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Week in Review

By Martha Nimmer

Stocks, Bonds and Professional Athletes

Houston Texans running back Arian Foster and San Francisco 49ers tight end Vernon Davis have signed brand contracts with athlete stock corporation, Fantex, Inc. As part of the deal, Foster will "receive $10 million in exchange for Fantex's receipt of a right to 20 percent of the running back's future on-and-off field income." Additionally, Davis recently "agreed to $4 million in return for a 10 percent interest in the tight end's brand income (as defined in the brand contract)." These payments, however, are contingent on Fantex's ability to obtain financing to pay the purchases prices. The company hopes to secure this funding by selling shares in a "tracking stock" that is linked to a player's economic performance, a metric that includes the value of playing contracts, brand endorsements and appearance fees. Fantex also hopes to expand beyond football players and into other sports and entertainment fields in the near future.

Since news of Fantex's deal with Arian Foster was released two weeks ago, the company has been causing quite a stir on and off the playing field. In evaluating the economic potential of Fantex, some financial professionals appear unconvinced, citing Fantex's "complex structure and many risks, including the chance that an injury could cut short a player's career and earnings potential." Additionally, Forbes raises another important question, namely, "who controls the Arian Foster brand and determines what opportunities are best for him?" Fantex CEO Buck French responded: "[w]e absolutely will provide advice and perspective on who we believe are endorsements or partners that align with the [athlete's] brand. It's advice that he does not have to take. He is in charge of his own brand . . . we are just at the table. Arian is represented by William Morris Endeavor; they will decide what they want to do and whether they want to take our advice or not. The ultimate decision rests with the athlete." That answer, however, may not sit well with traditional investors, who are accustomed to companies acting in the best interest of the shareholder. Additionally, potential investors may be hesitant to invest in a company where they lack any discernible power to shape the future of the brand or determine the future of the company. These are concerns that Fantex will have to tackle head on, so to speak, if the company wants to attract the necessary financing needed to keep Foster, Davis and other potential NFL players on its payroll.

For the braver investors among us, however, reservations for customers interested in purchasing "Fantex Series Arian Foster Convertible Tracking Stock" will open next week. Currently, however, the company is not accepting orders for the I.P.O.s.

http://dealbook.nytimes.com/2013/10/31/fantex-adds-another-athlete-to-its-i-p-o-roster/?_r=0

http://www.forbes.com/sites/darrenheitner/2013/10/31/athlete-stock-company-signs-49ers-vernon-davis-but-buyer-beware/

Family Feud

For decades, the families of renowned American sculptor Alexander Calder and his art dealer Klaus G. Perls enjoyed a bond founded on what one descendant of Calder described as complete trust. Now, however, that bond appears to be severed for good. In a complaint filed in New York State Supreme Court, the Calder estate claims that the Perls family secretly kept hundreds of Calder's works and, writes The New York Times, "swindled the artist's estate out of tens of millions of dollars." Shockingly, the suit also claims that Perls -- "a dealer with a sterling reputation who campaigned to rid his industry of forgeries" -- sold dozens of fake Calder works. The suit goes on to claim that Perls was a tax cheat who hid millions of dollars in a Swiss bank account, "a secret his daughter said she maintained by paying off a former gallery employee with $5 million." In response, attorneys for the Perls family claim in court papers that the Calder lawsuit is a "sham and manufactured claim." The Perls family has asked the court to dismiss the case, adding that the statute of limitations has expired.

The family feud and ensuing legal battle began in 2010 with a "chance discovery" at a Canadian art gallery. The gallery, unnamed in The New York Times article, contacted the Calder Foundation about a $1.5 million wooden mobile, "Standing Constellation." The piece had reportedly been purchased from the Perls Foundation, a trust set up following the shuttering of the Perls Gallery in 1997. Alexander S.C. Rower, chairman of the Calder Foundation and grandson of the late sculptor, said he was "puzzled because 'Standing Constellation' had not been listed on an inventory of holdings provided by the Perls Gallery after Calder's death, nor had the Calder estate received any payment from its sale." His interest piqued, Rower set out to track down the history of the sculpture in question. Rower, who "has spent more than 15 years compiling the definitive catalog of Calder's work," consulted the Foundation's provenance records and "said he found several other works in the Perls inventory that were later sold without the estate's knowledge." Many of the pieces were listed as being delivered by a woman in Switzerland known simply as "Madame Andre," because what art mystery would be complete without a shadowy character named "Madame Andre"? Armed with this information, Rower and the rest of the Calder family eventually sued the Perls estate, Perls' daughter, and the woman known as "Madame Andre."

"Standing Constellation" was just one of many unaccounted for pieces in the Perls family's possession, the Calder investigation revealed. According to court papers, "nearly 700 Calder bronze sculptures, jewelry and other works worth well in excess of $20 million that had been in the Perlses' hands and are unaccounted for." Eventually, the Calder family also learned that "Madame Andre" was not a person, but a Swiss bank account: "Katherine Perls [daughter of dealer Klaus Perls] acknowledged in an affidavit, 'Madame Andre' was a euphemism for her father's Swiss account, 'perhaps even a humorous or shorthand reference for this account, or to avoid disclosing to others who were present that he did have this Swiss account.'" Additionally, the Calder family has claimed that a former employee of the Perls Gallery said that the gallery had sold approximately 30 fake Calders.

With familial betrayal, international intrigue and millions of dollars of priceless art at stake, the plot in this family feud is undoubtedly due to thicken.

http://www.nytimes.com/2013/10/30/arts/design/alexander-calder-estate-sues-heirs-of-klaus-g-perls.html

Legendary Producer v. the King of Pop

Grammy Award winning music producer Quincy Jones has sued Michael Jackson's record label, MJJ Productions, and Sony Music Entertainment in Los Angeles Superior Court for $10 million in royalties that the plaintiff and his production company claim the defendants owe him on contracts from 1978. In the complaint, the plaintiff "alleges that master recordings he worked on were wrongfully edited and remixed so as to deprive him of backend profit participation." Jones also claims that he has been denied credit for his work on the singer's posthumous releases and that MJJ Productions and Sony have entered into "side deals" that divert profits that should have been included in the calculation of royalties owed to Jones.

Quincy Delight Jones Jr. -- winner of 27 Grammy Awards and producer of the King of Pop's best-selling albums Off the Wall, Thriller and Bad -- co-produced Michael Jackson's 1982 Thriller album with Jackson. Over 66 million copies were sold, making it the best selling record in history. Jones also co-produced Jackson's 1987 album Bad, which sold 45 million copies, and wrote music for the 1978 movie "The Wiz", which starred Jackson. Jones claims that he entered into agreements with the pop legend in 1978 and 1985 for work on the singer's solo albums. The contracts, according to the complaint, "stipulated that Jones be given the first opportunity to re-edit or remix any of the master recordings, that the coupling of master recordings with other recordings required his prior written consent, and that he be given producer credit for each of the master recordings." The deal also entitled Jones, as producer, to additional compensation, including upfront payment and a "backend" percentage if remixed masters were released.

Following Jackson's death in June 2009, the pop star experienced a huge "resurgence of popularity." Seeking to capitalize on the singer's renewed fame, Columbia Pictures released "This Is It" from AEG Live and The Michael Jackson Company, which showed footage of preparations for what would have been the singer's final concert tour. Two years later in 2011, Cirque du Soleil debuted a show entitled "Michael Jackson: The Immortal Tour," which is rumored to have grossed an astounding $300 million to date. Earlier this year, Cirque du Soleil also began a new production called "Michael Jackson: One." Soundtracks for "This Is It" and the Cirque du Soleil shows have also been released. Despite the enviable commercial success of the remixes and re-edits of the Michael Jackson works, Jones, however, is not pleased, stating that the terms of his deal with Jackson and Sony "were breached when MJJ allowed third parties to exploit these works 'without first providing a reasonable opportunity to Jones to perform such remixes and/or re-edits.'"

Jones is seeking at least $10 million in damages for breach of contract and demands an unspecified amount of "unpaid royalties due to him, remixing fees that would otherwise have been paid, and compensation for the loss of the value of credit he would have received." He is also demanding an accounting.

The complaint is available at: http://www.hollywoodreporter.com/sites/default/files/custom/Documents/ESQ/quincyjones.pdf

http://www.hollywoodreporter.com/thr-esq/quincy-jones-files-10m-lawsuit-651045

http://www.entlawdigest.com/2013/10/28/2794.htm

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This page contains a single entry from the blog posted on November 1, 2013 6:27 PM.

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