/ 4 July 2009

Level of Jackson’s debt still a mystery

Judging by recent ticket sales, the 'King of Pop' still had pulling power, writes Chris Tryhorn.

The earning power of the man who sold an estimated 750-million records has never been clearer — Michael Jackson has again dominated the charts across the world since his death. But Jackson left a mountain of debt behind him and how the tangled web of his finances will unravel and who might benefit is far from clear.

Jackson was clearly facing severe cash problems before he died. His former nanny, Grace Rwaramba, recently revealed that she used her credit card earlier this year to pay for a birthday party for one of his children.

Jackson first ran into big trouble in the 1990s, when the cost of maintaining the Neverland ranch (which he bought in 1988 for $14.6-million) severely strained his finances.

”He had a tremendous burn rate of several million dollars a month running Neverland, shopping and going crazy, flying people all over the world. He kept borrowing against his asset base and put himself in a deep cash flow situation,” his former publicist, Stuart Backerman, told the Vancouver Sun.

He also paid out $25.5-million in out-of-court settlements with the families of boys who accused him of child abuse. Meanwhile, the hits were no longer flowing, with diminishing returns from albums appearing four years apart.

In 1995, to ease the growing pressure, he agreed to merge his prize asset — the Beatles’ song catalogue, which he acquired a decade earlier — with the library of his record company, Sony. Three years later things had got so bad that he had to take out a $140-million loan with Bank of America secured against his 50% stake in the joint venture, Sony/ATV.

Relations between Jackson and Sony soured and in 2002 he mounted a bizarre protest outside its headquarters in an open-top bus, branding chief executive Tommy Mottola ”very, very devilish”.

Jackson’s borrowings continued to swell, while his debt with Bank of America was sold on to the New York company Fortress Investment Group. Some reports have put his debts at the time of his death as high as $500-million and, although he hung on to his 50% share of the Beatles’ rights, it is unclear who will get them now and whether his stake is worth the $1-billion that has been mooted.

Sony/ATV earns between $300-million and $500-million a year from Beatles, Bob Dylan, Eminem and others’ songwriting royalties, according to Rolling Stone.

Aside from his extravagance, Jackson’s big problem was that he had not put out any new material since 2001. Sony filled the gap with greatest-hits compilations and special editions of his classic albums.

Hopes of a new album were raised in 2006 when Jackson appointed Guy Holmes, the man behind Right Said Fred, to spearhead efforts to come up with fresh material. The star found a benefactor in Sheikh Abdullah of Bahrain, who was reportedly prepared to bankroll his costs if he recorded the sheikh’s own compositions. But the deal came to nothing.

Musically, Jackson had become directionless, veteran DJ Paul Gambaccini said. ”Everything suggests it’s not just his real fans who bought the act, it appears as if he bought the act: he believed that he was the King of Pop, he believed he was still a major star even though in today’s marketplace he did not even have a presence. There was no new record for eight years and he seemed clueless about what to do next.”

Given that the creative well seemed to have run dry, a return to live performance — increasingly lucrative for today’s music aristocracy — was Jackson’s best hope. Hence his intended comeback in a planned 50-date residency at London’s O2 arena that was to have begun next month and was expected to earn him up to $100-million. The fact that such a prolonged run sold out so fast proved Jackson still had extraordinary pulling power.

Since his death, sales of his songs and albums have gone into overdrive, propelling the Number Ones compilation to the top of the album charts and vintage tracks into the top 200 singles.

It has come as a boost to Sony BMG, whose Epic label released all of Jackson’s major solo albums, although Universal has profited from the sale of material dating back to the Jackson family’s stint with Motown between 1968 and 1976.

Another of the four music majors, Warner, administers the publishing rights for the many songs written by Jackson himself, taking a cut from their commercial exploitation on television, in films and in advertising.

This is the first time that digital sales have allowed many different individual tracks to be purchased at the same time in the immediate aftermath of a pop star’s demise.

But how long the sales bounce will be sustained is open to question, given the dearth of new material. —