It’s Only Rock ‘n’ Roll, but I Like It . . . as an Investment

Is it possible to put a monetary value on “Hanky Panky”? How about “Louie Louie”? Or even Lou Reed and Lulu, for that matter?

Musical worth can be debated endlessly, and its financial value to banks and Wall Street is largely unexplored territory. Now, a former top music industry executive is betting that there’s more there than people think.

Charles Koppelman, former chairman of EMI Capitol Music Group, has started a company that plans to lend money to entertainers in exchange for rights to their future earnings. His partner, Prudential Securities, will provide a $200-million line of credit.

Prudential will then bundle several of these deals to sell to investors, in the hope that those who couldn’t make it in a rock band would prefer rock bonds.

Rock superstar David Bowie kindled Wall Street’s interest in this type of financing scheme last year when he raised $55 million through the sale of bonds tied to the earnings of his first 25 albums.

The financial community has only in the last few years awakened to the value of entertainment properties, Koppelman said.

An old song can earn money for years, particularly if it is used in advertisements, repackaged and sold on compact disc or re-recorded by a contemporary artist.

The former Beatles know this well, having earned millions in the last few years by releasing their leftovers in the “Anthology” projects. The Rolling Stones have sold the rights to songs like “Start Me Up” and “Brown Sugar” in commercials.

Many artists don’t have the prospect for such quick riches unless they sell the rights to their creations. Koppelman’s new financing method would give them money and allow them to hold onto ownership.

“It gives them the ability to cash in without cashing out,” Koppelman said.

There’s been a “huge” interest on the part of entertainers since his company, CAK Universal Credit Corp., was formed in February, Koppelman said. He won’t name names for a few months, until a bond offering is imminent.

As for the idea that musicians ignore business, Koppelman says he has found otherwise. A week after the idea was made public, he said, he was called by a bandleader who had read about it in the Wall Street Journal and was approached by one of the year’s top hit-makers who had seen him on CNBC.

As a record-company chief, Koppelman was fully involved in the fickle world of hit-making. He bet, and succeeded, on the ability of young musicians like Vanilla Ice and Tracy Chapman to produce hits. He also made a fortune buying and selling music publishing holdings.

His entertainment expertise and instincts will prove valuable to bankers, said David Sonenberg, a prominent manager of musical acts.

“It’s not like a brick building on 48th Street where bankers are used to sending an appraiser in,” he said. “They have no expertise in the area of judging the value of collateral that people in the entertainment industry own.”

Sonenberg questioned whether enough investors would be interested in these bonds to make the idea work. There are a lot of other things that would be a more lucrative investment, he said.

Koppelman expects the field to quickly become crowded with competitors. Another veteran music executive, ex-Eagles manager Irving Azoff, has joined with Nomura Securities Co. to pursue similar deals.

“There’s no question that two years from today this is going to be commonplace,” he said.

He also plans to start a $100-million venture capital fund to lend money to younger people in the business. The fund, for example, could help a young owner of an independent record company expand his business.

If the record company is successful and, as often happens, is sold to a larger conglomerate, Koppelman would share in the profits.

At age 57, Koppelman is no longer confident in his ability to pick the next musical trend that will interest people 40 years younger than he is. Fortunately for him, his new CAK Universal Credit Corp. isn’t interested in the musical future.

“We’re not loaning money out on the basis of whether an artist is going to have a hit or not,” he said. “We’re loaning money out based on the past life of an artist.”