During a discussion hosted by The Hawaii Tax Institute, three panelists discussed the process of valuing a celebrity’s right of publicity as well as strategies that can be taken for the transfer of these rights. 

The following panelists contributed their insight:

• Carsten Hoffmann, ASA — Managing Director, Stout. Carsten has more than two decades of valuation expertise and is a recognized expert on a broad range of complex valuation issues related to estate and gift tax, income tax, litigation support, and dispute resolution.
• Michael Desmond, Esq. — Partner, Gibson Dunn. For more than 25 years, Michael has advised and represented clients to the IRS, the United States Tax Court, and federal district courts.
• Laura Zwicker, Esq. — Attorney, Greenberg Glusker Fields Claman & Machtinger LLP. Her practice focuses on counseling high net worth individuals and their families in connection with domestic and international estate and tax planning issues.

The discussion has been edited for length and clarity.

An Overview of Right of Publicity Valuation

A celebrity’s right of publicity — namely, the protection against improper or unauthorized use of their name, image, and likeness by others — has significant valuation, tax, and estate planning ramifications. There is currently no federal protection of one’s right of publicity, but rather these rights vary from state to state through a patchwork of statutory and common law protections.

For example, California protects a name, voice, signature, photograph, and likeness of virtually anyone for 70 years following their death. In contrast, New York’s statutory protection for right of publicity is far narrower and applies only to personalities that profit off their name and likeness. These interstate differences can lead to complexity in dictating which state’s laws apply to a decedent depending on the location of the death and the location of the estate. When Marilyn Monroe died, there was a significant discussion over whether she was a resident in New York or California and how that would affect her post-mortem protection.

These differences can significantly impact the valuation of an estate. Estate taxes vary state to state as do the protections of name, image, or likeness.

Differences in Valuing Michael Jackson’s Right of Publicity

How does one begin to value something as intangible as a celebrity’s name, image, and likeness? In a case resulting from Michael Jackson’s death  (“Jackson”), Jackson’s estate valued his image and likeness at $2,105. In contrast, the IRS valued them at $161,307,405. In the end, the United States Tax Court valued his image and likeness at $4,153,912. 

Ultimately, valuing Jackson’s name, image, and likeness was no different than valuing a business: Value is calculated as the present value of future cash flows. However, assessing future revenue (especially for a celebrity’s right of publicity) can be a challenge. The amount of future revenue, the length for which the celebrity will remain popular, and the certainty of that income will all affect that valuation. The value of Michael Jackson’s name, image, and likeness, for estate tax purposes, was the value of those assets at the time of death. This leads to the challenge of reasonably projecting future income at the moment of his death.

The estate argued that, at his time of death, Michael Jackson’s reputation was in question to such a degree that any future income off his right of publicity was very much in jeopardy. In the Jackson case, though, the judge argued that $2,000 was still too low, as it was reasonable to assume that there would have been some post-mortem spike of his sales. 

In reality, the post-mortem spike was greater than most imagined, shedding light on the importance of reasonable foreseeability: The income that the taxpayer could reasonably expect to come in the future. In the Michael Jackson case, with his shaky reputation at the time of death, it was not clear whether the potential for cash flows was going to be readily acceptable by the public, which drove very large value differences between the estate and the IRS. 

Utilizing an Income Approach to Valuing Name, Image, and Likeness

When valuing a celebrity’s name, image, and likeness, an income approach to valuation is best, which involves making a reasonable prediction of future income to arrive at the fair market value. Because of the relatively low number of celebrities, there are not enough data points for a market approach to valuation, which would be founded on similar celebrities/situations and the value they yielded in the past. 

Treasury regulations state that fair market value, for estate tax purposes, is the price at which property would exchange hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts determined as of the date of the decedent’s death.

The value of an asset (including name, image, and likeness) is also derived from its highest and best use of that asset. Even if a family does not intend to exploit a celebrity’s right of publicity after death, the value is based on the present value of the stream of income that could be realized. Even that stream of income can be broken down into further detail — the Michael Jackson estate viewed Jackson’s name, image, and likeness as one bucket of value, though these could be seen as individual streams of cash flow. 

Restricting and Enhancing the Post-Mortem Value of a Celebrity’s Right of Publicity

The fair market value of a celebrity’s right of publicity can be significantly impacted by estate planning decisions made before the celebrity’s death. Robin Williams’ trust, for example, set up his estate so that William’s name, image, and likeness could not be exploited for 25 years following his death. This has a significant impact on the value of future cash flows — a post-mortem spike in revenue was removed and expected inflation reduced the value of the dollar, leading to a drastically lower value in his name, image, and likeness. These rights also went to the Windfall Foundation, a philanthropic organization Robin Williams set up, so there was an estate tax charitable deduction for the rights of publicity.  

Another method of reducing value would be to bifurcate the rights to the decedent’s name, image, and likeness so that nobody has a monopoly on all three. This removes synergies and reduces value, although a decision like this cannot be made for the sole purpose of reducing taxes. Non-tax reasons for making such a decision could include the presence of multiple heirs with differing interests, such as desires for varying liquidity or family members not wanting to immediately put their deceased relative into advertisements. 

In contrast, some clients will not want to restrict the use of their name and likeness but instead maximize the use on it. For an illiquid asset such as a celebrity’s name, image, and likeness, paying estate taxes can present challenges. One solution is the use of a 6166 deferral, which is a tax election that allows for heirs to pay an estate tax over fourteen years with only four years of interest and then 10 years of amortized payments. There are additional requirements to this that are beyond the scope of this article, but this election may be relevant for online influencers who profit off very little other than their name and likeness or for heirs who inherit largely illiquid assets such as rights of publicity.

Concluding Thoughts

Accurately valuating a celebrity’s right of publicity surrounding their name, image, and likeness involves a reasonable prediction of the future income those rights could generate. The transfer of those rights upon the celebrity’s death presents more complications, highlighting the need for estate planning to be done by a qualified professional far enough in advance to help ensure that the best decisions are made for the celebrity and their heirs.