Michael Jackson’s Finances Illustrate Investor Over-exuberance

The tragic death of the “King of Pop” provides an interesting insight into how hedge funds and private equity groups buy loans  in anticipation of future earnings. Michael Jackson made real money during his 40 years as an entertainer; unfortunately, he also lost a lot of money, especially over the last 10 years.

Reports are that Jackson died $500 million in debt.  The crushing debt-service payments – combined with losses totaling millions, due to bad investments and money spent to finance his lifestyle – wiped out his fortune and he ended up in hot water with private equity creditors (it should be noted that Jackson was an extraordinary philanthropist, donating $300 million to a multitude of charities during his career.)

In 2003, Fortress Investment Group purchased some of Jackson’s loans from the Bank of America.  Jackson’s failure to repay caused Fortress to threaten to call in the loans.  Citigroup rode to the rescue and refinanced $300 million of Jackson’s debt.  After he fell behind on payments, Fortress moved to foreclose on the Neverland Ranch.  Yet another potential savior – Colony Capital – purchased his loans from Fortress and created a joint venture with Jackson to purchase Neverland for $22 million and renovate it for sale.  Colony was also backing Jackson’s 50-concert London comeback which had $85 million in sold-out ticket sales at the time of his death.  Clearly, Jackson’s brand was perceived to be so valuable (he sold 750 million albums during his career) that the assumption of risk was deemed to be worth it.