Two of my long-time personal interests, sports, and music, recently collided with my professional experience.
As a little background, I have been a sports fan for as long as I can remember. Baseball, football, hockey, basketball, soccer – professional, college or amateur – I have followed them all. As for music, I grew up around it, was originally a music major in college, and continue to play in the band at my church most every Sunday.
I have spent much of my professional life as a business consultant, often dealing with issues of value and trying to make sense of “unusual” financial situations and transactions. Some of that work has involved the business of professional sports. Additionally, I have also had the opportunity to do some valuation work related to the entertainment and music business.
So where and how did the recent collision of business, sports and music occur in my head? The collision occurred when I read the Federal Tax Court’s opinion regarding the Estate of Michael J. Jackson, Deceased (U.S. Tax Court, Dkt. No. 17152-13, TC Memo. 2021-48, May 4, 2021), and when I watched the University of Pittsburgh football team last Saturday beat Clemson, with the play of quarterback Kenny Pickett. Yes, I am talking about THAT Michael Jackson, the King of Pop, who died in 2009, and a college student named Kenny Pickett, who is being recognized as one of the top players in college football in 2021, and a candidate for the prestigious Heisman trophy.
I know these are strange times, but the thought crossed my mind – could Kenny Pickett be worth more than Michael Jackson? Or, more specifically, could Kenny Pickett’s Name, Image and Likeness (NIL) be worth more than Michael Jackson’s?
According to the NCAA, starting July 1, 2021, all student-athletes were granted permission to capitalize on their NIL. Kenny Pickett reportedly signed a NIL deal in July with the Oaklander Hotel and its restaurant to treat his blockers to weekly dinners. Pickett may have signed other NIL deals as well, but, at a minimum, the Oaklander Hotel deal must be worth thousands of dollars given how much a group of college athletes, treated to free dinner, probably eat!
The Estate of Michael J. Jackson, Deceased (the “Estate”) recognized that Jackson’s NIL was an intangible asset. The Estate valued Jackson’s NIL at the time of his death at $2,105 on the estate tax return. At a value of $2,000, the thought that Kenny Pickett’s NIL is worth more than Michael Jackson’s may not be crazy.
Kenny Pickett is currently at the height of his popularity because of his athletic success, thus leading to many potential NIL opportunities. In contrast, when Michael Jackson died in 2009, he did not have any NIL deals in place. Jackson had earned nothing from his NIL during the years 2006, 2007 or 2008. This is not surprising since he had not released any new music for a number of years, had become infamous for unusual behavior and had become reclusive after allegations of child molestation. As one potential marketer stated, “as sweet as [Jackson] is, the parade of ‘unusual’ personalities in his life, leaves me very nervous”, describing Jackson’s image and likeness as “candidly toxic.
With Jackson’s toxic image and likeness, it is not hard to understand why the Estate valued Michael Jackson’s NIL at next to nothing at the time of his death. However, upon audit, the Internal Revenue service (“IRS”) disagreed with the $2,000 value placed on Jackson’s NIL by the Estate, instead valuing Jackson’s NIL at $434 million. That is a BIG difference!
Because of the huge difference in perceived value of Michael Jackson’s NIL, the Estate ended up in US Tax Court, debating the value of Jackson’s NIL, as well as the value of his ownership interests in the Sony/ATV Music Publishing and Mijac Music. By the time the dispute got to Tax Court, the Estate had increased the value of Jackson’s NIL from $2,105 to $3,078,000 – obviously a substantial increase, but still significantly less than the value asserted by the IRS.
Long story short, the Tax Court ultimately decided that Michael Jackson’s NIL was worth approximately $4.15 million at the time of his death. Although Kenny Pickett may have some valuable NIL opportunities, both now and in the future, I believe his current value is less than Michael Jackson’s.
My analysis of the Estate of Michael Jackson case, and comparison of the value of Jackson’s NIL to that of Kenny Pickett, reinforces several critical issues that are applicable to all valuations, not just the valuation of celebrity NIL, including:
Date of value – remembering that value is at a point in time, based on the economic conditions and expectations of income at that time. In this example, Michael Jackson’s NIL is valued in 2009, immediately before his death, when he was not the most famous entertainer in the world, but instead was in serious financial difficulty and was infamous for unusual behavior and toxic allegations of heinous acts. There was a substantial risk at the time of Jackson’s death that the Estate would be able to monetize Jackson’s NIL at all. The discussion about Kenny Pickett is about value in 2021, when he is currently at his athletic peak, with significant opportunity for future success on and off the football field.
Known or knowable information at the date of value – the Tax Court identified several problems with the valuation of Jackson’s NIL by the IRS expert, importantly including the IRS’s estimates of licensing and merchandising revenues that were foreseeable (or in this case, not foreseeable) at the date of Jackson’s death. The Court identified that in spite of the fact that Jackson’s Estate successfully and skillfully rehabilitated Michael Jackson’s image after his death and were able to create hundreds of millions of dollars in revenue as a result, that income was unforeseeable at the time of death. The court confirmed that foreseeability can’t be subject to hindsight.
Want to know a lot about Michael Jackson and the music business? Take a read through the Tax Court Opinion in Estate of Michael J. Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co-Executor v. Commissioner, it is well worth the read. The Court got into a lot of interesting details and if you are like me, you will then need to dial up the Best of Michael Jackson on Amazon Music.
Do you want to know more about Kenny Pickett? Go to Heinz Field in the upcoming weeks and enjoy the action.
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