Bruce Springsteen just proved that he is "The Boss" of music catalog sales.
According to a report first revealed by the Wall Street Journal, Bruce Springsteen has sold his music catalog rights to Sony Music Group. The sale price?
$500 – $600 million
Wherever the final number lands, Bruce's deal is the largest transaction ever for an artist's life work. Bruce top's the previous record holder, Bob Dylan, who sold his catalog rights almost exactly one year ago to the day. Bob's payday was reportedly $300-400 million.
Bruce's deal valued his catalog at a stunning 30X his annual royalties. Just a couple years ago artists regularly sold their catalogs for 5-10X annual royalties.
Assuming 30X is based on $600 million, that means Bruce had been earning $20 million PER YEAR in royalties!
Crucially, Bruce closes his sale two weeks before 2021 comes to a close. That decision has some important tax implications.
First off, as a resident of New Jersey Bruce will be subject to the state's 10.75% long-term capital gains rate regardless of what I'm about to explain. Just keep that in mind for a moment.
According to a loophole in today's federal tax code, when an artist sells their music catalog they qualify for the IRS' long-term capital gains rate. That means they pay just 20% in taxes to the federal government. If it was considered a short-term gain or ordinary income, the sale would be subject to a roughly 37% IRS tax rate. Many tax advisors believe this music catalog sale loophole will be closed in the coming years.
But that's not all.
The current version of President Biden's Build Back Better (BBB) tax plan, which is still working its way through Congress, calls for a 5% tax on all income over $10 million. The plan adds an extra 3% tax on income over $25 million. So, if the BBB passes, starting January 1, 2022, a deal like this would come with an 8% tax kicker that does not exist today.
In other words, next month the tax rate on this deal could very easily be 28%. If this truly is a $600 million sale, Bruce may have just saved himself $48 million in taxes.
And if the long-term tax loophole on music catalog sales does eventually get closed, this same deal in the future could come with a (37+8) 45% federal tax rate. In this scenario, doing the deal today saved Bruce $150 million.
Following today's tax code Bruce will pay 20% to the federal government and 10.75% to the state of New Jersey. That will equate to a total tax bill of $184 million (assuming $600 million is the full deal amount today). So he'll net $415.5 million free and clear.
We had previously assumed Bruce's catalog was worth $300 million when calculating our previous $500 million net worth estimate. When including the after tax gain from today's deal believe Bruce Springsteen's net worth is now $650 million.