Tuesday, April 20, 2021

Was Bob Dylan’s sale of his huge catalog of music a fiscal maneuver?

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For a number of reasons, the end of 2020 may be the absolute optimum time to sell a top music catalog, and Bob Dylan’s catalog is arguably at a level of its own near the top. Universal Music Group ad by December 7, he had purchased Dylan’s catalog of some 600 songs; while UMG has not disclosed the price, speculation in the industry hovers around $ 300 million.

The value of the transaction for Dylan depends on how the product is taxed. A gigantic windfall like hers would normally be taxed as a capital gain at the rate of 20% under current law. But President-elect Biden has proposed taxing capital gains as ordinary income for taxpayers with incomes over $ 400,000. The highest ordinary income rate is now 37% and Biden has proposed raising it to 39.6%. If Democratic candidates win both senatorial elections in Georgia, which gives the party a majority in the Senate, significant changes in tax law become a plausible scenario.

Such changes rarely happen quickly, but changes in tax laws have sometimes been retroactive to the beginning of the year in which they were passed. Skadden Arps Slate Meagher & Flom law firm is warn customers: “The potential elimination of the capital gains rate preference, as well as the anticipation of a likely rise in corporate rates, could also serve as potential catalysts for taxpayers to enter into M&A transactions this time. year if they anticipate that these proposals could be adopted in the first year. a Biden presidency, with the possibility of a retroactive effective date of January 1, 2021. “

Bottom line: The tax on a deal like Dylan’s could almost double if it doesn’t get done before New Years Eve. “I have a number of clients who were trying to make deals before the first of the year because that they feared the new administration would put pressure on its tax program, ”says Josh Escovedo, a lawyer whose specialties at law firm Weintraub Tobin include copyright and trademark issues. “It is quite possible” that these considerations may have influenced Dylan’s agreement, he notes.

Dylan had another great reason to sell now: the last few years have been a boom time for music catalogs. Just days before Dylan sold her catalog, former Fleetwood singer Mac Stevie Nicks reportedly sold an 80% stake in her catalog to a publishing and talent management company called Primary Wave as part of a deal that valued the catalog at $ 100 million; the the Wall Street newspaper initially reported the transaction. Investors with little experience in the music industry, including Morgan stanley and Google Ventures, moved to the field. Hipgnosis Songs, founded by former talent manager Merck Mercuriadis, has collected and spent over $ 1 billion on catalogs in the past 29 months.

The explanation of all this activity, in one word: Spotify. “He’s a disruptor,” Escovedo says. “Spotify has developed a more quantifiable and predictable model for the industry, so that companies can make the combinations and determine the value of [artists’] income stream. “

These income streams can last for a long time, another appeal to investors. “Dylan’s copyright in his pre-1978 work expires 95 years after publication,” says Dotan Oliar, a professor at the University of Virginia Law School who focuses on intellectual property. Thus, the first songs in Dylan’s catalog, starting in 1962 (“Blowin ‘in the Wind”, for example), could produce income until 2057. Copyright in songs written on January 1, 1978 or afterwards, according to Oliar, “will expire 70 years. after his death. “Dylan, 79, appears to be in excellent health, but even he can’t stay forever young, so let’s say he’s around 95. His songs after 1977 could then produce income until 2106.

Popular music is a fickle and volatile business, but it would be difficult to name a business making a longer-term investment than what Universal Music Group just made.

More to read absolutely financial cover of Fortune:

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