Will surge in Jackson sales erase $500 million in debt?
Michael Jackson's drug-related death left behind a financial wake. As I posted, estimates are that his assets are worth $1 billion and he owed about $500 million. But a surge in sales of Michael Jackson music and other memorabilia coupled with the abrupt end of his exorbitant living expenses could help erase part of his debt. So could a distress sale of Jackson's most valuable asset -- a 50 percent interest in Sony (SNE)/ATV, which includes 259 Beatles songs.
One industry expert estimates that the catalog is worth $1.5 billion -- putting Jackson's share at $750 million. If creditors -- such as Barclay's which lent Jackson $300 million and Bank of America (BAC) which lent him $200 million using that stake as collateral -- force Jackson's estate to sell that stake in the next 60 days and the sale price tops $1 billion in today's relatively weak music industry, those sale proceeds could pay off Jackson's $500 million in debt.
Meanwhile combining the burst in sales and collapse in expenses resulting from Jackson's passing, his estate could see a boost in cash flow as high as $100 million. Although it is unclear how much flows to his estate -- his music sales have spiked at Amazon.com (AMZN), Barnes & Noble (BKS) and Apple (AAPL) iTunes.
If Jackson's estate is somehow able to avoid selling the catalog, it could generate significant cash flow. Based on an industry estimate that a catalog can generate between 5 percent and 7 percent of its value in cash each year--Jackson's stake could generate $52.5 million a year in cash (assuming his estate's 50 percent stake is worth $750 million). Meanwhile, Jackson will no longer incur $20 million to $30 million in annual living expenses.
Jackson's estate has other assets -- such as Neverland which could be worth $80 million and is encumbered by a $23 million loan and Jackson's own music catalog, called Mijac, which is estimated to be worth $50 million to $100 million, with an unknown amount of debt attached.
But it is virtually certain that lawyers will be feasting on Jackson's estate since it is unclear whether it has one or two wills. And there will probably be some significant court battles by Barclays and Bank of America as they seek to get their share of the Sony/ATV catalog.
Let's hope that Prince Michael II, aka Blanket -- the child Jackson dangled off a Berlin hotel balcony in November 2002 -- and his siblings will be better taken care of than the lawyers and bankers fighting over Jackson's estate.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book isYou Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.