Bowie Bonds And Their Aftermath

“What you need you have to borrow,” sang David Bowie in his song, “Fame.” But given the rocker’s innovation in finance, it’s unlikely he ever really had to go hat in hand to anyone for the past several decades.

As the world knows, Bowie, who died this past weekend after battling cancer, helped change pop music, its performance boundaries, and had a lasting impact on fashion, too. As if that were not enough, he also helped invent a financing vehicle known as “Bowie Bonds” that changed a little thing called finance.

As recapped by The Wall Street Journal, 19 years ago, in 1997, Bowie garnered $55 million from the sale of rights to future earnings. He was, in fact, the first musician to package the royalties from what is known as the back catalog in a process termed securitization. And he had the ability to do that, noted The WSJ, chiefly because Bowie, unlike many other musicians, owned the catalog itself. Timing had a hand in the success of the concept, as it came early in the financial sector movement to embrace securitization and also predated recording music’s sales slump.

Through the financial engineering of the Bowie Bonds themselves, the future royalties tied to the first two dozen albums of Bowie’s career were conducted into a separate financial entity, then used to back a bond as collateral – representing what The Journal referred to as a “temporary” signing away of the artist’s rights. Prudential Financial wound up buying the debt privately, with 7.9 percent interest paid on the bond for 10 years. Then the songs reverted back to Bowie.

Other artists or their estates, such as James Brown and also Marvin Gaye, conducted similar transactions. But eventually the concept of bonds backed by artist earnings started to lose traction, due in part to the fact that not many artists have the catalog to back big transactions – and of course digital music, pirating and the like helped damage potential cash flows even more.

But as The Journal reported Tuesday, the concept may see a glimmer of revival — and Fantex Holdings, which issues securities that bank on earnings potential of athletes, filed in late 2015 with the Securities and Exchange Commission to bundle 10 athletes and their future earnings into a single security.