Channing on David Bowie, Rock Music, and Tax Law

Here's an interesting take on tax law and pop culture.

Emma Channing has published an essay, Bowie: Rock God or Tax Genius? Here is the abstract.

Even now, nearly 20 years on from issue, the Bowie Bonds remain a remarkable creation that spawned over 100 similar transactions in the music industry, and some claim, triggered the creation of more dubious derivatives that played such an enormous part in triggering the Great Recession. Following David Bowie’s tragic death in January 2016, there has been a great deal of coverage of the Bowie Bonds and their origination, but one aspect has always been overlooked, and that is the tax structuring. The Bowie Bonds arguably were a tax free structure paying 15 years income totaling $55m in one bullet payment by the first securitization of intellectual property rights, namely Bowie’s pre 1990’s royalties, which can be concluded from a facts and circumstances analysis as laid out in this essay. In this day and age of punishing regimes for both income and capital gains, such an enormous tax free structure is an incredible achievement. However this is unsurprising given the beneficiary was a creative genius with a very smart business sense: David Bowie and hence the answer to the title Rock God or Tax Genius arguably should be “both”.

The Bowie Bonds came to the end of their life early in 2007 when they were liquidated and the assets returned to Bowie, but the Bowie Bonds’ role in the history of securitization is also worth note. The Bowie Bonds were successful arguably for the same reason that certain Credit Derivative Obligations (CDO), particularly CDO2 and their ilk were not. The Bowie Bonds were transparently structured, with clear sight of the underlying income generating assets, proven income track-record, most likely modeled for that income to decrease as well as increase and clear title ownership. The Bowie Bonds remain an interesting example of what was and was not wrong with where the securitization market went, and an argument for the merits of well-structured securitization products.

Download the paper from SSRN at the link.