If you were in the room, would you take the deal… or walk away?
That’s the question we’ll be asking at the end of every blog in this series, where we cover some of the most famous and surprising deals from business history. First, we’ll dig into the details, the high stakes, and the conclusion. Then it’s your turn to answer the final question: deal or no deal?
The Deal
In 1997, legendary singer, songwriter, and actor David Bowie teamed up with investment banker David Pullman at Prudential Insurance Company to create something no one had ever seen before: Bowie Bonds.
Also known as Pullman bonds, these bonds were asset-backed securities built on the future royalty streams from a back catalog of 25 Bowie albums. Rather than waiting years to receive royalty revenue every time someone bought, licensed, or played one of his songs, Bowie converted it into a lump-sum upfront payment. These bonds raised an impressive $55 million up front and allowed Bowie to buy back the rights to his music catalog.
The bonds were the first of their kind to use intellectual property as underlying collateral. With a face value of $1,000, a 7.9% interest rate, and a 10-year maturity, they were seen by investors as a steady, long-term investment. Also, who would pass up an opportunity to own a piece of the legendary David Bowie’s catalog?
The Result
However, there are always risks to consider. As the music industry evolved with file sharing (remember Napster?) and digital downloads, album sales dipped. That pressure on future cash flow led to a downgrade in the bonds’ credit quality.
Despite shifting consumer behavior and industry disruption, the Bowie Bonds matured as planned in 2007 without defaulting. The rights to all royalties reverted back to Bowie at the end of the term.
The Final Question
Securitizing intellectual property as a financing strategy was uncharted territory in 1997. While the opportunity to own a piece of a rockstar’s catalog felt like a solid investment to many, the ever-changing music industry meant the risks could have easily outweighed the rewards. Now, it’s your turn.
If you were at the table, what would you say: “deal” or “no deal”?
