A Blog by Jonathan Low


Apr 29, 2016

How Much Will Prince Be Worth - Now That He's Dead?

Tupac's hologram. Michael Jackson's glove. John Lennon's hair and glasses.

The debate over the value of  deceased rock stars' iconic images is far from theoretical: Michael, no last name needed, has sold between $600 million and $1 billion worth of merchandise and music - just since his death. Fans have bought more of his albums since he died 7 years ago than they did in the 13 preceding years before he passed. His image is estimated by the US Internal Revenue Service to be worth $430 million.

Tupac's hologram 'played' at Coachella last year, 14 years after he was killed.

Lawsuits over commercial use of the Beatles 'Strawberry Fields'  and 'Imagine' titles dragged on for years.

The valuation of deceased celebrities' intangibles' earning potential has become a serious business. Prince's untimely death, and the global outpouring of grief and remembrance it has inspired is now generating debate over similar questions. Will Paisley Park, his Minnesota home, become a tourist attraction like Elvis' Graceland? What about the potential value of 'Purple Rain,' 'Raspberry Beret,' et al. It's enough to make doves cry. JL

Richard Rubin reports in the Wall Street Journal:

Estate-tax attorneys for Prince must put a precise financial value on his name, image and likeness.The future profits from his name, image and glyph will be taxed as income as it is earned.(Michael) Jackson’s estate initially said his image and likeness were worth $2,105 when he died in 2009. The IRS, however, said the King of Pop’s posthumous image was worth $434 million.
After the doves cry, there’s IRS Form 706.
Estate-tax attorneys for Prince, who died last week, must attempt to put a precise financial value on his name, image and likeness.
That Prince-ness could make him one of America’s top-earning deceased celebrities, and it may be one of his estate’s largest assets—subject to a 40% federal tax.
The Internal Revenue Service is used to putting price tags on tradeable assets and is well-trained in taking existing revenue streams and capitalizing them into a value. It is much trickier to divine the worth of a unique niche business—marketing Prince’s legacy—that doesn’t really exist yet.
There is no real precedent for Prince. The closest thing is the Michael Jackson estate-tax battle, headed for trial in the U.S. Tax Court in February.
Mr. Jackson’s estate initially said his image and likeness were worth $2,105 when he died in 2009, near the nadir of a career dragged down by scandal. The IRS, however, said the King of Pop’s posthumous image was worth $434 million.
Mr. Jackson’s total estate, according to court records, tops $1 billion under the original IRS estimate, while the estate first said it was just $7 million. The two sides have resolved some valuation disputes, but the name-and-likeness fight is what the estate-tax bar is following closely.
“This could be very ground-breaking,” said Jonathan Blattmachr, a retired estate-tax lawyer from Milbank, Tweed, Hadley & McCloy LLP. A victory for the IRS, he said, could spur celebrities to alter how their estate plans handle their image rights.
Beyond hundreds of millions of dollars for the U.S. government, Mr. Jackson’s case also has tax-planning consequences for any actor, musician, politician or athlete famous enough to earn beyond the grave.
The dilemma has been tripping up celebrity estates since at least 1994, when a federal court decided a dispute involving V.C. Andrews, author of the novel “Flowers in the Attic.” The IRS said Ms. Andrews’s name was worth $1.2 million.
That was based in part on her publisher’s ability to produce ghostwritten books after her 1986 death, discounted for the risk that the ghostwriter would flub the task. The court, looking at what a buyer could have known before the ghostwritten books were successful, set the value at $703,500.
Still, there are virtually no rules for the IRS or taxpayers to follow, said Mr. Blattmachr. He has suggested exempting the value of names and likenesses from the estate tax but taxing future earnings as ordinary income, not capital gains.
“Michael Jackson will be different from Prince who will be different from Madonna,” Mr. Blattmachr said. “It’s horribly speculative as to what the value is.”
Prince’s fans could spend decades buying his music.Prince, whose full name was Prince Rogers Nelson, was famously scrupulous about controlling his business dealings, but his sister this week said in a court filing that he left no known will. It isn’t clear who will permanently manage his tax affairs.
The toughest issue won’t be Prince’s real estate, song royalties or his unreleased trove of recordings, though that could all be contentious. It isn’t even the future profits from his name, image and unpronounceable glyph, which the government will tax as income as it is earned.
The estate-tax challenge is setting a cumulative value on Prince’s profit potential on the day he died. How much would someone pay now to follow Mr. Jackson’s model: product endorsements, a biographical film, a themed Cirque du Soleil show and much more?
Prince’s publicist and the IRS didn’t respond to requests for comment.
Prince is valuable in part because he died relatively young. If he had died at age 87, instead of 57, he would have outlived many of his biggest fans. Instead, they can spend for decades.
It also can be challenging to separate the value of a celebrity’s image from his music, if the rights get separated. Would you watch a movie about Prince or Mr. Jackson that didn’t have any of their songs in it?
Someone like Weston Anson may get to figure it all out. Mr. Anson, chairman of the intellectual-property valuation firm Consor, says his firm is working a large name-and-likeness case for the IRS.
For starters, Prince’s estate could turn Paisley Park, his Minnesota compound, into a tour stop like Elvis Presley’s Graceland mansion. The value of film rights would be relatively easy to calculate, Mr. Anson said, by comparing similar deals for movies about Johnny Cash and Tupac Shakur.
The dead-celebrity business can be lucrative if an estate negotiates shrewdly and shapes its image, said Mr. Anson and Jeff Anderson, the firm’s valuation director.
“They’re the best possible client. They’re never late for an engagement,” Mr. Anson said.
Estate-tax cases are often battles of experts, said Mitchell Gans, a tax-law professor at Hofstra University. “You have that kind of thing, perhaps on steroids, with the publicity rights,” he said.
There are ways to limit or eliminate that bite, such as giving the rights to charity, but they also would pinch income for Prince’s heirs. Actor Robin Williams restricted the use of his name and likeness after his 2014 death, said Jeffrey Eisen, an estate lawyer at Mitchell Silberberg & Knupp LLP in Los Angeles.
Celebrity estates can only control their names and likenesses if they lived in a state that recognizes such a right of publicity after death. New York doesn’t, and Marilyn Monroe’s estate has had trouble as a result.
For Prince, the law is unsettled. In a lawsuit involving a dispute between Jesse Ventura—before he became Minnesota’s governor—and what was then the World Wrestling Federation, a federal appeals court found in 1995 that state residents have a right of publicity.
But there is no statute and no case law on whether that right survives death.
Prince’s estate now has nine months to file its tax return and estimate his net worth. If that number is so low that it’s too bold, the IRS has three years to challenge it. And if the tax man is too demanding, Prince’s estate could land in tax court.


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