Page 3 - Asset Valuation

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Asset Valuation | MONDAY, MAY 19, 2014 | S3

issue of intangible value has developed over publicity, namely a “name and likeness” asset,
Our Business Valuation Team
the years with respect to other well-known is the Andrews case. Similar to the Jackson
Covers All Bases
individuals such as Marilyn Monroe and Elvis case, one of the main issues in this case was
Presley, where marketing rights to the deced- the value of author Virginia C. Andrews’ name
ants’ estates continue long after their passing.
and likeness asset post-death.
As you can imagine, valuing such an As in the Jackson case, the Andrews case
asset can be a dificult endeavor, wrought had an issue regarding a large difference in
with assumptions and speculation. While the valuation of the rights of publicity asset
this article does not provide a solution to between the estate and the IRS. In fact, the
the issues facing the court in the Michael Andrews estate initially did not put a value

Jackson case, it does provide a look into on Virginia Andrews’ name at all. The court
publicity rights, along with a discussion of stated that all facts reasonably known by
the landmark Estate of Virginia C. Andrews the parties as of the date of death should
v. United States, 850 F. Supp. 1279 (E.D. Va be considered in a hypothetical fair market
1994) (the Andrews case) and the methodolo- value transaction. Ultimately, the court based
gies utilized in the appraisal of the intangible the valuation of the image and likeness asset
assets that are typically seen in the estates on a literary contract negotiated during Vir-
of literary authors.
ginia Andrews’ life, which was subsequently

executed after her death. This contract was to
Right of Publicity
be fulilled by a ghostwriter who was hired by
There are a number of reasons to know the value of a business, estate or someone’s assets.
Andrews’ agent and publisher post-mortem; in
Whether it’s for litigation, to negotiate a sale or merger, secure credit, settle a dispute,
The right of publicity in the United States its determination of value, the court believed
relates to each individual’s right to exploit it was reasonable to assume that this contract
determine tax liability, or a host of other reasons — our valuator’s mission is always the
his or her identity or identiiable aspects. would be fulilled. The court believed that, as
same...to use professionally accepted methods to arrive at a well-reasoned and defensible
Rights of publicity are not protected at the these books were to be written in the same
estimate of value. So if your accountant doesn’t know fair value from fair market value,
federal government level; rather, these rights mode as Andrews’ successful literary works
give us a call. Isn’t it time you made Israeloff, Trattner & Co. part of your team?
are protected, to varying extents, by state and the ghostwriter was expected to mimic
Business, PROFessiOnAL PRACTiCe & LiCense VALuATiOns
statutes. For instance, New York state deines Andrew’s writing style, the contract relected
mARiTAL disPuTes/enHAnCed eARninGs CAPACiTY
a violation of a “Right of Privacy” as:
a proxy for Andrews’ image and likeness asset.
FORensiC ACCOunTinG/eXPeRT TesTimOnY • emBezzLemenT & FRAud AudiTs
A person, irm or corporation that uses Importantly, there were also provisions for
Business LOss/dAmAGe AnALYsis
for advertising purposes, or for the pur- future contracts that were predicated on the
poses of trade, the name, portrait or pic- success of the initial contract; however, the
BAnKRuPTCY & ReORGAnizATiOn
ture of any living person without having court did not consider these future contracts
irst obtained the written consent of such in the ultimate decision, as the court con-
person, or if a minor of his or her parent sidered these future contracts speculative.
Ofices in New York City and Garden City
1-8OO-945-O2OO
or guardian, is guilty of a misdemeanor.This gives appraisers guidance on valu-
1
Visit us on the web at www.israeloff.com
Currently, 47 states recognize rights of ing name and likeness assets and appears to
publicity (19 through statute and 28 through provide a ruling where an appraiser can look
common law). Further, the IRS has recognized past the valuation date (for a short period) IT13_NYLJ_BVbaseball_4.75x5.5_final.indd 1
5/24/13 1:38 PM
the existence of the right to publicity asset, to events that occurred in order to establish
speciically in the Andrews case, and the need the fair market value of an asset. In ignoring
to appraise this asset for estate tax purposes.
the future contracts, the court also appears
to limit the “look past” to events that are An NYLJ.com Webinar
reasonably certain as of the date of valuation.
‘Estate of Michael Jackson’

In Estate of Michael Jackson v. Commis- Types of Intangible Assets Encountered
sioner of Internal Revenue (the Jackson case) N
OW ALL
N
O
the value of Michael Jackson’s image and like- As mentioned above, the more signiicant
ness is one of the hotly contested issues, as assets for authors tend to be contract-based
there was a signiicant difference between the assets such as literary contracts and motion N DEMAND
estate’s valuation and IRS valuation of this picture contracts. While this article focuses
asset. The estate placed a value of $2,105 on on literary contracts, similar considerations
the image and likeness asset; the IRS valued apply for entertainers and individuals involved

the same asset at approximately $434,264,000! in other high profile public professions.
In fact, the difference in the overall value of Literary contracts tend to specify
the Jackson estate between that calculated “advance” payments and royalties that would
by the estate and that by the IRS is so large be due to the author based on performance
that the IRS is seeking to impose a substantial or sales. Advance payments relect monies
understatement penalty allowed under the received up-front as advances on future royal-
Internal Revenue Code.
ties, predicated on the author meeting certain
There is an obvious lack of comparable contractual deadlines. These advance pay-
assets to Mr. Jackson’s image and likeness ments are non-refundable. Royalty payments ON DEMAND NOW ON DEMAND NOW
EXPLORING THE DEFENSIBLE DISPOSAL: ON DEMAND NOW
NEW NORMAL: BIG DATA
WHITE COLLAR CRIME IF IT DOESN’T EXIST, I AND THE FUTURE OF
to utilize as a valuation metric, which makes relect the author’s share of proceeds from LANDSCAPE DON’T HAVE TO REVIEW
LITIGATION
the appraisal of this asset very dificult. While books sales, typically a percentage based on IT... RIGHT?
there is evidence of a famous person’s image pre-deined sales thresholds, thereby tying
and likeness generating income post-mortem the author’s remuneration to book sales. Sponsored by Sponsored by
Sponsored by
(Elvis Presley, Marilyn Monroe), it begs the Typically, authors receive smaller advance
question of how to project the extent and payments and generate larger income on
value of the earnings stream related to this royalties as the sales of books reach certain
asset. We would think that this issue would be thresholds or terms. However, very successful

one of the major issues in the Jackson case.
authors tend to receive much larger advance Learn more and register today at http://at.law.com/OnDemandWebinars
payments, and therefore any royalty income
‘Virginia Andrews v. Commissioner’
is deferred until these advances are “earned To sponsor or explore the upcoming webinars by The New York Law Journal, please contact Farrell McManus at 212-457-9465 or email [email protected]
out.” In the case of very successful authors,
An important U.S. Tax Court case that dealt it is possible that the advance payments are
with the issue of the valuation of rights of
so large that they may never be » Page S10