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Michael Jackson's Estate Sale

Jackson's debt may force a quick sale of his prized asset: rights to the Beatles catalog.

Michael Jackson died just before heading to the U.K., where a 50-concert schedule would have done much more than launch a musical comeback tour. Proceeds from the concerts would have chipped away at nearly half a billion dollars in personal debt.

Creditors allowed Jackson to dig himself into such a hole because of the cash cow he put up as collateral: his 50% interest in a music publishing catalog that includes 250 Beatles songs and hundreds of thousands of other works.

Now, if those same creditors push the Jackson estate for quick payment, they could force a distressed sale of his interest in the catalog.

The King of Pop blew the profits from sales of 750 million records on extravagances ranging from $10,000-a-night hotel stays to the construction and upkeep of his $50 million Neverland Ranch.

But Jackson made one brilliant financial move--shelling out $47.5 million in 1985 to buy the publishing catalog. Ten years later, Sony ( SNE - news - people ) paid Jackson $90 million for half the rights, forming a joint venture called Sony/ATV. Today, it's worth far more.

Rate This Story Your Rating Overall Rating Reader Comments Another issue revolves around whether Mr. Jackson gave his Beatles catalog to Paul McCartney through the terms of his will. This could throw a complete monkey wrench into the legal and financial imp....

Comment On This Story"You're talking about the greatest catalog in existence," says Ryan Schinman, chief of Platinum Rye, the world's largest buyer of music and talent for corporations. "When you have that many No. 1 hits in a catalog, you almost can't put a price on it."

Schinman thinks the catalog is worth as much as $1.5 billion, which would put Jackson's share at $750 million. Using a rough industry rule of thumb--that a catalog can throw off 5% to 7% of its value in cash each year--Jackson would have been earning some $80 million a year from his stake.

The real promise for getting out of debt, though, came from the scheduled concerts and the potential for an extended international tour. The London shows promised to net Jackson $50 million and a global tour could have earned him hundreds of millions of dollars more.

While the Jackson estate will own much of his own music, the big prize is still the Beatles catalog. Only an orderly sale will bring the maximum value.

"His creditors could say that, due to his passing, the owners of the estate have to make good on his debt in 60 days," says analyst Chris White of Wedbush Morgan. "Then you'd have to put this joint venture on the block, and that would be a distressed sale."

In other words, creditors could essentially foreclose on Jackson's stake in the Sony/ATV venture. Sony could try to block such a sale or buy Jackson's stake at a firesale price.

Representatives from Sony/ATV declined to comment.

A low price, while good for Sony, would diminish Jackson's estate. Given the state of both the economy and the music business, a quick sale of Jackson's catalog stake might not even erase his considerable debts.

"The music business is in the doldrums, to put it mildly," says Donald David, an estate lawyer who handled the postmortem finances of Tupac Shakur. "If somebody wanted to liquidate his interest, it's unclear whether it'd be enough to pay off the debt."

Add in competing interests from Jackson's family, creditors and even one-time friend Paul McCartney, and the situation could get complicated very quickly.

"They could get into a bit of a disagreement as to who has priority," says David. "That said, you can't leave an asset free of what it is securing. If McCartney wanted to claim back that catalog, he'd have to pay off the loans. He's got the money to do it, but I'm not sure he'd want to."

If an estate drama is on the horizon, Wall Street seems unfazed. Shares of Sony ended Friday's session down less than 1%.

"Sony is such a huge conglomerate," says White, "that their exposure to one entertainer--even one as big as Jackson, isn't going to move the needle in the short term."