Investing like a rock star? Play around with music royalties
One of my hobbies is investigating weirdo investments. The Royalty Exchange is my latest find.
The exchange runs regular online auctions — a few every week — that allow investors to purchase future music royalty payments. Most auctions give the winner the rights to 10 years of future payments, while a few offer payments for the full artist’s lifetime plus 70 years after that.
In my time watching auctions on Royalty Exchange — about a month and a half — it seems that big-name artists attract a premium price for their royalties. In other words, winners pay a larger “multiple” of last year’s earnings.
In the past month, the site has facilitated sales of royalties for pop and hip-hop superstars like Cardi B, Dr. Dre, Wiz Khalifa and Drake. In prior years, they’ve facilitated sales of royalties for classic bands such as Earth, Wind & Fire, Dire Straits and the Grateful Dead.
I haven’t noticed any screamingly cheap auctions. Like any auction, the bidding sometimes starts low and sometimes ends up headscratchingly high.
I’ve watched a few royalty auctions end at around $5,000, others at about $50,000 and a smaller number above $500,000 — always at a multiple of previous years’ earnings.
To be perfectly clear: Investments like this are not exactly advisable. You should probably do the boring, basic, responsible thing to build long-term wealth — which, as I periodically remind everyone who will listen, is: buy 100 percent low-cost, diversified equity funds, and never, ever, sell.
Still, this relatively new asset class is interesting. I didn’t know it existed until a few months ago.
Some auctions on the site are for future royalty payments on a single song. Others are for an album’s worth of songs, and still others are for extensive back catalogs by multiple artists. Royalties derive from album sales, radio play, online streaming or TV or movie rights, or any combination of these, depending on the individual auction terms.
Before you decide to go investment shopping for a slice of Taylor Swift’s future earnings, you should know that isn’t how it works. You don’t choose whose royalties are available for purchase at any particular time. The seller does the choosing. What’s for sale is determined by who is selling whose royalties. Royalty Exchange was built to give royalty holders the chance to reach a wider audience for cashing out their future income.
Part of what Royalty Exchange does is break open the closed and relatively opaque world of royalty sales.
P.J. Miklus, vice president and head of investor relations, told me, “We’re trying to create a whole transparent marketplace that has full price discovery.”
The company provides an app to songwriters, producers and artists called Know Your Worth as a way to encourage music royalty holders to consider selling. Sellers on Royalty Exchange are anonymous and not necessarily the famous pop stars themselves, but more likely a person with songwriter credits or producer credits who owns only a small fraction of rights to the music royalties up for sale.
What many Texans know — from proximity to the oil and gas production business — is that longterm royalties offer passive investors the chance for portfolio diversification away from traditional investments such as stocks, bonds and mutual funds.
Like an oil and gas investment, with future music royalties you might strike a gusher. Or you might have just dug a deep hole in the ground and thrown your money into it, never to be seen again.