How do you measure the value of legacy or the legacy’s future earnings potential? For artists and athletes, it’s a critical step toward earning what they’re truly worth. Fortunately, valuation methods exist to assess personal brand and creative assets with credibility.
These valuation methods connect directly to copyright and name, image, likeness (NIL) opportunities. By using appropriate valuation methods, it’s possible to avoid financial challenges and contentious legal fights (consider the Michael Jackson estate). A well-supported valuation is critical for safeguarding intellectual property, maximizing financial outcomes, effective estate planning and taxes, and ensuring long-term control over personal brand equity.
What Is Valuation?
Valuation in the context of a public figure involves assessing the monetary worth of the personal brand and its associated assets, including both tangible and intangible elements. While tangible assets, such as real estate or company holdings, are relatively easy to assess, it’s the intangible assets, specifically intellectual property (IP), that complicate things. Our team applies specialized expertise in data analysis, research, and valuation methodologies to accurately assess:
· Copyrights (music catalogs, sound recordings, literary rights, etc.)
· Royalty rights (motion picture residuals and participation rights, songwriters and artists’ share of royalty partnerships, etc.)
· Publicity rights (name, image, and likeness)
The Process Behind Valuations
The cost approach assesses historical expenditures and the effort required to establish the personal brand. However, it may not accurately reflect the market value of the brand or its future income potential.
The income approach attempts to predict future earning potential. The forward-looking perspective involves assumptions which may not materialize. This method focuses on reasonably foreseeable events, those likely to occur based on a client’s history.
A market approach relies on existing models, such as similar public figures, endorsements, or transactions. The use of real-world data means the valuation can be more predictive of what investors would pay. However, as with the other methods, the market approach has its drawbacks, primarily that it relies on the availability of data for a truly comparable public figure or personal brand.
That’s where the complexity lies. Building a defensible IP valuation requires more than formulas; it involves access to reliable market data, thoughtful forecasting, and an understanding of how unexpected shifts can impact future earnings. It’s why artists and athletes turn to our valuation advisors who specialize in the nuances of personal brand value.
Why Valuation Matters — During Life and Post Mortem
If every model depends on estimates, professional judgement, and includes risks, how can it possibly make a difference to clients? The valuation models aren’t perfect, but they have evolved over time, withstood challenges, and become widely accepted by finance professionals, motion picture companies, sports teams, record labels, and business entities to measure an artist’s or athlete’s worth.
When applied with expertise and by experienced team members at Prager Metis, these valuation models can help living entertainers and athletes with business negotiations, brand partnership agreements, buy/sell transactions (for example, music catalogs or other IP), licensing and endorsement deals, estate planning, tax strategies, and other financial endeavors.
The Importance of Valuation for Artists After Death
Supportable post-mortem valuations of name, image, and likeness (NIL) or music royalties are essential for helping families and loved ones navigate estate complexities. These valuations can resolve legal disputes among heirs, provide a basis for effective legacy management, and prevent avoidable estate tax implications.
Consider the Michael Jackson estate case. The IRS initially valued Jackson’s NIL at $434 million, significantly higher than the estate’s position. After a lengthy court battle, the valuation was adjusted to $4.15 million, which was still higher than the family’s initial estimate of $3.5
million. This example highlights the importance of defensible valuations to avoid legal disputes and ensure optimized taxation.
When done professionally by experienced appraisers, it provides a reasonable and supportable value for physical and non-physical assets, including NIL for artists, musicians, collegiate and professional athletes, and other celebrities. However, these valuations must be based on defensible data and methodologies. Without that, the numbers are susceptible to misinterpretation and challenges.
Copyright and NIL Valuation
Valuation plays a vital role in contractual negotiations involving the exploitation of music copyrights (including publishing rights and sound recordings), literary copyrights, merchandising trademarks, motion picture residual and participation rights, and visual arts.
To ensure fair compensation for recurring and non-recurring income streams from existing, renewable, and anticipated contracts, it is crucial to base valuations on defensible income projections.
The same concept of collaboration extends to the rising importance of NIL rights. Recent years have seen an increased interest and traction for these rights in the sports and entertainment industries, as well as in collegiate channels.
As with copyright valuations, the challenge is in creating defensible valuations. How do you project future income from NIL? Is history a reliable indicator of the future? Through collaboration between legal advisors, business management, and the experienced valuation team at Prager Metis, it’s possible to establish a tenable value position.
Preparing for a Valuation
With the importance of valuation for artists and athletes established, how do you prepare for this process to ensure it results in sound and justifiable value conclusions?
The first step is to identify the assets, especially intangible assets, that need to be appraised, including:
· Copyrights (music and literary)
· Trademarks
· Contracts
· Residuals and profit participation (motion pictures)
· Publicity Rights (NIL)
The next step is to organize all related financial and legal documents. These may include origination documents, contracts, transfer and assignment agreements, trust agreements, and other relevant documents. If practical, summarize historical revenue streams into schedules. It’s about making the process smooth and accessible to your team of trusted advisors.
Accurate and Defensible Valuations Rely on Experienced Professionals
Worth is a subjective principle, but it’s built on absolute and comparative principles, principles that qualified and experienced finance professionals understand. The valuation methods described above help make sure high-net-worth individuals can negotiate and secure a fair value for their work.
Applying valuation methods effectively requires both technical knowledge and industry-specific expertise. Partner Olga Averin specializes in business and intellectual property valuations, with a focus on royalty income and entertainment-related assets. Partner Joe Rust brings decades of experience in the entertainment sector, with deep expertise in royalty and profit participation examinations, copyright and IP valuations, and licensing audits.
Their combined knowledge enables clients to make informed decisions about protecting, assessing, and leveraging their creative and financial assets. Learn more about our valuation services.
Sources:
Tax Court Determines Values in Michael Jackson Estate Tax Case
