Entertainment: Money is the new rock'n'roll as stars take Bowie's lead

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The Independent Online
It has been eight months since David Bowie pocketed $55m in a pioneering bond sale backed by future earnings from his hit records. Now all of Wall Street is screaming 'Let's Dance' as deal-makers spy a whole new financial market based on rock'n'roll entertainers. David Usborne feels the beat.

It is Monday at The House of Blues, a night club in West Hollywood favoured by the well-heeled with a taste for rock'n'roll and cocktails in not-too- scummy surroundings. The clientele, however, is even more starch-collared than usual. They are the financial managers of some of our best known entertainment stars. Milling amongst them is a delegation from Nomura Securities.

Soon, the lights go up and, bass guitar swinging, Ozzy Osbourne swaggers onto the stage. To whoops and applause he accompanies the less than legendary crooner, Ethan Penner, in a duet rendition of "Born to be Wild".

Not familiar with the recordings of Ethan Penner? You are not alone, because Mr Penner is better known for activities other than singing. He is the President of Nomura Asset Capital Corp, a subsidiary of New York- based Nomura Securities, itself an arm of the giant Nomura Bank of Japan.

Mr Penner and his associates were in West Hollywood on a high-stakes mission: to seek out real stars of the music universe who may be willing to emulate a ground-breaking bond deal struck by David Bowie last February.

Few needed educating on the "Bowie bond" affair. With help from a white- shoe investment bank in Manhattan named Fahnestock & Co, Bowie engineered a package which at the time stunned the music and financial community alike. He raised $55m for himself (pounds 33m) through the issue of bonds which were sold to Prudential Insurance.

The concept for the Bowie bonds was straightforward. While Bowie had not had a hit since the release of "Let's Dance" in the early Eighties, he was assured a steady stream of income from the earnings from his still-popular songs. That flow of money guaranteed the bonds. In buying them, Prudential meanwhile was promised a fixed interest rate of 7.9 per cent.

Thus, with Wall Street's help, Bowie won access overnight to wealth that would otherwise have dribbled in over a period of years. It was a coup that turned many of his peers in the music and entertainment business a deep shade of greed. And other banks are hoping to tap that envy.

Bear Stearns, another leader of the Wall Street pack, has also announced plans to package so-called entertainment bonds. While Nomura is most interested in buying the bonds for its own profit - it has established a $1bn fund for that purpose - Bear Stearns hopes to sell them on to third investors, taking a hefty fee along the way.

The prospects look good. Bowie is only one of a large reservoir of acts that have shown themselves to have had unexpected longevity. The Rolling Stones, who have just embarked on another world tour and have similar hopes of long-term earnings, have been rumoured to be negotiated a similar deal.

Selling such bonds is made easier by booming market for the music, however ancient, of performers like Bowie, the Stones or Fleetwood Mac in far away markets like China and South-east Asia.

It also helps that new technology, such as the switch from vinyl to CD discs, offers further increments in earnings for such acts.

The audience at The House of Blues seemed to like the idea. "I think it's kind of the future," declared Ron Stone, who represents Bonnie Raitt and Tracy Chapman. "I think that now for us it's connecting and making sense. I've got to do my homework and see how much money we're talking about. If it's sizeable, then yes, I'll go to my clients".

The notion of tapping earnings from music and recording royalties long before they actually come in is appealing in many regards. It can help with tax, for instance by allowing heirs to pay inheritance taxes without having to liquidate inherited assets. Such large amounts of money can also help fund new projects such as tours and films.

And Mr Penner, microphone discarded, was equally enthusiastic. "We have the potential in many ways of defining the way business is financed," he said on Monday.

Who's next for Bowie bonds

It isn't necessary to be a mega-star to follow in the financial footsteps of David Bowie; but it helps. The key is to have a reliable future stream of income, so would-be stars, or those whose careers are just starting out and are hence unpredictable, should probably think again.

Other names rumoured to be interested in Bowie bonds include The Rolling Stones, Crosby Stills and Nash, and Rod Stewart, rumoured to be close to signing a deal.

But the Bowie bonds need not be restricted simply to rock stars. Nomura hopes to arrange such deals for celebrities in a range of fields, just so long as the outlook for long-term cash flow is healthy. They could be actors, sporting stars, even writers. "We're looking at an entire industry," said Mr Penner, "from John Grisham to Warner Brothers."

"The idea is starting to flesh out," said Cara Burns, a lawyer representing the music star Don Henley and the golfer Tiger Woods. Her concerns, she said, would include ensuring that her client retains full ownership of the property, such as a music catalogue, and the tax implications.

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