In 1969, David Bowie (pictured above) emerged on the rock and roll scene with “Space Oddity.” It would be the first major splash for an artist who now frequently appears on lists of the top 100 musicians of all time, including Rolling Stone‘s (#39) and VH1’s (#12). Bowie still performs today, but most of his famous work came out of his music from the late 1960s through early 1980s.
But in 1997, Bowie did something which, in some circles, is much more important than his music. With the help of investment banker David Pullman, Bowie took 287 of his songs — everything he had written up until and including 1990 — and did what I-bankers were beginning to do with seemingly everything: they turned it into an asset-backed security.
If that term sounds familiar, it’s because the financial crisis of 2008 was, to a degree, a byproduct of mortgage-backed securities — bonds whose value are derived from a steady stream (when things go right) of mortgage payments. (Still a bit lost as to what happened in 2008 and since? This video will help. Well worth the ten minutes.) The basic idea: Bowie issued bonds (the securities) which were good for, on average, ten years. The bonds paid bondholders 7.9% interest, per year, on the purchase price of the bonds. This interest was funded by the royalties paid to Bowie for his portfolio of songs (the asset which backed the securities) over that ten year period. This allowed Bowie to retain ownership of his music, but cash out a lot of their future value immediately.
And cash out he did. This first-of-its-kind offering found a buyer very quickly — the Prudential Insurance Company picked up the entire set for $55 million. (Accounting for inflation, that’s about $75 million in today’s dollars.) Bowie used some of the money to buy the rights to some of his other music from a former manager. Pullman ended up creating similar deals for other artists.
From the Archives: Double Irish: More fun with the financial system.
Related: Amazon’s David Bowie section — housing over 1,000 relevant mp3s available for download.