|Michael Jackson may lose his stake in the lucrative Beatles song catalog, as well as other assets.
NEW YORK (CNN/Money) -
Michael Jackson's future turned a lot brighter Monday when a California jury found him not guilty of child molestation. But the embattled entertainer has a long way to go to reclaim his financial freedom.
Jackson is thought to be in deep financial straits despite owning various music and real estate assets worth as much as $600 million.
The reason? Cash -- or the lack thereof.
The King of Pop, for all his assets, spends far more money than he generates these days, according to an expert who testified at Jackson's trial. His legal costs alone topped $20 million in recent years and Jackson had more than 60 outfits made for his daily court appearances, according to CNN.com.
The legendary singer hasn't produced a hit song in years and, despite the not-guilty verdicts on 10 felony counts, some image consultants think Jackson's image has been irreparably harmed by his criminal prosecution. (For the latest on the trial, click here.)
"The Michael Jackson brand is effectively dead. There is no second hurrah, and Michael Jackson can never recover from this scandal," said Ronn Torossian, President/CEO of 5W Public Relations, a NYC public relations firm.
Speculation about Jackson's financial state grew last month when Bank of America, the nation's No. 2 bank, sold two Jackson loans valued at $270 million to a private hedge fund.
Jackson had borrowed the money from Bank of America several years ago to help fund his lavish lifestyle. As collateral to secure the loans, Jackson offered his two most valuable assets, a 50 percent stake in a Sony partnership that holds copyrights to more than 200 Beatles songs and the rights to his own music library.
Jackson's rights to the Beatles catalog alone is estimated to be worth between $400 million and $500 million.
Jackson also put up as collateral a partial deed on his multimillion dollar Neverland Ranch near Santa Barbara, Calif.
The Bank of America sale -- to a hedge fund, New York-based Fortress Investment Group -- was seen as a sign that the bank was eager to unload debt it considered too risky.
Technically Jackson had defaulted on loan payments, a source close to Bank of America said. One of the loans, valued at $200 million, is due to be paid in full in December 2005.
Depending on negotiations with Fortress, the risk that Jackson could lose the copyrights to the Beatles songs as well as his own hit recordings is real.
A $47.5 million bet pays off
Losing the Beatles rights could put into play one of the world's most valuable song portfolios.
Jackson, 46, acquired the Beatles song catalog in 1985 for $47.5 million, outbidding ex-Beatle Paul McCartney. Jackson then sold a piece of his stake to Sony (Research) a decade later, creating a joint venture called Sony/ATV Music Publishing. The venture is now believed to be worth more than $400 million.
Song catalogs have become hugely lucrative in the last two decades due to the compact disc boom, rising sales of Internet downloads, and movie studios and advertisers willing to pay royalties to use hit songs in film scores and commercials.
Jackson, through Sony/ATV, owns all but a small selection of the Fab Four's compositions, including megahits like "Yesterday," "Let It Be," and "Sgt. Pepper's Lonely Hearts Club Band." He does not, however, own the actual sound recordings; those rights are held by EMI's Capitol Records.
Royalty arrangements can be quite complicated. Basically, Jackson and Sony receive a fee each time one of the Beatles songs is played on the radio or a Beatles album is sold. Industry royalty rates for single-song plays can run under 10 cents, while rights holders typically earn a small percentage on each album sold.
It's hardly chump change: the small amounts add up to millions of dollars in revenues a year.
Another major revenue stream for Jackson is Mijac Music, the copyright holder on all of his hits and other artists' songs. Mijac is thought to be worth at least $75 million, according to reports.
But while Jackson's music holdings are considered extremely valuable, they don't appear to generate enough cash to meet Jackson's financial needs.
John Duross O'Bryan, a forensic accountant who testified at Jackson's child molestation trial in early May, told jurors that the rock star is in financial straits. He said Jackson is spending about $20 million to $30 million a year more than he earns.
The result is "an ongoing cash crisis," Duross O'Bryan said.
Duross O'Bryan also testified that Jackson has long-term liabilities of about $415 million. Based on that estimate, the $475 million-plus value of Jackson's assets outweighs the value of his liabilities by at least $60 million.
So Jackson technically is not in debt. But the bulk of Jackson's assets is the Beatles catalog. And his ability to hold onto that property -- and avoid a deep financial crisis-- rests on his ability to generate enough cash to make his loan payments.
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