Prince’s death spotlights value of right of publicity
The recent death of Prince points up an intriguing valuation issue known as the “right of publicity.” This is a form of intellectual property that covers an individual’s likeness, including his or her name, image, signature, voice, and so on. Of course, there could be a great deal of value when it comes to a celebrity.
Vexing problem: An article in Trusts & Estates on the Prince situation says that there is a lack of guidance and precedence for estate taxation of a posthumous right of publicity. Also, determining a date-of-death fair market value can be complex, so there can be wide discrepancies. For example, Michael Jackson’s estate valued his name and likeness at $2,105, but the IRS says the value is $434 million! The IRS and the Jackson estate are scheduled to appear before a Los Angeles Tax Tribunal in 2017 to settle their dispute, says the article.
The first case that allowed for individuals to maintain their right of publicity seems to be the Zacchini case that went to the U.S. Supreme Court (Zacchini v. Scripps-Howard Broadcasting Co., 433 U.S. 562 (1977)). That case involved newsreel coverage of a performer who shot himself out of a cannon. He claimed that the news exposure diminished his ability to capitalize on his skills. But a person doesn’t have to be a celebrity or of the same caliber as a human cannonball to get caught up in this issue. A kindergarten teacher sued Nestle over the unauthorized use of his image on labels of Taster’s Choice coffee. A jury awarded him $15.6 million, which represented 5% of the profits on the coffee plus lost licensing fees (the decision was reversed and the parties later settled).
What to do: Of course, the valuation of the right of publicity involves techniques and methods common to the valuation of other IP assets, such as determining royalty rates, examining cash forecasts, choosing a discount rate, and so on. But those who may be experts in other areas of IP valuation may want to consider consulting with someone who works with the right of publicity regularly to help ensure that the valuation is defensible.
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Bankruptcy Court balks at repurposing divorce valuation
Is a valuation that prevailed in one type of case applicable in another context? This question was at the heart of an unusual case that combined bankruptcy and divorce-related issues.
From divorce to Chapter 13: The husband owned a 25% interest in a dental practice. Under the controlling shareholder agreement, if a shareholder wanted to dispose of his interest, the other shareholders were obligated to buy it back. The agreement included a formula for determining the purchase price for the shares.
At divorce, the wife’s expert valued the husband’s interest based on the going concern of the dental practice as a whole, taking 25% of it. He concluded it was worth $212,000. He also valued the interest based on the formula, which he said was “an absolute floor” in terms of the amount the husband could get from the other shareholders. The husband’s expert said the interest was worth $15,800. He assigned no value to patient records or the practice’s goodwill. The trial court adopted the value the wife’s expert proposed—$212,000. It noted the applicable standard of value in divorce proceedings was the intrinsic value of the business.
Three months later, the husband filed for Chapter 13 bankruptcy and asked the Bankruptcy Court for plan confirmation. In his schedules, he listed the value of the practice at $15,800. But the two experts testifying before the Bankruptcy Court on the husband’s behalf claimed that, since the interest was a minority interest, it was worth “zero.” According to one expert, if he were the Chapter 7 trustee administering the estate, he would abandon the interest altogether. No one on the open market would buy it.
The wife, who was the principal unsecured creditor, objected to the confirmation, arguing the plan failed the applicable liquidation test, which requires that creditors in a Chapter 13 bankruptcy receive present value payments that are at least equal to the amount the creditors would receive in a Chapter 7 case. The analysis involves determining the amount each unsecured creditor would receive if the estate were liquidated in a hypothetical Chapter 7 case.
The Bankruptcy Court’s decision turned on the value of the husband’s shares. The wife contended the divorce court’s valuation was controlling. Based on that value determination, the distribution to unsecured creditors in a hypothetical Chapter 7 liquidation would be much greater than under the husband’s Chapter 13 plan.
Standard of value issue: The Bankruptcy Court said the divorce valuation was not determinative in this context. It noted that, in a hypothetical Chapter 7 liquidation, a Chapter 7 trustee is asked “to reduce to money the property of the bankruptcy estate” by selling or disposing of the property in other ways. “This is different from determining the intrinsic value, or its worth to the parties, in a divorce proceeding.”
But the court also rejected the suggestion that the shares had zero value. Regardless of various impediments to liquidating the asset, there was evidence that it would have “significant value” in a Chapter 7 liquidation, the court said. It was safe to assume a Chapter 7 trustee in this case could recover the amount payable under the buyout provisions of the shareholder agreement. Given this valuation, which exceeded the husband’s scheduled valuation by over $145,000, the court found the husband’s plan failed to satisfy the liquidation test.
Takeaway: In ruling on the confirmability of a debtor’s Chapter 13 plan, the court declined to adopt the valuation that prevailed in the debtor’s divorce proceeding because the value determination entailed a different line of inquiry than was applicable in a hypothetical Chapter 7 liquidation. The most reliable indicator of value was the amount resulting from the shareholder agreement formula, the court decided.
Find an extended discussion of In re Cole, 2016 Bankr. LEXIS 932 (March 24, 2016), in the June edition of Business Valuation Update; the court’s opinion will be available soon at BVLaw.
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USPAP guidance on acceptable assignments
The Appraisal Foundation has released a new fact sheet for appraisers that is designed to provide guidance on what assignments can be accepted. It provides an at-a-glance look at USPAP's flexibility and covers various assignment types, examples, answers to what is allowed, and a look at which USPAP standards apply.
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Hot M&A market in the staffing industry
In the first quarter of 2016, 36 different buyers completed 37 staffing industry M&A transactions, representing a 48% increase over last year, according to a new report from Duff & Phelps. This marks the third consecutive quarter with over 35 announced staffing M&A transactions, a level not seen since 2007, says the report “Staffing Industry M&A Landscape – Q1 2016.” D&P also reports that privately held staffing buyers accounted for 95% of the acquisitions in the first quarter of 2016, while public buyers completed 5%. IT staffing continues to be the most active staffing M&A sector, with 10 transactions reported in the first quarter of 2016.
Extra: Valuators and M&A pros will rub shoulders at Transaction Advisors’ M&A Conference on May 12 in San Francisco. When you register, use special code “BVRGuest” for a $100 discount.
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Global BV news:
Update on IVS 2017 timing
In a recent interview, Steven Sherman, chair of the Standards Board of the IVSC, spoke with Michael Badham of the iiBV about the development of the new version of the international valuation standards. “We have significantly upgraded the Standards based on meaningful input from both VPOs around the world and from those who were involved in restructuring the IVSC,” says Sherman.
Comments wanted: The IVSC recently issued four exposure drafts that are part of the new version of IVS (IVS 2017). They are: IVS 104 Bases of Value, IVS 105 Valuation Approaches, IVS 210 Intangible Assets, and Introduction and Framework to IVS 2017. There is a 90-day comment period for these exposure drafts. The remaining chapters of IVS 2017 are expected to be released as exposure drafts in May or early June.
“We are planning our next public meeting for early September in London, in order to take those comments and integrate them as best possible,” says Sherman. “We will have the Standards Board finalize IVS 2017 in advance of the IVSC annual meeting, next October.” He also mentioned that people who can’t attend the September meeting can dial in and listen. The meeting will also be recorded “so people can replay it and hear in a very transparent setting what was discussed and what we have done.”
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SEC to appear at ASA Fair Value Conference June 8 at USC
Fair value estimates are getting significant attention from the SEC. At the upcoming 11th Annual Fair Value Conference in Los Angeles on June 8, Kristopher Shirley, Professional Accounting Fellow at the SEC, will provide an update on topics of interest to practitioners who prepare valuations for financial reporting purposes. Other sessions at the conference include:
- FASB Update on Fair Value Matters, Adam Kamhi (FASB);
- Valuation Profession Initiative Update, Tony Aaron (Ernst & Young);
- Volatility Estimation and Measurement, Amanda Miller (Ernst & Young);
- PCAOB Update, George Wilfert (PCAOB); and
- Credit Value Adjustments, Anthony Law (Valuation Research Corp.).
The conference is hosted by the American Society of Appraisers and the University of Southern California Leventhal School of Accounting. For details and to register, click here. (early bird registration ends May 6). BVWire will be there—we hope to see you!
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YouTube: Nancy Fannon talks about new guide to damages
In a video posted on YouTube, Nancy Fannon (Meyers, Harrison & Pia) talks about the new 4th edition of The Comprehensive Guide to Economic Damages, which she edited along with Jonathan M. Dunitz, Esq. (Verrill Dana). There are eight new chapters, she notes, and some of them deal with compensation forfeiture, fraudulent transfer, the use of surveys in trademark litigation, personal injury and wrongful termination, the use of statistics in damages claims, and the use of event studies in securities litigation. Over 300 pages were added to Volume One, bringing it to over 1,300 pages. Volume Two (case law) has 100 added cases, bringing the total cases to about 240. For more information on the book, click here.
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BV movers . . .
People: Jim Castellano is stepping down as chairman of St. Louis-based firm RubinBrown on May 31; managing partner John Herber will succeed him as chairman … Steve Cogan was elected managing principal of the Albuquerque, N.M.-based firm REDW LLC, succeeding Ron Rivera, who has served as firmwide managing principal for the past 15 years … Harold Deiters, partner at Baker Tilly Virchow Krause and based in Melville, N.Y., was named president-elect of the New York State Society of CPAs … Carla McCall, co-managing partner of AAFCPAs in Westborough, Mass., was elected chairman of the board of directors of the Massachusetts Society of Certified Public Accountants for 2016-2017 … Ben Morgan has rejoined Brown Smith Wallace in St. Louis as a manager in the transaction advisory and litigation support practice … David Smith, partner at EisnerAmper LLP in New Jersey, was named co-chair of the matrimonial disputes practice for the firm’s Forensic, Litigation and Valuation Services Group.
Firms: The BlumShapiro office in West Hartford, Conn., was awarded the “Best Accountant or CPA Firm” in the 2016 Hartford Magazine Readers Poll … NJBIZ honored KRS CPAs LLC (formerly Kreinces Rollins & Shanker LLC) of Paramus, N.J., as one of the “2016 Best Places to Work in New Jersey” … The Spencer, Iowa, firm Winther Stave & Co. celebrated 50 years in business and service.
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Fraudulent Transfers: Solving for Solvency (May 5), with Jeff Baliban and James Sottile. This is Part 2 of BVR's Special Series presented by The Comprehensive Guide to Economic Damages.
Expert Insights: Q&A with Larry Cook (May 10), with R. James Alerding (Alerding Consulting LLC) and Larry Cook (Larry R. Cook & Associates PC).
Feel the Heat! Valuations of HVAC Companies (May 12), with Kevin Yeanoplos (Brueggeman and Johnson Yeanoplos PC).
Important note to webinar attendees: To ensure that you receive your dial-in instructions to BVR’s training events, please make sure to whitelist firstname.lastname@example.org.
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