‘This Is It’ concerts – $315m the Big Money

So were AEG the ‘good guys’ and helping Michael get out of the financial difficulties imposed on him by corporate bullies, or were they in it for themselves?

Let’s look at the AEG contract itself and see. As a layperson I do not understand all the terms and conditions in the contract, and for that I may have to defer to Leonard Rowe’s explanation in his book. But what I do understand is that the contract was for a maximum of 31 concerts between July 26 and September 30 2009, and the first leg had to be a minimum of 18 shows. A greater number of shows could be agreed, but the initial contract was as above, UNLESS AEG could prove that more shows were needed in order to recoup the advances it paid to Michael.

Leonard Rowe says that normally, production costs are taken from the gross revenue before the balance is split between the artist and promoter.

So for example if the gross revenue was $1 million and the production costs $300,000, the remaining $700,000 would normally be split between the artist and promoter.

In the AEG contract the gross revenue was split 90/10 in Michael’s favour BUT Michael PAID ALL The PRODUCTION COSTS from his 90%. So, using the same figures as above, Michael would get $900,000 minus the $300,000 production costs leaving him $600,000 and AEG would get the other $100,000. This looks OK at first glance, but then Michael also had to pay back other advances as well. So if the productions costs plus advances spiralled upwards, Michael could end up with $0 or even worse, owing AEG money, and AEG would STILL GET their $100,000.

It appears that the AEG contract did not put AEG in any financial risk. All the financial risk seems to be shouldered by Michael, the artist, without whom there would be no revenue in the first place.

Let’s look at the figures, to see if Michael was going to make any money from the concerts:

COSTS for 1 year

Rent of 100 Carolwood Drive for 1 year estimated at $1.2million

Rent of Foxbury Manor in Kent for 1 year – estimated at $1million

Production costs up to $7,500,000

Cancellation insurance premium for 1 year – estimated at $1.3m

Salary for Tohme Tohme at $100,000 per month - $1.2m

Salary for Conrad Murray at $150,000 per month - $1.8m

Producers Fee (5% of Artists Net Tour Income) – estimated at $3,825,000

COST TOTAL approximately $23 million in 1 year

MICHAEL’S INCOME for 50 shows

90% of the revenue for each 5 shows he completes (out of which the costs above are paid) – estimated at $85,000,000

MICHAEL’S INCOME (estimating $113 for each ticket sold) approximately $76.5m in 1 year.

Therefore, subtracting costs,

MICHAEL’S NET INCOME would be an estimated $53.5m in 1 year.

AEG would be making $8.5m.

This is a conservative estimate, but I think it shows that the AEG contract was going to make Michael a very large amount of money. The production costs would be unlikely to ever rise to $53m. Remember, this is just for the 50 shows.

If he had gone on to do a World Tour, the profits would have been even greater:

MICHAEL’S INCOME for 3 year World Tour

90% of the revenue for each 5 shows he completes (out of which the costs above are paid) – estimated at $255,000,000

MICHAEL’S  INCOME approximately $229.5m in 3 years

Therefore, subtracting costs as above for 3 years,

MICHAEL’S NET INCOME would be an estimated $180m in 3 years.

These figures do not include profits from concert merchandise, which were estimated to be $150m. If the 90/10 split also applied to merchandise, that is another $135m for Michael,

MICHAEL’S GRAND TOTAL $315m

"They don't care, they care about the money" - lyrics from "Money" by Michael Jackson. So what is happening to the will?

What you may not realise is that Michael’s will is still in probate.

Reading the estate’s report on the management of MJJ business, dated September 2010, in conjunction with the description of probate (below) these are the points that stood out:

Description of probate: “Probate is the court-supervised process of locating and determining the value of the assets owned in the individual name of a deceased person, referred to as a "decedent," paying the decedent's final bills and estate taxes and/or inheritance taxes (if any), and then distributing what's left of the decedent's assets to his or her heirs.”

Page 15 line 3 of the MJJ Business Report says “it appears likely that the administration of the estate will continue for an unusually long time”

Page 21 line 20 “the loans will be allocated to Mrs Jackson’s share of The Michael Jackson Family Trust upon its funding”.

So in effect I think that means that until all the debts have been paid, The Michael Jackson Family Trust is not being funded and the will is in probate.

The Estate have granted Mrs Jackson a monthly stipend of $86,000 and authorised some loans for her, until the Trust is funded. The loans will eventually be paid back from Mrs Jackson’s share of the Trust.

The largest debts that we know Michael has are the loans taken out on the Sony/ATV and Mijac catalogues.  Some business matters were not deemed public knowledge, and were not included in the report, so I am unable to comment on those. From what was included in the report we know this  :

·          the Sony/ATV loan from Barclays matured December 3 2010, (repayments were made from profits from the Sony/ATV catalogue, which is in the New Horizon II Trust). The loan was refinanced with UBS. My understanding is that when you refinance, you choose a lender with more favourable rates to take over the loan for the period of the original loan. But it is not clear if the loan has been paid up in full or extended.

·          The Mijac loan from Plainfield/HSBC was refinanced with HSBC, and matures in May 2011, although the report mentions a negotiation of a tax saving over 5 years, which could take it to 2014. (repayments are made from profits from the Mijac catalogue, which is in the New Horizon III Trust).

So initially, it looks like the largest debts could be repaid by May 2011, unless the loans have been extended. So my understanding is that if The Michael Jackson Family Trust has not been funded before then, it should certainly start being funded once these loans have been paid in full.

What was the size of Michael’s debts? They have been estimated between $250-500m. Some reports say that the loans on Mijac and Sony/ATV catalogues totalled $435m alone. We do not know what other debts he had, besides the mortgage on the Encino house.

If the estate has taken $1billion in the first year, as claimed in various reports, then this should have been enough to settle the two largest loans, leaving  $500m to pay for creditor claims and 10% fees for the Special Administrators. According to the business report, Exhibit A, action has been taken regarding $9,333,384 of claims, most of them paid in full. With $100m going to the Special Administrators, that leaves about $391m. Mrs Jackson is getting $86,000 a month leaving about $390m unaccounted for. Even unpaid tax bills since 2006 would not amount to $390m, so why has this money not been used to fund The Michael Jackson Family Trust? Where has it gone? And why are the loans still being paid off?

On the other hand, other reports say that the estate has only taken $310 million, and has paid out $159m Source to cover debt. That still leaves $58m after the outgoings listed above. As this is not enough to pay off the catalog debts outright, then this probably explains why the will is still in probate, but it does not explain why the Michael Jackson Family Trust is not being funded.

The two New Horizon Trusts were set up in 2006 specifically to pay off the loans on the catalogs. Either the income generated by the Trusts does not cover the repayments, and is being subsidised by the $58m, or the $58m is going somewhere else. If the loans mature but have not be paid back in full, then the estate will have to take out new loans, and work on new MJ business deals to generate more income, and the will could stay in probate for another few years. It is not clear from the business report if the Mijac loan was refinanced or whether it was paid in full, so I will have to wait until the next report to clarify that. Similarly, the Sony/ATV loan has been refinanced, but it is not clear if it matures in 2011 or 2014.

However, the longer the debts go unpaid, the longer the will stays in probate, and the longer The Michael Jackson Family Trust stays empty. By granting the executors 10% of the profits of the deals they make, it makes it very attractive for them to keep the debts unpaid and the will in probate. I’m assuming that once the debts are paid, the estate will be turned over to people who will run it like a business, and the executors will no longer be receiving any monies from it. I do hope the court is keeping an eye on things to make sure the executors are not lining their pockets at the expense of the Trust fund.