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The Man Who Sold The World
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Why David Bowie’s Posthumous Estate Will Break the $2 Billion Cash Barrier Faster Than Michael Jackson’s

Originally published by Trust Advisor [link] on January 18, 2016

Always-evolving pop genius broke the bonds of management and achieved absolute financial independence. Now instant nostalgia plus a mysterious “missing billion dollars” could boost his real wealth far beyond what’s on the papers today.

A lot of the tributes to David Bowie’s genius are highlighting the spectacular financial coups that ended up leaving his wife and kids a little less than $200 million on paper.

That’s just the paper. With memorial products on the horizon, his last album is already the best seller of his career, giving his ultimate net worth a boost that could easily rival Michael Jackson’s $2 billion posthumous rebound from bankruptcy.

Of course Bowie has a huge head start. Roughly $800 million disappeared from official estimates of his net worth in the late 1990s – and there’s no serious reason to suspect it isn’t still there.

Too gifted to fail

I think the math points to Bowie hiding most of his wealth in a trust somewhere around the turn of the century in order to shield it from the world’s tax authorities.

He liked his privacy and made a hobby out of finding the best tax situations on the planet. It’s why he kept his primary residence in Switzerland even though he’s lived in Manhattan for ages.

And since he absolutely adored his money, he would have loved seeing sales on his back catalog soar as fans look for one last way to reconnect on a financial level. Estimates of his final net worth are rising fast on the model of Michael Jackson, who died practically insolvent in 2009 and has since turned into a $2 billion cash machine.

For Bowie, the billions start from a much stronger foundation. The saga starts in 1982, when he opted not to renew his glam-era management contract and signed his accountant to run his career instead.

Up until that point, he was essentially a salaried employee at the center of the empire his songs and persona created, earning the equivalent of $35,000 a year plus a share of any profits left on the table.

Bowie renegotiated in the mid-1970s, but even that deal came with a crippling price tag: 50% of all revenue until the new contract ran out, scaling down to 16% for eternity ever after.

As a result, he earned practically nothing from his early fame and had to work twice as hard to catch up. When he was working, he was an unstoppable cash machine, moving to Switzerland in the downtime to save money on British taxes.

And he and his new manager apparently had enough of a knack for investing to brag that they managed to double Bowie’s existing pool of wealth every five to seven years while the new income kept flowing.

By the time 1997 rolled around, the most closely calculated estimates of the era said he was worth well above $900 million. That’s when he launched the famous “Bowie Bonds” and finally bought himself free of the legacy management contract.

The timeline reveals that Bowie had already pulled himself from the financial brink a long time before he issued the bonds. Instead of mortgaging his future, he was simply making a tactical decision with a piece of his future cash flow.

We’re talking about a performer who pulled down $2 million per concert date in those days. He could snap his fingers and generate cash.

It’s just that he wanted more. And he wanted to make sure he kept every cent to pour back into his investment portfolio.

So where’s the money?

That’s were $800 million goes missing. Casual commentators assume that the Bowie Bonds were a last-ditch gamble trading long-term income for solvency in the here and now.

The program was really just an experiment in personal arbitrage, giving the star an extra $55 million to play with while obligating him to ultimately pay $80 million when the bonds matured.

Maybe he used some of the cash to retire the old management contract, although some insiders say a $30 million advance on a new record deal did the trick.

Either way, the bonds were only underwritten to cover the income from the 1970s records and song rights. Later material and performance fees still went straight into Bowie’s pockets.

Figure he was adding at least $6 or $7 million a year to his personal net worth in addition to what the collateral on the bonds earned to cover the coupons. He spent what he wanted and reinvested the rest at a healthy rate of return.

As we now know, music sales declined around 5% over the decade the bonds were paying out, so if Bowie’s share of the market remained relatively constant, he might have eventually needed to kick in a whopping $4 million of his own money to make the investors whole.

But then, when the bonds matured, he got the income stream back. And in the meantime, he had ten years to work the rest of his cash as hard as the market allowed.

Despite all this, estimates of his net worth dropped to a measly $145 million by 2011, which implies that the investing geniuses who earned 10% to 15% a year in the 1980s and early 1990s had somehow racked up catastrophic losses instead.

It takes Michael Jackson levels of public extravagance to spend that kind of money, especially when the funds are still rolling in at a rate of millions of dollars a year. Bowie indulged in some bizarre projects during this period, but they weren’t exactly secret or enormous.

To explain the discrepancy, reporters at the time pointed to Bowie’s dot-com ventures as a likely cash sink. Granted, projects like “BowieBanc” and “BowieNet” never went huge, but their impact on the star’s net worth is probably hugely overstated.

Bowie didn’t actually invest any money in the failed BowieBanc effort to sell credit cards with his face on them. As usual with these kinds of sponsorship deals, the bank paid him.

The BowieNet subscriber-only online fan club is a little more complicated, but while we saw a lot of dot-bombs in that era, a nine-digit loss there is probably a stretch.

The company behind the site actually made money, maybe as much at its peak as Bowie’s song rights.

And unlike a lot of its contemporaries, it didn’t simply shut the doors when the market crashed. Instead, the company got acquired in a feeding chain of entertainment industry consolidation, eventually ending up as a very small slice of Live Nation Entertainment.

Although details on the first few links in the acquisition chain were never made public, Bowie either cashed out of his angel partner stake early or rode it through several extremely lucrative buyouts.

Either way, he either made good money on the venture or lost a little. Marking down his fortune 85% across an era when the S&P 500 earned a net 65% — despite both the dot-crash and the credit crunch – seems a little unnecessarily punitive.

No smoking wreckage means hidden money

The numbers only line up if you assume a catastrophic failure. Sure, the Bowie who bragged about squeezing 10% to 15% a year early in the bull market could have gotten speculator fever and gone bust on a lot of harebrained start-ups we never heard about. It happens.

But that doesn’t sound like the Bowie we know. He loved his money. He ran the numbers before committing his capital and let his accountant call the shots.

I juggled a fairly hypothetical set of numbers myself and found that the net worth estimates make sense based on known income and investment performance up to 1997 and then again starting from that point.

Bowie could easily have amassed $900 million going into late 1997. Starting from absolute zero in 1997 and living off current income until the bonds matured, then reinvesting the added cash flow, he’d be back around $200 million now.

This all assumed that he kept expenses around a rock-star-modest $7 million a year and record income stayed on trend, balancing any passing excess on either side of the ledger over the long haul.

It doesn’t include some of the most lucrative concert tours in history. Contemporary reports indicate that he booked a personal profit of around $35 million per tour over and above expenses, so all the numbers may actually be too low.

And even if we use the most conservative estimates, the big hole in the net worth trend doesn’t go away. Hundreds of millions of dollars still disappear after the Bowie Bonds hit the market.

My guess is that Bowie used the cover of the bond hoopla to shift most of his net worth off the personal books. This might have entailed a classic trust vehicle, a network of offshore shell companies or any other shelter designed to obfuscate the relationship between a rich individual and the money.

The motivator isn’t hard to guess at. While the bonds theoretically only opened the star up to $80 million in maximum liability, there’s no real reason to front that bill if the worst-case scenario arises.

Coincidentally, domestic asset protection trusts designed to cushion those very scenarios hit the market in 1997. Move the money into the trust, let it season and in theory Bowie could have avoided having to guarantee any default personally.

There’s also nothing ruling out shifting the assets to one or more offshore havens. Bowie was a British national living in New York with a legal domicile in Switzerland. His people knew international law and how to take advantage of the loopholes.

Either way, whatever he squirreled away over the decades disappeared from his personal accounts. His net worth would appear to drop precipitously but the paper trail went cold.

And now that he’s dead, the world’s tax authorities can’t touch the assets. They pass on to his heirs in a substantially better position.

Meanwhile, Switzerland lets everything on the record pass free to Bowie’s widow. The kids pay at most 3.5% in his particular canton on their piece of his official $200 million.

Once the heirs pay the tax, they’ll own the posthumous income streams free and clear for another lifetime. Anything off the books will keep working for them behind the scenes.

Bowie played the surface game just about as well as you can. And down in the depths, odds are extremely good that he did a whole lot better than that.