Michael Jackson's Estate: Saved by the Beatles

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Jackson: Danny Moloshok / AP; Beatles / Robert Freeman

Will Michael Jackson's three children — Michael Joseph Jr., Paris Michael and Prince Michael II — end up paupers? The answer rests on the value of the performer's largest asset: his 50% stake of a music-publishing company called Sony/ATV Music Publishing.

Jackson, who died on June 25, left behind as much as $500 million in debts. That includes a $315 million loan owed to British bank Barclays, as well as millions of dollars in bills. "Jackson never paid his bills," says a lawyer who did work for Jackson over the years. "Countless professionals who worked for him are still waiting to get paid." In May, the singer's longtime publicist Raymone Bain sued Jackson for $44 million in unpaid fees.

But whether those debts will mean Jackson died bankrupt depends heavily on the worth of Sony/ATV. Jackson had other assets, including rights to many of his own songs, as well as about 1,000 hours of rehearsal footage leading up to this summer's London concert tour and possibly about 100 unreleased songs. But none of those assets are likely to be nearly as valuable as his stake in Sony/ATV, which has been valued at anywhere from $390 million to $1 billion.

Jackson's 1985 purchase of ATV Music, which included in its catalog some 250 Beatles tunes, for $47.5 million formed the basis of his stake in the music-publishing business and was by far his shrewdest music deal. Yoko Ono, John Lennon's widow, and Paul McCartney had considered bidding a combined $20 million for the collection, but Ono decided that was more than the collection was worth. Jackson's purchase price of more than double that is still far less than what the songs would sell for now.

In 1995, Jackson agreed to merge ATV with Sony's music-publishing business. The Japanese corporation paid Jackson $150 million to complete the deal and split ownership of the new company with the performer 50-50. In March 2007 an audit of Jackson's finances valued his half of Sony/ATV at $390 million.

But just two years later, it is likely that Jackson's stake in Sony/ATV is worth much more than that. First of all, music-publishing has not been hit nearly as hard as the rest of the music industry by the shift to music downloads and away from compact discs. Unlike a record label, a music publisher does not get paid only when an album or other original recording of a song is sold. Publishers retain the rights to a song and get paid every time it is performed or appears in a movie or advertisement by the original artist or any other performer. "I have talked to a number of music publishers who tell me last year was their best year in a while," says Susan Butler, a former music-industry lawyer who now writes the newsletter Music Confidential. "Guitar Hero and other games have created a lot of opportunity for the publishers."

What's more, in early 2007, Sony recruited industry veteran Martin Bandier, who turned rival EMI into a publishing powerhouse, to lead the unit. The hire seems to have paid off. Bandier has re-energized Sony's publishing company, completing a number of acquisitions and landing some popular new acts, including former American Idol contestant Elliott Yamin and rising music star Lady Gaga. Along with the Beatles, Neil Diamond and Bob Dylan, the company's 750,000-song catalog now includes the Jonas Brothers, Ruben Studdard and Taylor Swift. In the first quarter of this year, Sony/ATV ranked as the second largest music publisher in the U.S., with just under 20% of the market, up from fifth largest three years ago. Its Lady Gaga hit "Just Dance" was the best-selling song in the first three months of the year. The result: industry sources estimate Sony/ATV's revenue has grown more than 60% in the past two years, to an annual $500 million. Net publisher's share —a closely watched figure in the industry, which is sales minus payments to artists — has doubled, to an estimated $200 million. "The music-publishing business is ripe with opportunities, and we are continuing to grow our business," says Bandier.

What does that mean Sony/ATV is worth? In a recent financial filing, Sony said the division had $1.3 billion in assets and $479 million in debt. That would give the division a net value of about $850 million. But it would be likely to fetch much more than that in a sale. When Universal Music bought BMG Music Publishing in September 2006, Universal paid $2.1 billion, or nearly 12 times BMG's estimated net publisher's share. Sony/ATV probably wouldn't get the same multiple in today's market. But even at 10 times its current publisher's earnings, the company would be worth $2 billion.

Jackson, though, might not be able to sell his interest in Sony/ATV for its full $1 billion value. In 2006, as part of a deal to restructure his mounting debts, he gave Sony/ATV an option to buy half of his holdings in the company at a later date. Sony will not disclose the terms of that deal, but it probably limits what the Japanese company would have to pay Jackson for half of his Sony/ATV stake.

Still, the quarter of the publishing business that Jackson does own outright would be enough to clear his debts. And Sony would still have to pay many millions for the rest, even with the option. The bottom line: Michael Jackson's estate is probably more than solvent. "People are focused on the amount of money Michael owed, but you have to look at the assets too," says Ivan Thornton, who worked as a financial adviser to Jackson on and off for the past decade. "He's in debt, but he is certainly not bankrupt."