MJ for the Sony/ATV catalog. Another example of how Sony could mess up the accounts is showed in the letter sent to Sony/ATV by Jackson’s company to summarize the agreements they had gotten into:
The letter mention two crucial issues:
- The bank involvement (his infamous loan, pictured by the media, as frivolous expenses and capricious)
- Further payments to him upon liquidation of the company.
The capital contribution represents what Sony had to pay MJ to reach 50% of its shares. Sony/ATV, being newly born and having insufficient funds to assume operating expenses, took loans from Sony Entertainment to pay Jackson. These loans were bearing interests per annum rate of LIBOR plus 100 basis points. And here it started the debt circles that affected the company for all their partnership. To make a long story short: MJ was getting money for the sale of his 50% wholly-owned catalog, and Sony ATV generated debts to become 50% partners. Not to mention the byzantine priorities of financial management and the discretionality of how profits were distributed.
The Joint Venture signed between them in 1991, and the publishing catalog resulted in a multi-millionaire contracts/agreements intersected with each other was a breeding ground for accounting manipulations since the money flow passed largely in Sony coffers.
Sony could be able to show MJ account in debt somehow. Because if it is true that as per the contractual principle that record labels cannot sue an artist if they cannot recover the advances disbursed, MJ was a business partner involved in gains and losses.
Wendy Day, founder of the artist advocacy group Rap Coalition correctly understood the situation. She said in a 2003 interview: “Michael Jackson’s problem is like racism: when you’re not the person being oppressed, you tend not to see it.”
It had nothing to do with Jackson’s personal issues toward Mottola. It was a dispute involving the recording agreement and relates to their business relationship in the publishing venture, Sony/ATV.
Jackson claimed Sony acted inappropriately in the marketing of “Invincible,” and the record company defended its budget to show initial support for Jackson. In reality, the 25 or whatsoever Million claimed to have spent making and promoting the album were inflated and far from accurate, as well as the number of record sales attributed to it; because there’s a world of difference between them spending money and spending it adequately. The cash was, in no small measure, purposely wasted. Recording studios and hotel rooms left empty and booked for months with no one caring about it and pressures put on MJ to use new and young producers, convincing him he needed them when indeed it was the contrary. Sony’s mismanagement during the production of the album was well documented.
It was only in November 2001, after the acquisition of 50% of the MJ ATV catalog, that Sony started to deposit copyrights into Sony/ATV. Sony/ATV signed a co-publishing deal and acquired Martin’s Baby Mae Music catalog of 600 songs. In July 2002, Sony/ATV Music Publishing purchased country music publisher Acuff-Rose for $157 million. It’s a mistake to think that Jackson had deposited no additional copyrights into the catalog since Sony/ATV was a partnership, and MJ was on the board of directors. The company could not act without his consent. The Operating Agreement specified that both shareholders were forbidden to purchase catalogs if not for the interest of the company.
Meanwhile, the company had raised substantially in value. There’s an official survey dated 1999 saying that Sony/ATV value was 993 million of dollars. And MJ 50% was still the most valuable and significant income of the company.
Since 2000 Sony Corp. was in full crisis, having many of its divisions in precarious situations, and their interest was to put MJ into liquidity constraints, not to squeeze him into a bankruptcy procedure. If MJ had gone bankrupt, as news had deceitfully reported, Sony would not have been able to apply to the option imposed by Bank of America, namely the “Put Option” price. If this had happened, the bank would have owned 50% of Sony/ATV shares and subsequently auctioned them to the highest bidder. And Sony couldn’t let it happen.
By the timeline of the events, it is clear that the album boycott and the purchase of new catalogs were the occasions to absorb most of MJ’s incomes deriving from Sony/ATV and consequently for Sony to acquire more leverage in their joint-publishing venture. Michael Jackson’s financial situation wasn’t insecure to the extent that Sony could put some hopes on it. But the truth was that Michael had his assets pledged into Bank of America loans, and part of his revenues placed in the reserve accounts to guarantee the payments of the interests and secure the loan itself. That’s was the reason he was seriously planning other ventures and solutions to diversify and strengthen the sources of funding and developing other corporate alliances.
On September 30th, 2002, a third amended and restated term loan agreement between Bank of America and MJ-ATV Publishing restates in its entirety the Existing Loan Agreement plus the already agreed third loan od 11.5 million of dollars that inject cash in the collateral accounts, and settled banking costs, interest, and expenses. Only 3 million were available for MJ corporate expenses.
Contrary to what the press was heralding, it was the same old corporate loan in agreement with Sony since 1995. At that time, MJ’s financing had gone from a prime rate regulated by Federal reserve funds to LIBOR to try to earn on futures operations through collateral accounts that accrued interest.
The year 2003 started with management “clean up.” There was another change of the structure of MJ/ATV, and MJPT trusts with Mr. Branca and Mr. Siegler replaced by Mr. Malnik and Mr. McClain.
Dieter Wiesner and Ronald Konitzer were working on a plan named MJ Universe, which was supposed to relaunch Michael’s career. Meanwhile, Jackson strolled around the world journalist Martin Bashir, who was introduced to him by his friend Uri Geller.
As per a 2005 testimony of attorney David Le Grand, Wiesner and Konitzer tried to take over Jackson’s management, working subtly behind his shoulders. They messed up a great time with Michael’s money to synthesize their work, but they did not succeed in their intent. There were too many people around and too much at stake for everyone.
Michael was not a fool and immediately realized that Le Grand was unable to care for his publishing affairs and dismissed him after only three months. And this was his consideration regarding Konitzer: (excerpt from the 2006 Schaffel lawsuit) regarding Konitzer:
So, even if in bad terms, Mr. Branca law firm still had the management for the licensing of MIJAC. However, it was a real mess.
The controversy that arose after the broadcast of Martin Bashir’s documentary, Leaving with Michael Jackson, followed by the leaked Chandler’s 1993 deposition, appeared “magically” on The Smoking Gun website had almost immediately a disparaging effect on his business efforts and his finances.
It resulted that by the end of August 2003, he raised the credit line guaranteed by MIJAC from 35 to 70 million and the relevant amendment of the Sony inter-creditor agreement. The document shows MJ was in debt with Sony Music of 12.5 million.
An Intercreditor Agreement sets out the arrangement between financiers providing loans or credits to a borrower and reconciles their different interests. It deals with the commercial behavior of the parties and also the ranking of their debt and security, particularly on insolvency, by subordinating junior lenders (Sony in this case) and regulating the rights of lenders. Commercially this kind of agreement provides for the subordination of the Inventory lien solely to the loans made under a Revolving Credit Agreement.
I have no documents related to it, so I cannot have a clear understanding. What it’s sure is that the agreement is linked directly to MJ advance on royalties and the exploitation of his music and intellectual property.
I found a document dated 1998 referring to various agreements between them. The most interesting is the “use period” connected with Michael Jackson’s recording contract.
The document refers to the sixth album for which MJ was still under contract, specifying the insertion of a new wording in the Subparagraph of the Recording Agreement.
“Notwithstanding the foregoing, if prior to your delivery of the sixth album of your recording commitment Jackson, MJJP or MJV becomes a debtor in a case under the Bankruptcy Code section 365 (an applicable rejection order) the used period shall continue until the later January 1st, 2024, and the date that is seven years after entry of an Applicable Rejection”.
The above is another example of the many interpretation legal diatribes that must have been to get out of Sony. MJ was strangled in a finance facility that engaged all his assets. He still had other resources, but the lack of liquidity gave him little room for maneuver when negotiating new agreements or renegotiating existing ones.
All of the above, it makes me wonder why all of a sudden, almost a year after MJ had lashed out at Tommy Mottola, the new allegations came about. So I wonder why the very same day of the Number One’s CD release, Tom Sneddon with a search warrant and 70 cops went to raid Neverland.
And also why in October of 2004, while Michael was facing child molestation charges in Los Angeles, there was news spread in the Media asserting MJ was on the way to agree to sell his 50% catalog to Sony. And they dared to go into details such adding that general discussions between Sony and Jackson’s representatives, John Branca and Charles Koppelman, were in place to discuss already the post-merger direction of the partnership.