How to Bail Out Kanye West: The Creator of the ‘Bowie Bond’ on ’Ye’s $53M Debt Problem
When David Bowie passed away last month, his admirers took to social media to offer their condolences, honoring one of the most transformative artists ever. One of these devotees was Kanye West, who wrote, “David Bowie was one of my most important inspirations, so fearless, so creative, he gave us magic for a lifetime.”
But Bowie’s creativity also extended to his finances. In 1997, with the help of investment banker David Pullman, Bowie created what are now known as “Bowie Bonds”—asset-backed securities comprising royalties on the musician’s back catalogue of 25 albums. Bowie received an upfront payment of $55 million by Prudential in exchange for the bond, that received an A3 grade from Moody’s, and paid an interest rate of 7.9 percent with an average life of 10 years, a greater return than a 10-year Treasury bond.
Recently, West shared the news that he is $53 million in debt, and made several public appeals (via Twitter) to Facebook founder Mark Zuckerberg to invest $1 billion in his ideas, effectively bailing him out. The $53 million number is, coincidentally, almost the same amount as that which Bowie received for his celebrity bond. And the Bowie Bonds turned out to be a great deal for the late icon, allowing him to acquire the rights to all his music by buying out his former manager Tony Defries’s minority stake, and liquidating in 2007, right on time.
So could Bowie Bonds work for West? We reached out to Pullman (of The Pullman Group), the architect of Bowie Bonds, for help.
“David Bowie had great perception. He was very savvy and worked with the best people,” said Pullman. “People like to be negative about people who’ve had success, but the unique part about David’s deal was that it was the first deal in history even thought about for any form of intellectual property. No one had even thought about it. So we do the deal, because David was in a situation where he got to not pay taxes on a sale, and he wanted his songs because they were his babies.
“It was for $55 million—minus the money we paid the former manager for his minority interest to gain complete control of the masters,” he added. “Now that David owned 100 percent of his masters, we negotiated a deal with EMI for a 15-year license for a minimum $30 million in payments. Approximately 287 copyrights were in the deal for his first 25 albums, which were all gold. So it wasn’t any future albums, it was just his existing body of work—all his big hits.”
Throughout our chat, Pullman repeatedly emphasizes that the deal worked because Bowie was a “career artist,” just like James Brown and the Isley Brothers, who also secured Bowie Bonds.
“It’s not fair to compare Kanye West to David Bowie yet because he’s still a younger artist, songwriter, and producer,” said Pullman. “It’s got to cross over to pop to create a Pullman Bond. Kanye doesn’t have to look too far to see what a career artist is. It’s kind of ironic that the person he’s involved in a feud with, Taylor Swift, is someone who’s looking forward as a career artist. They say imitation is the highest form of flattery, so as far as his rivalry with her goes, maybe it could encourage him to write and perform hits and follow her example. Maybe this whole feud is by coincidence, and maybe it’s not coincidence.”
According to Pullman, West may be jealous of Swift for the way she’s organized her career and the way the public perceives her, alluding to the fact that West’s “likability problem” could harm a potential deal of this nature. “The trappings of success divert you sometimes from your work,” he said.
But how would a Bowie Bond for West work?
“We’d have to look at [West’s] earnings and chart them out,” said Pullman. “The deal would have to be structured differently because he has different income streams and he’s touring and focused on being a current artist. We could always structure something that would make sense and work on some level. But David Bowie had 25 albums in that catalogue; James Brown had 100 albums. They were at a different point in their lives. It doesn’t mean it can’t be done, but how we structured it would be a little different.”
They’d structure it as follows: “We’re going to take all his performance income—from BMI, ASCAP, other societies—all the music that’s played on the radio, TV, cable, bars, movie theaters, nightclubs, etc. That’s a pretty large percentage for most artists, about 50 percent. We’re going to take the income stream on his record royalties—the mechanical royalties that are paid every time there’s a use of the song, like iTunes or every time a record is purchased. Then there are royalties from streaming, ringtones, and sheet folio music. There’s also synchronization income from the usage of his music in TV, film commercials and the like.”
The good thing about Bowie Bonds is that they’re non-recourse, so it’s only based on an artist’s existing catalog and what it earns. If it doesn’t work out, West wouldn’t owe Pullman and Co. any money personally, as they’re the ones who assume the risk. Plus, it’s a long-term deal so it doesn’t encompass any of his future new hits.
“At a certain number, we could always make something work with Kanye,” said Pullman. “If not all at once, we could restructure his debt. We’d look hard at the earnings, how consistent they are, and the songs, and then analyze it. We’ve invested in thousands of songs and we’ll be realistic about it, and we’ll do whatever makes sense; it’s a reality check in terms of what can be done.”
Pullman thinks it’s important for West to look to Bowie as an example of an artist who was concerned with his longevity, or being a career artist. It’s a big reason, he says, why Bowie Bonds were such a smashing success.
“I think it’s very important for artists to be looking long-term, to continue to make albums and supply your fan base with hits—that’s the difference between being remembered or being forgotten,” said Pullman. “The focus should be on a career artist. David Bowie is iconic, and the Bowie Bond was based on his impressive body of work and his earnings. Being successful and being very good at what you do are two very different things.”