Great Ideas for your Small Business: Learn from David Bowie
David bowie may not at first be your idea of a savvy businessman, but in 1997 he did a bond deal that pulled in $55 million—and attracted a lot of attention. Instead of waiting for future royalties, Bowie went to Prudential Insurance Company and offered to assign future earnings from twenty-five albums to the insurance giant. He had, in effect, “securitized” his royalty income.
The Bowie bonds, which are expected to yield about 7.9 percent over fifteen years, will pay more than a 10-year Treasury bond. John Wilson, a manager with Prudential Securities, said the idea came up when Bowie and his manager mentioned to an investment banker that the performer wanted to get his hands on more liquid cash.
If you are a Bowie fan and want to invest, you’re probably out of luck. The bonds are not sold to individuals, only to institutional investors who spread their risk among different kinds of investments. Why would Prudential do such an unusual deal?
“We had a very major, very high-quality record company essentially guaranteeing the royalties,” Wilson told a radio interviewer. “Their knowledge of the industry, which is far beyond anything that I have, gave us a lot of comfort that these bonds were quite safe.”
The deal works well because Bowie owns his own music catalog, and he continues to be a popular and visible recording artist. “It’s a very conservative investment,” said Tim Biggs, a Prudential spokesman. “It’s an investment-grade bond with a financial guaranty provided by EMI records.”
Biggs said Prudential is talking with other artists about similar royalty-based bond deals. “It could be a pool of artists with a collective royalty stream,” said Biggs. But he said Prudential remains focused on more conservative investments. “It’s still a very new type of deal.”