David Bowie died at age 69 on Sunday. Remembered by most of us for “Ziggy Stardust,” or “Changes,” David Bowie was also a creative financier.
Where are we going? To why the financial world will remember David Bowie.
David Bowie was the first person to sell bonds based on his future royalties. Concerned in 1997 that his future income would be decimated by uncontrollable free internet distribution of his music, he decided to optimize his current income. At first he considered selling his work. But then, he (and an advisor) had a Eureka moment.
The first step was a licensing deal with a guaranteed income stream. Next, he used that revenue as collateral for a loan–a David Bowie Bond. In that way he retained ownership, got current income instead of gambling on the future, and made investors happy with a 7.9 percent yield for his $55 million bond issue.
Although the Bowie Bonds were gone after they liquidated in 2007, the concept lived onward. Including James Brown’s music, a Peanuts Comic Strip and 700 films with part of a TV library from Miramax, these bonds just needed a revenue stream that could be linked to an asset. Now known as esoteric bonds, David Bowie’s financial innovation has even been applied to a pub’s cash flow.
Our Bottom Line: Financial Innovation
Similar to silly putty, the aircast or the moving assembly line, in finance also we have new products and processes. Including, the junk bond, the money market fund, checking accounts, futures options, hedge funds and ATMs, a list of financial innovation is long.
But like the Bowie Bond or a transistor, someone invented each new product.