How much are you worth?

How much is U2's or Madonna's work worth? - I didn't know about this deal, but apparently Live Nation has bought the revenues from these artists' work (including concerts and some merchandising). This is a really cool and interesting deal that deserves discussion. Additionally this brings up an interesting philosophical and economic question: How much are you worth?

I've always wondered how much I'm worth. This music deal is a bit different because it is valuing the work of these artists and not their perceived values of their lives etc. This issue comes up in Law frequently when assessing damages etc. How do you quantify the damages of an accident or injury? Starting with the value of the individual's current and future stream of income seems like a good place ot start, but additionally you have to consider how much a person values her own life etc. In economics, this has proved to be a vexing problem: how much a person values her own life can be hard to measure from observed behavior. If you try and ask someone, their answer will depend on how you ask them! I'll let XX add more thoughts on the legal implications of this type of question.

Back to the article, my understanding is that Live Nation swapped equity for the revenue streams from these artists. But the deal sounds more like a convertible bond - the artists were guaranteed a certain amount of money (like a bond) but retained upside if the stock price rises (hence a convertible option). In other words their equity is protected and cannot fall below a certain value.

Is this a good business model? Granting these artists equity makes a lot of sense. By having equity in Live Nation, these artists diversify their income with the incomes of other artists employed by the company. While they might have slightly weaker incentives, I doubt that would affect their musical efforts.

Additionally there's a lot less risk with the guaranteed minimum value (25mn) to U2and Madonna. However, only SOME of these artists had these minimum value guarantees. This represented a risk transfer among the artists. Jay-Z, Nickelback, Shakira and other artists without the guarantee took on extra risk while Madonna and U2 had their risk covered. I sort of doubt how much they thought about that when they signed on with Live Nation. How big of a risk transfer? A year ago, the company was worth well over 1 billion, and it was unlikely that the guarantees to U2 and Madonna would ever kick in since the equity was worth more than the guaranteed amount.

Now? The guarantees amount to an additional 38 million total to U2 and Madonna (They were guaranteed 50 million the market value of the equity is only 12 million). Live Nation has a current market cap of 305 million. That's big in both absolute and relative terms. It's fair to say that it may be difficult for Live Nation to come up with the cash in this environment. The other Live Nation artists are losing not only because their equity is down, but because of this additional payout to their rivals (well I guess they don't really compete for the same listeners). A really interesting transfer of risk and wealth thanks to the stock market.