With this week’s passing of legendary rocker David Bowie, tidbits of his illustrious career are being shared by his fans. But one thing he may not be as widely remembered for was his financial creativity. In 1997, David Bowie sold, through investment bank Fahnstock, $55 million worth of ten-year bonds to Prudential Insurance.1 These ‘Bowie Bonds’ were backed by future earnings (royalties) from certain album sales. Bowie received the cash proceeds up front, minus fees, but he forfeited some earnings for the ten-year period of the bonds. The Bowie Bonds issue was brainstormed by David Pullman, a Wharton MBA, began his career in finance as a Wall Street mortgage-backed trader. Today, his Pullman Group also has diverse royalty interests in animation, screenwriting and video gaming.2 Given his superstar status and steady track record of album sales, the bonds garnered the highest credit rating by the analysts at Moody’s.
This bond issue was unusual at the time but insurance companies are known to buy a wide array of debt to meet future liabilities. Despite a downgrade of the bonds during the Napster file sharing era, all interest payments were made. Today, it is not uncommon for ratings agencies to assess the creditworthiness of exotic asset backed securities including cell-phone tower leases, income-sharing agreements on student loans, residential solar power and of course, subprime mortgages. In fact, Bloomberg data from Barclays revealed that 21% of U.S. asset-backed issues last year were of unusual or esoteric nature.3
While icon investing hasn’t gone mainstream, it’s no less fascinating. Besides Bowie, other musicians such as the Godfather of Soul, James Brown, and heavy metal band Iron Maiden have tapped the securities markets with similar celebrity bonds. Really, anything that has cash flows can be securitized so it’s up to the creativity of the investment bankers (and their compliance departments) to create the next generation of products. Here’s a look at some other creative alternative assets.
Investing in Athletes
If sports are more your thing, there’s actually a way to ‘invest’ in professional athletes. Buffalo Bill’s quarterback E.J. Manuel and Chicago Bear’s wide receiver Alshon Jeffrey are examples of athletes whose shares trade on Fantex. Fantex, which debuted in 2012, is a stock exchange that trades shares of athletes.4 The player’s debut, or IPO, at $10 per share, then they can trade based on their perceived earnings potential. As of today, Alshon Jeffrey was trading at $11 per share while EJ Manuel’s stock price was struggling as much as his completion percentage, with a last sale of $7.5 Neither of these athletes pays any dividends so it’s a true Hail Mary pass to see if you can make anything on your investment.
The exchange currently has just eight pro football players on its roster, but Fantex plans on adding more athletes and eventually celebrities. The shares trade based on the future royalties of the athletes, both on, and off the field. Royalties may include subsequent playing contracts and off-the-field engagements like product endorsements, appearance fees, even future broadcasting and book royalties. The share’s represent interests for future earnings ‘in perpetuity’, so theoretically for the athlete’s life. If that’s not long enough, some legacy investments carry on beyond that.
In case you were wondering, Fantex needs to register with the Securities and Exchange Commission, SEC, and send out prospectuses to potential investors just like any stock trying to list on an exchange would. And according to their website, Fantex is also backed by SIPC, the Securities Investor Protection Corporation.
Sports fans can also dabble in other sports-related investments, including professional sports teams and facilities. The Boston Celtics of the National Basketball Association, Manchester United Football Club in England’s Premiere League and the Florida Panthers of the National Hockey League all trade on the U.S. exchanges.
In addition, the Green Bay Packers of the National Football League also has shares outstanding, but don’t trade publicly. The shares pay no dividends and cannot appreciate in value, so the stock is really more of a fundraising tool. For example, there is a special ‘store’ just for shareholders where they can buy a “I Own a Piece of the Pack’ T-shirt. Stock offerings in 1997 and 2011 went towards redevelopment of their famous Lambeau Field, while a key stock offering in 1935, the middle of the Great Depression, helped save the franchise from bankruptcy.6 Needless to say, only a hard-core fan base could pull that off.
Even stadiums can get in on the action. The World’s Most Famous Arena, New York’s Madison Square Garden, has its own stock. The Garden is home to the New York Knicks basketball and Rangers ice hockey teams but also hosts a myriad of special events including the Ringling Brothers circus, Westminster Kennel Club Dog Show, rodeos, even a Mass given by Pope Francis.7
A star’s earning power certainly isn’t over when he dies. A stream of income can continue for decades to come, benefitting either investors, creditors or their estate. On top of this list is the King of Pop himself, Michael Jackson, who earned an astounding $310 million in just the two years since his death in 2011.8 Jackson’s estate has a deal with Cirque de Soleil, film and even ringtone companies. Jackson’s jewel might be his stake in Sony/ATV, a large collection of copyrights to songs from famous artists from The Beatles to Eminem. Other artists with legacy funds are Elvis Presley and Bob Marley, a distant second and third place respectively. Private equity firm Apollo Global Management bought Elvis’ estate in 2011.9
But investing in others doesn’t have to involve an iconic rock star, macho athlete or a beautiful celebrity. It’s easier than ever to ‘invest’ in others through financial technology, dubbed ‘FinTech’, namely peer-to-peer lending. With peer-to-peer lending you simply lend to another person, eliminating the bank as middleman (for the most part). And investors can earn above average rates of return on loans extended to these borrowers. There are several platforms that facilitate this type of investment.
Upstart, the site maybe best known for freelancers, has extended into this peer-to-peer lending space, matching up borrowers and lenders. According to their website, over 90% of Upstart’s borrowers have college degrees and many purport to use the loans for repayment of debt. They provide a scale of interest rates that corresponds to the borrower’s credit ratings, based on variables like education earned and FICO scores.10 Upstart is doing the work typically done by a loan officer at a commercial bank. You can even utilize peer-to-peer investments in a self-directed IRA, something even your financial planner might endorse. So the next time your financial advisor recommends that you diversify some of your investments, maybe mention some of these eclectic ideas.