Unravelling Michael Jackson's Finances

Michael Jackson died this week while preparing for a 50-night schedule of shows at London's 02 Arena that were scheduled to begin in July. The concerts would have been Jackson's first since 2001, and he was doing them in part for a simple reason: he desperately needed the money.

During his life, Jackson sold hundreds of millions of records, and his musical legacy should easily have led him to amass one of the greatest fortunes in show-business history. But instead, a history of bad management, excessive personal spending, and big legal bills left him, at his death, facing continual rumors that he might file for bankruptcy. "After all is said and done, he was almost broke," one close associate told NEWSWEEK. "He needed to do this tour." In the hours after his death, NEWSWEEK spoke with three sources who'd been close to Jackson and involved in his finances, and though their views differ in some respects, they agree that the crisis-ridden financial life he left behind is almost certain to remain as murky and complex as it's been since the mid- to late 1990s.

Jackson's financial problem stems from the fact he continued to spend tens of millions of dollars a year even as his musical output—and his income—slowed down. (His last album, Invincible, was released in 2001.) In recent years Jackson financed these personal debts by borrowing against assets, and by some estimates his total borrowings at his death may have exceeded $400 million. And it wasn't all personal spending: according to record-industry executives, Jackson would drop as much as $30 million recording an album over two or three years in his quest for perfection. His videos cost as much as $8 million. While Sony picked up part of the tab, Jackson was responsible for a hefty portion. "I hold everyone around him responsible," says a former associate. "No one said no. They said, 'Yes, Michael, yes, Michael.' "

According to two of Jackson's former advisers, Sony Music Group, his most pivotal business partner and record label, will likely end up owning his most valuable musical asset: his share of Sony/ATV Music Publishing. A joint venture that Jackson and Sony formed 14 years ago, Sony/ATV owns 750,000 era-spanning hits and classics; its most prized asset is the song rights to most of the works of the Beatles, which Jackson managed to stealthily purchase in 1985 for $47.5 million—a deal that destroyed his friendship with Paul McCartney. In the music industry's 1990s heyday, Sony/ATV might have been worth as much as $1.5 billion, according to the Jackson associates who spoke with NEWSWEEK. Its value in today's recessionary global economy is anyone's guess. One of Jackson's associates says Sony/ATV's value might have plunged to $500 million; a second simply says it's worth "a big number." Jackson's share of the joint venture, in which both he and Sony once had equal stakes, may now be less than 25 percent, one of the associates told NEWSWEEK.

Compounding his woes, the lucrative publishing catalog of Jackson's hits, MiJac, is also encumbered by massive loans, one of the confidants told NEWSWEEK. MiJac is administered by Warner Chappell, a division of Warner Music Group.

Jackson's business associates and family aren't officially commenting on his financial affairs. A spokesperson for Sony/ATV declined to speak on any financial matters beyond describing the publishing operation as a 50-50 joint venture. Expressing his condolences in a prepared statement, Martin Bandier, Sony/ATV's CEO, called Jackson "a trusted and passionate partner, who was very proud of our accomplishments." As for the status of Jackson's stake, the spokesman would only say, "There are specific beneficiaries of that asset." In a statement, Jackson's attorney, Joel Katz, commented generally on his business affairs, noting that Jackson was involved extensively in the preparations for the London concerts. "Michael Jackson was a perfectionist, and his business affairs are worldwide," Katz said. "Many of them are quite ongoing and will be dealt with appropriately."

While there's no denying Jackson's grim financial circumstances, others in his financial life say future earnings from his recordings and assets may largely offset his debts and leave him with a significant estate. "His legacy has a better chance of being preserved for his estate than ever before," a key adviser said this morning. "I don't think people understand the significance of his assets." According to this source, Jackson's publishing assets generate $50 million to $75 million a year. He collects a share of it, which is split with his partners. Sales of his past recordings easily yield another $5 million annually. At one point, Jackson was spending up to $20 million a year, however, and his mountainous debt had to be serviced from the proceeds, too. With his death, that spending will end, of course.

At the same time, Jackson's estate is likely to be caught up in the mother of all probate cases. That, this source says, will help buy time "for things to right themselves," especially given the explosion of income that his assets will now begin to generate. The estate "will earn tremendous amounts over the next few years, as would be the case when any legendary talent like Michael passes," this person says. "He's an icon like Marilyn Monroe and Elvis," says Keith Estabrook of the public-relations firm Estabrook Group. Larry Mestel, CEO and founder of music publisher Primary Wave, agrees. As lead of the Jackson 5, a quintet that included his brothers, and as a solo artist, Jackson "made some of the most incredible music," Estabrook says. "Like many of the greats, it will last for an enormous time." Jackson also leaves behind an uncounted trove of unreleased recordings, many of which may now be released.

Although the Los Angeles County medical examiner is conducting an autopsy to determine the exact cause of Jackson's death, his associates believe the financial pressures he faced were likely an indirect cause. Whatever health or substance-abuse problems Jackson had can't have been helped by the daily six-hour rehearsals he'd been doing for the upcoming concerts, which were made necessary by his frayed finances. "That had to be completely overwhelming," says one close associate. In the past decade Jackson's deteriorating finances had assumed a prominent role—alongside the surgical masks, unending cosmetic surgeries, childlike behaviors, and alleged molestations—in Jackson's eccentric, troubled public persona. In the hours after his death, Jackson would likely have been encouraged that most of the public focus has remained where he would have wanted it: on his music.

At James Brown's funeral a few years ago, standing alongside Al Sharpton at the open casket, Jackson spoke to the reverend about legacies: "When a legend dies, maybe he will get in death what he didn't get in life in terms of credit." Recalling that story today to NEWSWEEK, Sharpton added, "I hope that's true for Michael."