Details start to emerge about the Prince estate valuation
One of the tricky assets to value in the Prince estate was the rock star’s name and likeness. The estate pegged the value at $3.1 million while the IRS came up with double that amount ($6.2 million). The valuation of a name and likeness is not something the average appraiser can do, so it requires the help of a specialist.
Third-party expert: BVWire has learned that celebrity licensing expert Mark Roesler (CMG Worldwide) worked on the name and likeness valuation on behalf of the Prince estate. The case has settled (see coverage here), so the two valuations will not go head to head in the courtroom. But we do know that Roesler’s valuation approach was similar to what he did for the Michael Jackson estate, and his name and likeness valuation prevailed in that case, which went to trial.
A person’s name and likeness is part of the concept of “right of publicity,” a form of intellectual property that not only covers a person’s name and image, but also his or her signature, voice, and so on. It is an issue that often is overlooked because of a lack of awareness. The concept does not only apply to famous people—the average person has the right of publicity, and it has a value.
Experts in other areas of intellectual property valuation should not assume they can take on a right of publicity engagement and perform a defensible valuation. True, it uses some fundamental valuation techniques, but it requires the judgment and experience of someone who works with the right of publicity regularly. Therefore, in the Prince case, the estate brought in Roesler, who has 40 years of experience with international licensing and rights management for over 1,000 famous individuals in the sports, entertainment, music, and historic fields.
Roesler explained his methodology for the Jackson case during a BVR webinar (recording available), and, since he used the same basic approach in the Prince case, one can learn some interesting insights on this type of valuation. Also, Roesler co-wrote a chapter on the topic in BVR’s Comprehensive Guide to Economic Damages, 6th edition (Chapter 26, “Damages and Right of Publicity Infringements”).
Appeals court OKs one discount, KOs another in divorce matter
In a California divorce matter, the husband’s expert applied two discounts to the valuation of the wife’s one-half interest in his business: one discount for possible future taxes and one for a discount for lack of marketability (DLOM). The wife’s expert did not apply either of these discounts. On the DLOM, her expert contended that the buy-sell agreement created a market for the stock, and, therefore, no DLOM was appropriate. On the discount for possible future taxes, the wife’s expert did not apply it because he contended that the taxes were neither immediate nor specific. A third expert had been hired (from PricewaterhouseCoopers), who sided with the fair market value opinion of the husband’s expert. The trial court ruled in favor of the husband’s valuation, and the wife appealed. The appeals court upheld the DLOM, saying that it was supported by substantial evidence (using restricted stock studies) but concluded that the tax liability was erroneously accounted for and remanded the case back to the trial court to adjust the valuation accordingly.
The case is Harvey v. Harvey (In re Michael S.), 2021 Cal. App. Unpub. LEXIS 7867; 2021 WL 5934472, and the case digest and full opinion are available on the BVLaw platform.
This year’s Pepperdine private cost of capital survey is now open
Forty percent of valuation experts use the annual “Pepperdine Private Capital Markets Report” for estimating small private-company cost of capital, according to a BVWire poll. To produce the report, Pepperdine conducts an annual survey of expected rates of return of investors and lenders with respect to private companies. This year’s survey is now open, and input is sought from anyone involved in the funding of private businesses, including funding providers, recipients, investors, intermediaries, and advisors. The information you provide is confidential. The direct link to the survey is pepperdine.qualtrics.com/jfe/form/SV_1yTdYavRHjHUO22?region=34582&spl=NB1.
Extra: David Coffman (Business Valuations & Strategies PC) has used the Pepperdine reports in hundreds of valuations without being subject to any significant challenges. He will conduct a webinar, Valuing Small Owner-Operated Business, today, Wednesday, January 26.
Latest editions of two BVR yearbooks now available
Over 70 articles and hundreds of news items are included in the Business Valuation Update Yearbook, 2022 edition. You’ll read about the latest approaches and techniques, takeaways from the leading conferences, key court decisions, and changes in regulations and standards in the profession. A companion guide, the Business Valuation Case Law Yearbook, 2022 edition, represents BVLaw’s analysis of the most noteworthy court decisions of the past year in the areas of business valuation and damages. It also contains the court opinions and a case listing by state/jurisdiction, court, and case name, followed by a short description of the key valuation issue of each case.
Note: You already have these two new resources in your BV library if you are a subscriber to BVR’s Digital Library or BVResearch Pro.
Intangibles, ESG, and digital assets are on the FASB’s new research agenda
In response to feedback received in an agenda consultation, the Financial Accounting Standards Board (FASB) announced that its research agenda now will include the following projects (in no particular order):
· Accounting for exchange-traded digital assets and commodities. Accounting and disclosure for a subset of these assets and commodities will be explored.
· Accounting for and disclosure of intangibles. Potential improvements will be considered for items including accounting and disclosure of intangibles, including software costs, internally developed intangibles, and research and development.
· Hedge accounting, Phase 2. Stakeholder feedback will be sought to further align hedge accounting with risk management activities beyond the targeted changes made in Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.
· Accounting for financial instruments with environmental, social, and governance (ESG)-linked features and regulatory credits. ESG issues remain high on the list of investor priorities.
· Accounting for governments grants, invitation to comment. Feedback will be sought on whether the requirements in IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, should be incorporated into US GAAP.
· Agenda consultation. Feedback will be solicited on the financial reporting issues that FASB should consider adding to its agenda and the priority of those issues.
Goodwill project: An important but controversial project by the FASB concerns how to account for certain identifiable intangible assets acquired in a business combination. In late 2020, the FASB tentatively decided to reintroduce the amortization of goodwill over a 10-year period. The next step in the project is to issue an exposure draft for public comment. The valuation community is united in its opinion that, from a user perspective, the benefits of the transparency and information the current impairment model provides outweigh the costs.
Ownership transition in the middle market
There are an estimated 200,000 middle-market businesses in the U.S., which represent about one-third of private-sector GDP and close to 50 million jobs, according to the National Center for the Middle Market. The U.S. middle market is defined as companies with annual revenues between $10 million and $1 billion. Many of these middle-market businesses are privately owned and managed by the founding entrepreneurs along with their family members. More than three-quarters (77%) of these firms have either experienced an ownership transition in the past five years or expect one in the next five years. Valuation experts can play an important role in exit planning for these firms.
Global BV News
Family firms in Italy weathered the COVID-19 crisis wellA study of listed firms in Italy found that family firms fared significantly better than other firms during the COVID-19 pandemic. They experienced both higher daily stock returns and operating profitability, especially in the absence of relevant minority investors and with multiple family shareholders in the firm’s equity, says the study, which is in the February 2022 issue of the Journal of Banking and Finance. Outperforming their nonfamily counterparts was especially true in labor-intensive industries, as family firms exhibited a higher labor productivity and were better able to generate revenues out of their asset base. The study is “Family Ownership During the COVID-19 Pandemic,” and the authors are Mario Daniele Amore, Valerio Pelucco, and Fabio Quarato.