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Dollars Blowing In The Wind

Bob Dylan album pulled out of a line of vinyl records in a shop.
photo by Flickr user JFHayeur, licensed under CC BY-SA

The late Pete Seeger may have been more than a musical influence on Bob Dylan; Dylan’s blockbuster publishing deal this week may also owe something to one of Seeger’s most recognizable works.

It was Seeger who borrowed Ecclesiastes 3:1-8 from the King James Version of the Bible, appended a six-word plea for peace and gave it the title and chorus “Turn! Turn! Turn!” The Byrds took that song to the top of the Billboard Hot 100 chart in December 1965, creating a classic folk rock hit about three months after Dylan’s own “Like a Rolling Stone” made it to No. 2.

Seeger’s opening, “To everything/there is a season/and a time to every purpose under Heaven” captures the exquisitely appropriate timing of Dylan’s decision to sell his entire publishing catalog to Universal Music Publishing Group. It is a life’s work comprising some 600 songs penned across six decades. Terms were not disclosed, but figures between $100 million and $300 million have been tossed around in the press, and they sound plausible. My guess would be nearer the top of that range.

The Wall Street Journal used the phrase “cash in” to describe Dylan’s decision to surrender control of his songs. That phrase has a pejorative undertone, since it can be interpreted as exploiting a condition that one did not create or deserve. Certainly, conditions in the music business and in the broader economy make this an excellent time for Dylan to complete this transaction, so I can’t argue that he is not exploiting the moment. But he is entirely responsible for creating his art and the enduring value it represents. I would describe what he is doing as cashing out, rather than cashing in.

Cashing out makes perfect sense for Dylan. It makes less sense, in my view, for most of the young songwriters with whom I (and my Palisades Hudson colleagues) work as a business manager and financial adviser.

Neither Dylan nor his music could plausibly become better known than they are right now. While his singing is, in the eyes of many, undistinguished (or to some, distinguished in a less than flattering sense), his songwriting is literally in a class by itself. No other songwriter has received a Nobel Prize in literature. At its best, Dylan’s music captures the moment in which it was written and combines it with a timelessness that makes it relevant across generations.

Consider “Hurricane,” the 1975 ballad Dylan penned about Rubin “Hurricane” Carter. Carter was a middleweight title contender who served nearly 20 years in prison after a wrongful murder conviction in New Jersey. The song describes a barroom murder on a night when Carter and several friends were stopped while riding in a car in another part of town.

When a cop pulled him over to the side of the road
Just like the time before and the time before that
In Paterson that’s just the way things go
If you’re black
You might as well not show up on the street
Unless you want to draw the heat

Those lyrics resonated in the 1970s, when they were written; in 1992, when Los Angeles erupted after the police beating of Rodney King; and in 2020, after the death of George Floyd and other Black men in encounters with police.

By purchasing Dylan’s catalog, Universal is betting on the continued durability of his writing and the performances of that writing by Dylan and the countless artists who have released or covered his work. (Universal estimates that there are already more than 6,000 recordings of Dylan’s songs.) Each public performance, broadcast, sale or download produces a royalty. Each film or video placement earns a fee. As one arm of a global publishing and media conglomerate, Universal is in a strong position both to plant the creative commercial seeds Dylan developed and to harvest the resulting revenue streams for decades to come.

At age 79, Dylan’s personal time horizon is shorter. He does not have as many years in which to gather such a harvest. Selling his catalog gives him a large sum of money right now, which he can deploy in his lifetime or through his estate to support whatever people or purposes are most meaningful to him. The sale also means his heirs will not face a lengthy fight over the value of his intellectual property after his death, as some artists’ heirs have.

Economically, the stars aligned to make the closing months of 2020 an unusually attractive moment for sales of income-generating assets. The sum paid to Dylan represents the value, in today’s dollars, of the future revenue streams that the buyer expects to collect – less some amount to generate a satisfactory rate of return to the buyer, after taxes. With interest rates about as low as they can go, the discounting of future revenue streams is minimized. Look at it this way: If I want to generate $1.25 a year from now, I only need to invest $1 today if interest rates are 25%. But if interest rates are practically zero, I need to invest almost the entire $1.25. The amount paid to Dylan is the minimally discounted sum of the future revenue that the buyer is acquiring.

Dylan must pay taxes on what Universal pays him. Most self-created copyrights are taxed as ordinary income, at higher rates than capital gains. There is a special rule for self-created musical works under Sec. 1221(b)(3) of the Internal Revenue Code, which allows the seller to opt for the usually more favorable capital gains rate. That rate, currently, is 20%. But there is a not-insignificant chance it will be raised, especially for higher-income taxpayers, once President-elect Joe Biden takes office, particularly if his Democratic Party controls both houses of Congress. Selling now rather than in 2021 eliminates the risk of higher future taxes on the sale.

So I can think of many reasons why selling his catalog right now makes excellent sense for Dylan, and hardly any for why it would not. But I generally come out in a different place in conversations with my younger, far less famous songwriter clients.

They are talented individuals who create quality, commercially successful music, even if they will most likely never win a Nobel Prize for it. Generally they are in their 20s and 30s. All have achieved a certain following, and a couple are quite well connected in the industry. As songwriters go, they are pretty successful.

But they are probably not at the peak of their careers or of their fame, as Dylan is. Even those who have already penned hits that have made it onto the charts have not been discovered by the all the musicians and fans who may come to love their work in the future. Imagine if Dylan had sold his catalog when he was 35, around the time he wrote “Hurricane.” He was already famous, already widely respected as a songwriter. But he was not yet the Dylan whose songs have endured in the popular consciousness for 60 years. Even if today’s market had existed in 1975, Dylan could not have secured the price he is getting today for the songs he had written by that time.

So Dylan is selling at the top of the market for his music. That would probably not be the case for my clients, especially if they are committed to continuing their writing careers. They would be selling equity in a startup, not in an established venture. Their buyers would be taking greater risk, and would demand greater discounting in return. And for songwriters who are not generating a lot of income right now, a lump-sum sale might actually push them into a higher tax bracket, even at capital gains rates.

Are there circumstances in which I would endorse a catalog sale by an up-and-coming songwriter? Absolutely. One reason for selling would be that the writer simply needs the money. People must be fed, housed and have their personal and family needs met, regardless of whether they have achieved fame and fortune. You work with what you have.

A young, active songwriter can also create new songs after selling the old ones. Unless signed to an exclusive publishing contract, which is very different from selling an existing catalog, the writer can build a new portfolio of songs from which to draw income for life while building equity. At Dylan’s age, he has already written most of the songs he will ever write.

Finally, one should never say “never.” Music is a business, as well as an art. In business, there is always some price that a buyer might pay for which the only rational answer is “yes.” At the extreme, a buyer might have a way to make a song worth far more than it could ever achieve anywhere else. Rule of thumb: If Disney wants to buy your song to make it the theme of their next Marvel blockbuster, you probably want to do the deal.

But absent those uncommon circumstances, I would counsel my up-and-coming songwriter clients to keep their musical equity mainly for themselves. In the meantime, we rent their songs to publishers (and, for the recording artists, to labels) to monetize for a period of time, after which the rights revert to us. There is a time to every purpose. It is often wisest to wait for that time to arrive.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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