Thomas Bennett Transcripts-michael Jackson Ex, Braca V Irs
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UNITED STATES TAX COURT - TRIAL
ESTATE (OF MICHAEL J. JACKSON DECEASED) EXECUTORS: JOHN G. BRANCA. AND JOHN MCCLAIN V
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COMMISSIONER OF INTERNAL REVENUE (IRS) February 8th 2017
Presiding Judge Mark V. Holmes
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Jackson’s estate is represented by Avram Salkin, Charles Paul Rettig, Steven Richard Toscher, R obert S. Horwitz, Edward M. Robbins Jr., Sharyn M. Fisk and Lacey E. Strachan of Hochman Sa lkin Rettig Toscher & Perez PC, Paul Gordon Hoffman, Jeryll S. Cohen and Loretta Siciliano of Hoffman Sabban & Watenmaker and Howard L. Weitzman of Kinsella Weitzman Iser Kump & Aldisert LLP.
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The IRS is represented by its attorneys Donna F. Herbert, Malone Camp, Sebastian Voth, Jordan Mus en and Laura Mullin. --------------------------------------------
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Previously John Branca used Felix Sebacious(Vice Pres) to sue HTWF, Declaration here http://www.teammichaeljackson.com/declaration-of-sebacious-felix-bravado
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THOMAS BENNETT (Bravado chief executive)
DIRECT EXAMINATION
A. The same field ... music merchandising.
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Mr Weitzman: Q. Mr. Bennett, what's your current employment or work?
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THOMAS BENNETT sworn in
Q. And how long have you been in music merchandising? A. Thirty-seven years.
Q. Can you explain ... well, first did you work for a company called Bravado? A. Yes.
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Q. Before Bravado, I think you were with Sanctuary.
Q. Is that correct? A. It was, yeah.
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A. Yes.
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Q. Okay. And did you have experience working with Michael Jackson? A. Prior to this event no, but ... Q. Okay.
A. ... yes, you know.
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Q. So explain to us what music merchandise is.
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A. The most basic form of it is we sign the rights for an artist's name and likeness. For the majority of artists, most of this is based upon tour income. And for a very small poll of music artists, they do generate money in other ways, in retail sales or through licensing, but it's a very small percentage of artists that manage to do that in a meaningful way.
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Q. And what do you understand ... you use the phrase name and likeness. What does that mean in your business ... in the music merchandise business?
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A. Most of the time when we try to get these rights, we try to get them exclusively. It means that, you know, the artist, image, logo, we would have the exclusive rights to put that on different types of merchandise that we would sell, again, historically predominantly at tours, but as much as we can into retail stores and to do the licensing deals with the parties that would be interested in licensing that artist.
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Q. And what types of merchandise ... I don't mean to exhaust this, but just give an ideal ... give us an idea of what type of merchandise you're referring to.
A. Generally speaking, a big piece of it would be, you know, basic upper body apparel which would be things like t-shirts and sweatshirts and hats, etcetera. And then depending on the success of those types of products, you get into different products. And again, the majority of the time, they're relatively simple products. Q. What, you mean like coffee cups ... A. Coffee cups ...
A. ... lighters, flags, posters, calendars.
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Q. ... posters ...
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Q. Okay. When you worked with Michael Jackson, was that in conjunction with the AEG '02 tour? A. It was, yes. That's when we first got involved.
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Q. And what was your title at Bravado at that time? A. I was the worldwide CEO of Bravado. Q. And what ... do you recall the year that that ... A. 2009 I think.
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Q. And did you get involved through AEG and Randy Phillips? A. Yes. Through Randy Phillips. Q. So could you tell me what you were asked to do?
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A. I would call and email Randy once we had seen that Michael was going to do the dates of the '02 in London. And very quickly, it went from, I believe, 10 shows to the potential of 50 shows, which made it a very big thing in the world of music, and particularly in the world of music live merchandise. So we ... or me ... aggressively pursued Randy, who was the producer, I think, as
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much as the promoter of this event, and said that we would like to get involved and, you know, we have a certain expertise that we think makes us a good partner for yourselves. Q. And this was tour merchandising, correct?
Q. I'm talking about this is all pre-death now.
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A. At the beginning, yes. It was tour merchandising.
A. Yes. I understand. Yeah. I think there was a very small element. And again I'm sorry, I don't ... you know, I don't have the ability to reread the agreements. I think there was a small element of potentially retail or something, but the vast majority of our interest in it and our thought behind it was the dates at the '02. Q. And did you agree to pay in advance for these rights? A. Yes, we did.
A. I believe it was payable to AEG.
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Q. But not directly to Michael Jackson?
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Q. And the advance ... who was it payable to?
A. Not directly to Michael, yeah.
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Q. Okay. And did you then ... first of all, did you pay the advance right away when you got involved? A. No, we did not. The contract was still being negotiated up and until Michael's demise. Q. Okay. So is it your recollection there was no signed agreement before Michael passed away? A. That is correct.
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Q. And there was no money paid before Michael passed away. Mr. Voth: Objection. Leading. Judge Holmes: Sustained.
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Mr Weitzman: Q. Was there any money paid before ...
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A. There was not.
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Q. ... Michael ... okay. Did you have any concerns about creating merchandise for Michael Jackson? A. More words, sorry. I don't ... in what respect?
A. Never been in business with him before, no.
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Q. Well, had you ever been in business with Michael Jackson before?
Q. And were ... did you understand this to be kind of a ... what did you understand that this tour represented in the music world? A. We realized it was a huge undertaking for somebody who had not performed for a number of years. And as we got closer to the event ... which, you know, I think everybody was very nervous that he would, in fact, be able to do the 50 shows.
A. Not for any meaningful money. Q. Why is that?
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Q. Would you have done a non-tour general merchandise deal for Michael Jackson's name and likeness?
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A. We had no interest because, as part of this process to do the tour, we did speak to retailers around the world and to licensing potential partners, and the level of interest, even with the dates on sale, was very low.
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Q. And did any of these retailers indicate to you why the interest was so low? A. Not really. I just think that, you know, Michael historically had not been a big, you know, merchandising property in the retail world for many, many years, and there was no demand. I guess people ... you know, they based their demand, most retailers, upon people coming into the stores and asking for it.
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Q. And did anyone mention the allegations, which were unproven, but the allegations involving child molestation? A. Maybe, but I ... to be really honest, I didn't focus on that, and I don't remember anybody saying anything.
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Q. Okay. So after Michael passed away ... A. Yeah.
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Q. I'm sorry. I forgot to ask you. Did you create designs for merchandise for the tour?
Q. And did you meet with Michael Jackson about those designs? A. Yes, we did.
A. I was. Q. And did he approve some of the designs?
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Q. You personally were there at the meeting?
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A. We did, yes.
A. He ... we ... I ... again, very approximate round terms, we presented about 300 items to him, and I think he approved literally 295 of them. Q. Okay. And did you then manufacture the items?
A. No because we never, you know, consummated the deal and the shows didn't happen.
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Q. After Michael passed away, did you speak with Mr. Phillips or representatives of AEG to do a post-death merchandise deal?
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A. Yes, we did. Q. And what was the nature of that deal?
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A. The nature of that deal is when any big celebrity dies, there's an immediate desire in the marketplace for memorabilia merchandise, and you never know how long that's going to last. You don't know if it's going to be Elvis or if it's going to be something that's short-lived. But there was a pretty decent-size demand. And I spoke to Randy, and I think the conversation very quickly got to the fact that it would be the right thing to do to, you know, satisfy this demand to make sure that the money wasn't taken by people who were doing unofficial merchandise, which is ...
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Q. You mean bootlegging?
A. Exactly ... which happens very quickly when there isn't a deal in place, which there wasn't one for Michael Jackson. So it was probably a bit more of a rush than usual because there was no deal in place.
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Q. And so did you come to an agreement, ultimately, with AEG? A. Yes we did.
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Q. And do you remember roughly what the terms of the deal were?
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A. Yeah. The terms were that we had the rights to the 295 images and products that Michael had approved prior to his death. And we paid in advance of $5 million. Q. To AEG? A. To AEG, I believe.
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Q. And ultimately rather than AEG, did you end up working with Michael Jackson's estate? A. We did.
Q. By the way, between the time you made the deal with AEG and paid the $5 million, had you begun to manufacture merchandise? A. No. We wouldn't have manufactured until we had paid the $5 million. Q. Okay. After you paid the $5 million, did you begin to manufacture ...
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A. Yes.
Q. ... merchandise? And was this at a time before there was a deal with the estate?
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A. I believe so. Yes.
Q. So the merchandise had begun to go out to retailers, and I'm assuming some were sold. A. Yes.
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Mr. Voth: Objection. Leading.
Judge Holmes: Sustained. Watch the form, Mr. Weitzman: Q. Were some sold after ...
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A. Yes.
Q. ... it went out to retailers? A. The products were sold. Yes.
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Q. And what were the terms of the deal with the estate, if you recall?
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A. It was a broader body of rights where is the name and likeness for the artist over and beyond just the 300 items, which meant that we would be able to get into things like licensing out
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Michael's name and image, and we paid in advance of, I believe, $10 million ... an additional advance of $10 million for that. Q. And do you recall whether that deal had to be approved by the probate court? A. I believe it was.
A. I don't know, to be ... Q. Okay. The $5 million that was paid to AEG ... A. Yeah. Q. ... was that recoupable? A. It was.
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Q. Do you recall whether there were any objections to the deal in the probate court?
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Q. And how much was paid to the estate as an advance?
Q. Was that also recoupable? A. Yes, it was.
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A. $10 million.
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Q. So what does that mean when the phrase recoupable is used? A. Okay. It really is an advance against earnings, and it goes against every single income stream within our body of rights. Until we recoup back the $15 million, there's no more money payable from us to the rights holder ... in this case, the estate.
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Q. So after the deal was consummated with the estate ... by the way, did the estate also step into the shoes of AEG? So now there was only one deal with $15 million ... I think it was $15 million recoupable? A. I believe so. I think it was a little more complicated than that. I think AEG was still on the line for maybe half of the advance at some point if it didn't all recoup where they would have to pay us some portion of that monies back, which I believe they did.
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Q. Okay. So the merchandise began to go out into the retail marketplace. Were there any other deals done with the estate of Michael Jackson other than this merchandise deal you spoke about?
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A. No.
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Q. And in the years 2009, 2010, 2011, had you recouped very much of your advance?
A. I don't remember the exact details, but we have recouped some of that advance. But it was not the bonanza that we thought it may have been.
A. Yes, we did.
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Q. Did you try to license Michael Jackson's name and likeness to other third parties?
Q. In 2009, 2010, 2011, were you successful in doing that?
A. On occasion, yes. It was much ... it was a much harder sell into these licensees than we had thought.
A. Exactly. Mr. Voth: Objection. Leading. Judge Holmes: Sustained. Rephrase.
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Q. So I understand it, are you saying that you didn't get the response from the market that you thought you would get in licensing Michael Jackson's name and likeness?
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Mr. Weitzman: I'm not sure how I would rephrase it.
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Mr. Weitzman: Q. What ... when you tried to market Michael Jackson's name and likeness as an agent for the estate of Michael Jackson, what was the success and what did you find in the marketplace?
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A. Very quickly when you do anything like this, not just Michael Jackson, but the ultimate test is how it does in retail. So when we had shipped the original products ... basic t-shirts, et cetera ... the sales, although they had been good, had not been great. So therefore, when we would try to license it out to more traditional companies to do more traditional merchandise ... i.e., posters, calendars, and the type of product that you would see in the same sort of retailer that you would see the t-shirts in ... their response when, you know, you ring up a licensee and say would you like a Michael Jackson license, well, the first thing they do is ring the retailers. And they say, hey, you have a chance to pick up the rights to Michael Jackson, what do you think. And I think that fairly quickly the response from the retailers was more lukewarm than we had wished. Q. By the way, how does Bravado get paid out of this process?
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A. Two ways ... one on the basic apparel, t- shirts, sweatshirts, hats, et cetera. They actually manufacture those themselves. So they make a manufacturer's margin. And on the deals that they did with third-party companies ... i.e., a slot machine company, or a poster company, or a calendar company ... that becomes a license. And there's a split where Bravado gets a small ... to keep a small piece of the revenue, and the rest goes against the un-recouped balance.
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Q. You mentioned slot machines. Did you ultimately do a deal with a slot machine ... A. Yes we did ... Q. ... manufacturer?
Q. And when was that? Just year ... A. 2010 ... Q. ... not month or day. A. Yeah, I'm guessing. 2010 in the ... sorry. I'm
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A. Yes, we did with a company called Bally Tech.
Q. And did you begin to recoup some of your advance?
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A. Yes. The slot machine was a good deal because it was a nontraditional merchandising item for us, so we weren't as relied upon the retailers and their feedback.
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Q. And did the slot machine involve more than just the licensing of name and likeness? A. It did. It involved the music and the video.
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Q. And in your opinion, if the music and the video wasn't involved, could you have made the slot machine deal just on Michael Jackson's ... A. No. Definitely ...
Q. ... name and likeness? A. Definitely not.
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Q. Did you finally ... did you ... that is, Bravado ... finally recoup that $15 million advance? A. I believe we did after approximately five years. Q. Was that longer than you all anticipated?
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A. It was.
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Q. And were there different areas of the world where Michael Jackson's merchandise for name and likeness did ... or with his name and likeness did better than other areas of the world?
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A. There was nothing that ... no country stood out more than anywhere else.
Q. In your opinion, do you think that you would have recouped your $15 million had it not been for the unusual slot machine deal?
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A. We would not have recouped that money without the slot machine. Mr. Weitzman: I don't have anything further, Your Honor. Judge Holmes: Cross-examination?
Mr. Voth: Yes, Your Honor. And also, Respondent has listed Mr. Bennett as a witness. Mr. Bennett comes from New York, so we request to do the cross and also to call him out of order to ensure that he can go back to New York. Judge Holmes: That largely means you can exceed the scope of direct. Are there any problems with this?
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Mr. Weitzman: No, I have no problems. We agreed to that earlier.
Judge Holmes: That's fine. Then you can treat this as your direct.
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Mr Camp: I'll first do cross-examination, do the leading questions, and then I'll delve into ... may I do so from the podium, Your Honor?
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Judge Holmes: You can do it from the podium or seated. Your choice. CROSS-EXAMINATION
Mr. Voth: Q. Good afternoon, Mr. Bennett.
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A. Afternoon.
Q. Bravado was one of the leading merchandisers in 2009, correct? A. It was.
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Q. Worldwide? A. Yes.
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Q. Bravado has worked with well-known artists?
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A. Yes. Q. Such as The Rolling Stones? A. Yes.
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Q. Metallica? A. Yes. Q. Guns N' Roses? A. Yes. Q. Justin Bieber? A. Yes.
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Q. Rihanna? A. Yes.
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Q. Adele? A. Yes.
A. Yes.
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Q. So you are aware of the concert series known as This Is It.
Q. And it was your idea to reach out to Randy Phillips first. A. It was.
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Q. You wanted Bravado to be the exclusive tour merchandising. A. I did.
Q. Because you thought Bravado would make money out of this deal.
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A. Exactly.
Q. You were not concerned about being associated with Michael Jackson.
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A. It's ... you know, to be really honest, it's eight years ago. I can't remember what the thought process was about anything else other than the 50 shows that far back.
A. I personally didn't.
A. Yes I did. Q. On two occasions. A. Yes. Q. He was excited about the tour merchandise. A. Yes. I think he was.
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Q. So you had met with Michael Jackson.
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Q. Did you give consideration to the child molestation allegations?
Q. So the second meeting then you presented Michael Jackson with certain designs.
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A. Yes. We did.
A. Yes, they could.
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Q. With respect to the merchandise, Bravado could have produced the merchandise within days of the start of the tour, correct?
A. Yes.
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Q. After Michael Jackson passes away, you viewed that as an opportunity?
Q. Because of the renewed interest in Michael Jackson? A. Exactly right.
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Q. The increased spike in music sales? A. Yes.
Q. You subsequently entered into the deal with the estate?
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A. Yes, we did.
Q. You expected to make a profit from that deal?
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A. We did.
Judge Holmes: Go ahead.
Mr. Voth: Q. When did you start working at Bravado? A. 1978 or '79. Q. And what years did you work at Bravado? A. Assume '79, '79 to '91 and then 2004 to 2016. Q. And what roles did you have at Bravado?
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DIRECT EXAMINATION
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Mr. Voth: All right, Your Honor. Now I'll move on to the traditional direct.
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A. Early on I don't think we had things like titles in the first go-around, to be honest with you. It was not that sort of company. But in our Atlanta stages, I was the CEO of America and then the worldwide CEO of Bravado. Q. And in 2009, can you describe what you did on a day-to-day basis?
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A. Played golf, you know ... A.... things like that. But no, listen. Truth, we would go to the office, and we were very lucky in 2009. Slightly before that, it was a growing business, and it was doing well. And so you know, all of our efforts were aimed at trying to grow the business to become the best merchandising company within the music in our area.
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Q. And did that eventually happen?
A. I think so, yeah. You know, slightly biased, but I think it did. Q. And why do you think so?
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A. I think we worked really hard. We put a good team together, and I think we had a good worldwide distribution plan, particularly of the, you know, more basic products. I keep saying that because, 99 percent of the different artists we work with, that's the area where the focus is because it's rare that you get past that. And I think we were a very good solution for people on a worldwide basis.
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Q. And what did you consider your competition? A. I mean, personally didn't really ever think that any ... you know, I didn't really think of any as a competition. I felt it was up to us to do the best we could do and not worry about other people.
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Q. All right. So I'm going to focus now on some of the general operations of Bravado in 2009.
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A. Surely. Q. So in 2009, where did Bravado operate?
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A. In approximately 30 countries around the world with its headquarters in the U.S. out of New York and offices in New York and a few other countries around the world. Q. And did Bravado produce its own merchandise?
A. It produced the vast majority of all the basic upper body apparel items that it sold around the world. Q. And where did Bravado produce this type of merchandise?
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A. All different places based upon which country they were selling in, and as I ... retailers are very ... most retailers have preferred vendors where they have gone out and vetted them and made sure that they're working in the right environment, these factories. So you tend to have to use factories other retailers have approved. Q. And so in general, can you describe for us how licensing deals work with artists?
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A. The way this one started, okay, 9 out of 10 deals that we do are predominantly aimed at being around concert tour cycles. So you would do a deal with an artist where an artist would say I'm going to play 100 dates around the world. Everybody has a different opinion, you know. The other side thinks they're going to earn way more money than you think, and you normally try to come somewhere in the middle and end up with a deal where you're basically paying the rights ... the money for the rights, majority of which is earned back from the actual tour dates. Q. And is there an average revenue split? A. Yeah. For the tour, yeah, there's an average revenue split for the tour. Q. And what would that average be?
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A. In a very round term, somewhere between 85 and 80 ... 85 ... 80 to 85 percent of the profits would go to the artist. Q. And earlier you talked about licensing out to third parties.
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A. Yeah.
Q. Can you explain that a little bit more, please?
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A. Yeah. Again, in ... for most artists, that would involve items as simple as mugs, keychains, posters, calendars. And then for the very odd one, which, you know, we just talked about a few
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minutes ago with Mr. Weltzman, you would get into something like a slot machine deal, if you're, you know, one of the ... very lucky because there's good income associated with something like that. Q. And with respect to this type of licensing, is there an average revenue split?
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A. Well, within the deals, our splits would be anywhere from 90 to ... you know, 85 to 90 percent of that monies would go back to the artist's account.
Q. Okay. All right. Let's delve a little bit into retail versus tour merchandising in 2009. So at ... specifically with respect to 2009, where did Bravado produce its tour merchandise? A. It would depend which country the artist was touring. So if we're specifically talking about Michael Jackson in the '02, it would have been in England. Q. And if it's in a different country, would it be near that country, or
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A. If it's in America, it would be in America. If you produce the products in Europe, you produce most of those products within the UK and just export them around Europe. Asia you make in Asia; Australia in Australia. Q. So in general, how quickly could Bravado produce merchandise for a tour?
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A. Assuming there was designs and things like that, literally in days. Q. What about delivering the tour merchandise to the venue?
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A. It's a quite simple thing. You know, in England, you know, the printers that we use to print tshirts are in London. So to make it to the '02s (ph), an hour. Q. All right. Let's talk about retail. Where did Bravado produce its merchandise for retail purposes?
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A. It would be in the territory that you were selling the merchandise in. That would be the ... where you make it. Q. And can you give us an ... some examples as to the different territories that were involved in ...
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A. In the U.S., you would make the vast majority of the goods within the U.S. With some retailers with longer lead times, you would possibly get it made in Mexico or in Honduras, countries like that where they can deliver the product at a better price, to go into lower price retailers. And in Europe, most of them would be done in the same territory they sold in.
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Q. And is there a particular country in Europe where some of the retail merchandise ...
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A. Yeah. I mean, just places like Turkey that are very big for apparel manufacturing.
Q. Now, can you give us an overview? With respect to the U.S., for example, in 2009, where did ... where is Bravado's merchandise sold at?
Q. No, just in general. Just in general.
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A. Do you mean Michael Jackson merchandise or just Bravado generally?
A. Bravado generally would be retailers along the lines of Hot Topic, Spencer's Gifts, JC Penney's, those types of retailers. Q. And let's say in Europe. What type of retailers?
A. Back then some ... sorry ... the retail landscapes changed quite a lot in the last 7-8 years ... but you know, places like H&M, Zara in the UK, Primark, stores like that. Q. And so you have different factories around the world that produce the merchandise?
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A. Yeah. We don't have them, but there are different factories around the world that do, do that. Q. So there ... okay. And is the merchandise sent directly from the factory to the retailer?
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A. The majority of the time, yes.
Q. So looking at 2009, were there any particular markets that you focused on?
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A. Yeah. I would say that we focused, you know, in 2009. Again, I'm not sure. I'm a little bit lost now when we did the deal with the estate or not. So in 2009 I think we were really focused on the UK because of the '02 dates. Q. Okay. And with respect to other artists, were there any particular countries that you were looking at?
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A. Yeah. I mean, yes. You know, but you know, just in a normal course of business, America's probably the biggest market of retail merchandising. Parts of Europe are very good. You know and no one specific country sticks out, outside of America. Q. Okay. And in Europe are there any specific countries that stick out?
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A. Yeah. The UK is probably the biggest market per capita for music. Q. Okay. So let's talk about contracts in general, like in 2009. Tell us what your role is with respect to contracts.
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A. I didn't understand a word of that.
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Q. So with respect to contracts ... A. Yeah.
A. My role? Q. Yes.
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Q. ... that are entered into with different artists, can you describe what your role was?
A. I would be involved in the general agreeing of the actual deal. And then in-house business affairs people would actually do the drafting of the contracts and ... Q. Would you be the one in charge of approving the deal? A. Approving the deal, yes.
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Q. Regardless of who the artist is? A. Pretty much, yes.
A. No. They never are, no.
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Q. Now, in general are contracts always finalized ... are they finalized well in advance of the tour?
A. Yes.
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Q. During your time with Bravado, did you work with any deceased artists?
Q. Can you name them?
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A. Bob Marley, Johnny Cash, part of The Doors is deceased, but you know, it's a non-working property so I would say The Doors. They would be three ... Kurt Cobain for a period of time, so that would probably be about it. Q. All right. So let's go back for a second to the meetings that took place with Michael Jackson. What was the topic of the first meeting?
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A. The first meeting I'd flown out to meet Randy to try and, you know, get the deal and he said, hey, why don't you come with me. And we went over to one of the rehearsals. I think it was a dancer's audition that was over there at the ... whatever that small building is at Staples.
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Q. Okay. And can you describe the topic of the second meeting?
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A. The second meeting we'd actually put together an art presentation and we went out to meet with Michael. I don't know when that was, but we came here to meet with Michael in Los Angeles. Q. Okay. Can you describe what art presentation means?
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A. We'd put together a book with approximately 300 items of different designs of which we were hoping to sell, or to sell some of, at the concerts that were scheduled to take place in the '02. Q. Can you describe visually for us some of these designs?
A. They were fairly basic based around the artwork for the '02, t-shirts, sweatshirts, hats, mugs, and different types of memorabilia that we thought would work ... Q. Did they ... A. ... at the shows.
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Q. Did they include Michael Jackson's name and likeness? A. Yes, they did.
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Q. Can you give us some examples of some of the designs with respect to his name and likeness? A. It would be ... the majority of the time it would be a picture of Michael, and it would have his name on it.
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Q. All right. So let's go ... you know, Michael Jackson passes away. Let's talk a little bit about that. What happened to the tour items that were approved ... the designs that were approved? A. They were part of the first deal that we did with AEG where we knew that they had been approved and we were ... I believe as part of that deal with AEG we got the rights to sell the approved items that were within the book, the 295 items that were approved.
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Q. And so those items that were approved then were eventually produced? A. Yeah. And probably not all of them, but some of them, yes. Q. Okay. Tell us why Bravado was willing to enter into a contract with the Estate of Michael Jackson.
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A. It was the business that we were in representing celebrities, you know, dead and alive. And we saw it as a good business opportunity at the time.
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Q. Why?
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A. Because the initial feedback from retailers was that there was real interest there. And we were ... you know, we'd already gone a certain ways down the path where we had all the designs approved for the actual concerts, so we thought it was a good business decision to make a deal with them, with the estate.
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Q. Let's go back for a second to the pre- death. There's some arrangements with AEG. Did Bravado, at that time, prepare any revenue projections? A. Yes, they did.
Q. And do you recall what the forecast of those projections were?
A. Yeah. I think that we ... our hope was that ... here we go. This is all to my memory, so I'll do the best I can. I believe that we did not anticipate recouping the entire advance at the shows at the '02. So our hope was twofold: one, that we would get some retail action out of the fact, that there would be dates in the UK and everybody would now know that Michael was back as a fulltime recording music performer, and that we'd get some online sales. We hoped that these shows would, you know, drive up the interest level and the demand.
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Q. Now, let's go post death. You enter into a deal with the Estate of Michael Jackson. Did Bravado prepare any revenue projections at that time?
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A. Yes, they did.
Q. And can you tell us what you hoped for?
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A. We hoped it would do ... I remember it quite specifically. We hoped it would do well, but in my projections I actually, you know, I don't want to say it just because I knew I was right ultimately, but I had said that I think we could well take 12 ... 5 years to recoup this money. But I felt that we would over the long term get there. I didn't see it as a quick win, so to speak. I really thought it was a ... we were paying full price for the rights. Q. Okay. Let's talk about infringement in general, like going back to 2009. Can you describe Bravado's process in identifying how merchandising being infringed upon?
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A. Yeah. Different in every country. Q. Sure.
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A. And there's different laws in every country. But in America which has probably got some of the better laws to protect yourself in this instance, we would hire an outside counsel. Whether it was because of our sales reps or the retailers, you would do your best to find out who was selling what and where and then you would ... with the outside counsel you would do everything you could to shut this down.
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Q. And when Michael Jackson passed away were there any concerns about infringement?
Mr. Voth: All right. No further questions, Your Honor. Judge Holmes: Any redirect or initial cross Mr. Weltzman?
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Mr. Weitzman: A little bit of the former. Not so much of the latter.
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A. Absolutely.
REDIRECT EXAMINATION
A. Yes. Mr. Voth: Objection. Leading. Judge Holmes: Sustained.
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Mr. Weitzman: Q. Dealing with retail merchandise today for musicians, there are some artists that do very well in that area, correct?
A. Yes, there are.
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Mr. Weitzman: Q. Are there some artists that do very well in that area?
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Q. Can you give us a couple of names of artists that do well? A. In the last say five years, people like Justin Bieber and One Direction have done really, really well and then looking for more classic artists, people like The Rolling Stones do well on a consistent basis in the marketplace.
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Q. And as I understand it, in 2009 you did not believe that Michael Jackson would do well enough on the retail market for you to make a general merchandise deal, correct? Mr. Voth: Objection. Asked and answered, Your Honor. Judge Holmes: Overruled.
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Mr. Weitzman: A. Yes. We did not see a big opportunity in the non-touring marketplace.
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Q. And why do you think there wasn't a big market for Mr. Jackson in the general retail merchandise area at that time?
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A. Hadn't been active in the music space for elongated period of time. There had been issues which I believe I answered honestly earlier which I didn't pay much attention to on a personal level, but I do believe that maybe retailers and other people did. But you know he wasn't active in the music world at that time.
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Q. And was it your belief that the tour would have an impact on Michael's ability to become a better item in the merchandising business? A. I believed that the majority of the income would be from the live shows.
Q. And why did you believe that the majority of the sales would come from the live shows? A. Because there was only a handful of artists that traditionally do well on a long-term basis in the music retail space. Q. The ... do you recall whether you were still negotiating with either AEG or Mr. Jackson before he died on terms of the deal?
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A. I believe that we were negotiating right up to the day of his death, and I believe there was even negotiations that morning.
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Q. And did that negotiation have to do with the advance?
A. I think so ... you know, again, sorry if my memory's not great. I do know that the first run of the dates had been postponed, and I do know that made us very nervous.
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Q. When you say "very nervous," did you have some concern that the tour may not actually take place? A. We had concerns that it may start, but we didn't know if it would finish. Q. In my words, but ... or ... my words in this question. Was the deal contingent upon Michael doing the show?
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A. Yes.
Q. Oh. People like Mr. Bieber ... A. Yeah.
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Q. ... for example, how much money does someone like that make through licensing name and likeness with Bravado a year? And I realize you can't be specific, so if you'll give us just a general ...
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A. Yeah. I'm not sure, you know. I'm just sort of general . I'm not sure I can really answer that because it's not my business ... Q. Okay. A. ... to answer that.
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Q. So not referring to Mr. Bieber, individually, but in generally a successful artist in Bravado's view, or in your view looking back would make approximately how much per year, not including Justin Bieber himself. A. Okay. Looking at something like a more heritage classic type of artist it would really depend but say $2 to $5 million. Q. And would Michael Jackson have been in that ... Judge Holmes: Over ... I'm sorry. Per year?
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The Witness: Yes, sir. Judge Holmes: Per year.
A. He was not in 2009.
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Mr. Weitzman: Q. Would Mr. Jackson have been in that classic heritage legacy box?
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Q. Okay. And that's because of why? A. The very little retailer interest.
Mr. Weitzman: I have no further questions. Thank you. Judge Holmes: Let's see. You have the floor now, Mr. Voth, for a little bit.
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Mr. Voth: No further questions, Your Honor. Judge Holmes: Okay. Well, I have some. DIRECT EXAMINATION
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Judge Holmes: Q. Sir, from the backed ... who are heritage artists? Meaning?
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A. After last week's Super Bowl, Lady Gaga is one. So I think it's anybody that's been around for a certain period of time and I think that's up for interpretation. So maybe if an artist's been around for say 20 years and is still relevant and has big hits from over that course or period.
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Q. Okay. You talked about what sounded like what in publishing would be an advance agreement. They're called recoupable royalties or something you called them. A. Yes. In the merchandising world, all the advances are recoupable.
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Q. Okay. Under what terms are they recoupable? You said a percentage of retail that is then applied against the advance? A. Exactly. Yes.
Q. What percentage was that in the Michael Jackson deal?
A. It's different by every tier of retail based upon what level of retailer is. If it's a specialty retailer or a mass market retailer because the mass market ... Q. Give me an example.
A. The royalty rate would be lower in Wal-Mart than it would be in a Hot Topic.
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Q. Oh, okay. And do you have those different kinds of different tiered royalties in the Michael Jackson deal?
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A. I believe so, yes.
Q. And was ... were the tiered royalties comparable to other deals that you had at the time? A. Absolutely.
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Q. Okay. In setting the advance that you're willing to pay to the artist, do you have a rule of thumb as to how to calculate the anticipated royalties versus the advance? Do you advance what you think is going to be 50 percent of the total that you will make? A. As far as concert tours go, I would say 635 that you probably advance approximately 70 percent of what you think the artist will earn.
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Q. Is it the same for like the posthumous death ... the non... concert retail merchandise? A. It's not so easy to work out because you obviously don't have the fixed events like the concerts, so you know, you pull the team together, you get everybody to make projections, and then it's a business risk.
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Q. What was your estimate in setting the deal with the Estate for Michael Jackson? What were you expecting the total revenues to be?
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A. I'm not sure what the total revenues were, but I could approximately answer what we thought the total earnings would be.
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Q. And what were the total earnings?
A. We had it over the five years that we thought we would get back the ... that he would recoup the $15 million over the five year period.
A. That's ... Q. Or do you sometimes do that ...
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Q. Okay. I mean you wouldn't make the deal; you wouldn't give him advance royalties if you didn't think you could ultimately recoup them, would you?
A. ... that's the idea. You try to make sure that you can recoup the money.
Q. It's conceivable you're in a relationship so you're willing to give up one deal for the next deal, but ... does that happen?
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A. I think it's a competitive space and I think that we're competitive by nature. Q. Okay.
Mr. Weitzman: Quickly.
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Judge Holmes: Okay.
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Judge Holmes: That's it for me. Any follow- up questions?
RE-REDIRECT EXAMINATION
Mr. Weitzman: Q. Was any of this advance refundable by either AEG or the Estate of Michael Jackson?
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A. AEG I believe was refundable.
Q. Can you tell us the difference between refundable and recoupable?
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A. Recoupable means that you actually recoup the money through your business activities and refundable would be at the very end of the term. There would be a payback option for both sides normally, as the normal course of events. So we could call back any unrecouped balance and the other side could give us back the unrecouped balance during the term as well.
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Q. So the reason you would include ... well what is the reason you would include the refundable term as part of the merchandise agreement?
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A. Because historically music related merchandising is a very slim margin business, and it's not the most profitable business. You know, you've heard the splits being 90/10 to the artist or 85/15, so the advance is purely what it says. It's an advance, and if at the end of the term the artist either doesn't do the concert dates or even does, but doesn't recoup the money, they would be having to refund the balance.
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Q. And the Estate of Michael Jackson ... the AEG and the Estate of Michael Jackson deal ... A. Yeah.
Q. ... if you hadn't recouped whether it was over five or six years or a shorter term ... A. Yeah.
Q. ... whatever it was, what would have happened?
A. I believe the deal ran ... would extend until recoupment.
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Q. So it could extend another two or three years, whatever it was. A. Absolutely.
A. Probably not.
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Q. And the slot machine deal you told us about, if that deal had not been made, is it your opinion you would have recouped through today?
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Mr. Weitzman: I have nothing further. Judge Holmes: How about Mr. Voth?
Mr. Voth: Nothing further, Your Honor. Judge Holmes: And he can truly go back to New York, or where did you say?
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Mr. Weitzman: Or wherever he's going. The Witness: Well, that would be nice. Thank you.
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Judge Holmes: Thank you, Mr. Bennett.
UNITED STATES TAX COURT - TRIAL
ESTATE (OF MICHAEL J. JACKSON DECEASED) EXECUTORS: JOHN G. BRANCA. AND JOHN MCCLAIN V
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COMMISSIONER OF INTERNAL REVENUE (IRS) February 8th 2017
Presiding Judge Mark V. Holmes
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Jackson’s estate is represented by Avram Salkin, Charles Paul Rettig, Steven Richard Toscher, R obert S. Horwitz, Edward M. Robbins Jr., Sharyn M. Fisk and Lacey E. Strachan of Hochman Sa lkin Rettig Toscher & Perez PC, Paul Gordon Hoffman, Jeryll S. Cohen and Loretta Siciliano of Hoffman Sabban & Watenmaker and Howard L. Weitzman of Kinsella Weitzman Iser Kump & Aldisert LLP.
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The IRS is represented by its attorneys Donna F. Herbert, Malone Camp, Sebastian Voth, Jordan Mus en and Laura Mullin. --------------------------------------------
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Previously John Branca used Felix Sebacious(Vice Pres) to sue HTWF, Declaration here http://www.teammichaeljackson.com/declaration-of-sebacious-felix-bravado
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THOMAS BENNETT (Bravado chief executive)
DIRECT EXAMINATION
A. The same field ... music merchandising.
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Mr Weitzman: Q. Mr. Bennett, what's your current employment or work?
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THOMAS BENNETT sworn in
Q. And how long have you been in music merchandising? A. Thirty-seven years.
Q. Can you explain ... well, first did you work for a company called Bravado? A. Yes.
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Q. Before Bravado, I think you were with Sanctuary.
Q. Is that correct? A. It was, yeah.
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A. Yes.
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Q. Okay. And did you have experience working with Michael Jackson? A. Prior to this event no, but ... Q. Okay.
A. ... yes, you know.
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Q. So explain to us what music merchandise is.
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A. The most basic form of it is we sign the rights for an artist's name and likeness. For the majority of artists, most of this is based upon tour income. And for a very small poll of music artists, they do generate money in other ways, in retail sales or through licensing, but it's a very small percentage of artists that manage to do that in a meaningful way.
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Q. And what do you understand ... you use the phrase name and likeness. What does that mean in your business ... in the music merchandise business?
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A. Most of the time when we try to get these rights, we try to get them exclusively. It means that, you know, the artist, image, logo, we would have the exclusive rights to put that on different types of merchandise that we would sell, again, historically predominantly at tours, but as much as we can into retail stores and to do the licensing deals with the parties that would be interested in licensing that artist.
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Q. And what types of merchandise ... I don't mean to exhaust this, but just give an ideal ... give us an idea of what type of merchandise you're referring to.
A. Generally speaking, a big piece of it would be, you know, basic upper body apparel which would be things like t-shirts and sweatshirts and hats, etcetera. And then depending on the success of those types of products, you get into different products. And again, the majority of the time, they're relatively simple products. Q. What, you mean like coffee cups ... A. Coffee cups ...
A. ... lighters, flags, posters, calendars.
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Q. ... posters ...
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Q. Okay. When you worked with Michael Jackson, was that in conjunction with the AEG '02 tour? A. It was, yes. That's when we first got involved.
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Q. And what was your title at Bravado at that time? A. I was the worldwide CEO of Bravado. Q. And what ... do you recall the year that that ... A. 2009 I think.
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Q. And did you get involved through AEG and Randy Phillips? A. Yes. Through Randy Phillips. Q. So could you tell me what you were asked to do?
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A. I would call and email Randy once we had seen that Michael was going to do the dates of the '02 in London. And very quickly, it went from, I believe, 10 shows to the potential of 50 shows, which made it a very big thing in the world of music, and particularly in the world of music live merchandise. So we ... or me ... aggressively pursued Randy, who was the producer, I think, as
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much as the promoter of this event, and said that we would like to get involved and, you know, we have a certain expertise that we think makes us a good partner for yourselves. Q. And this was tour merchandising, correct?
Q. I'm talking about this is all pre-death now.
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A. At the beginning, yes. It was tour merchandising.
A. Yes. I understand. Yeah. I think there was a very small element. And again I'm sorry, I don't ... you know, I don't have the ability to reread the agreements. I think there was a small element of potentially retail or something, but the vast majority of our interest in it and our thought behind it was the dates at the '02. Q. And did you agree to pay in advance for these rights? A. Yes, we did.
A. I believe it was payable to AEG.
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Q. But not directly to Michael Jackson?
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Q. And the advance ... who was it payable to?
A. Not directly to Michael, yeah.
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Q. Okay. And did you then ... first of all, did you pay the advance right away when you got involved? A. No, we did not. The contract was still being negotiated up and until Michael's demise. Q. Okay. So is it your recollection there was no signed agreement before Michael passed away? A. That is correct.
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Q. And there was no money paid before Michael passed away. Mr. Voth: Objection. Leading. Judge Holmes: Sustained.
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Mr Weitzman: Q. Was there any money paid before ...
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A. There was not.
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Q. ... Michael ... okay. Did you have any concerns about creating merchandise for Michael Jackson? A. More words, sorry. I don't ... in what respect?
A. Never been in business with him before, no.
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Q. Well, had you ever been in business with Michael Jackson before?
Q. And were ... did you understand this to be kind of a ... what did you understand that this tour represented in the music world? A. We realized it was a huge undertaking for somebody who had not performed for a number of years. And as we got closer to the event ... which, you know, I think everybody was very nervous that he would, in fact, be able to do the 50 shows.
A. Not for any meaningful money. Q. Why is that?
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Q. Would you have done a non-tour general merchandise deal for Michael Jackson's name and likeness?
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A. We had no interest because, as part of this process to do the tour, we did speak to retailers around the world and to licensing potential partners, and the level of interest, even with the dates on sale, was very low.
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Q. And did any of these retailers indicate to you why the interest was so low? A. Not really. I just think that, you know, Michael historically had not been a big, you know, merchandising property in the retail world for many, many years, and there was no demand. I guess people ... you know, they based their demand, most retailers, upon people coming into the stores and asking for it.
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Q. And did anyone mention the allegations, which were unproven, but the allegations involving child molestation? A. Maybe, but I ... to be really honest, I didn't focus on that, and I don't remember anybody saying anything.
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Q. Okay. So after Michael passed away ... A. Yeah.
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Q. I'm sorry. I forgot to ask you. Did you create designs for merchandise for the tour?
Q. And did you meet with Michael Jackson about those designs? A. Yes, we did.
A. I was. Q. And did he approve some of the designs?
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Q. You personally were there at the meeting?
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A. We did, yes.
A. He ... we ... I ... again, very approximate round terms, we presented about 300 items to him, and I think he approved literally 295 of them. Q. Okay. And did you then manufacture the items?
A. No because we never, you know, consummated the deal and the shows didn't happen.
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Q. After Michael passed away, did you speak with Mr. Phillips or representatives of AEG to do a post-death merchandise deal?
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A. Yes, we did. Q. And what was the nature of that deal?
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A. The nature of that deal is when any big celebrity dies, there's an immediate desire in the marketplace for memorabilia merchandise, and you never know how long that's going to last. You don't know if it's going to be Elvis or if it's going to be something that's short-lived. But there was a pretty decent-size demand. And I spoke to Randy, and I think the conversation very quickly got to the fact that it would be the right thing to do to, you know, satisfy this demand to make sure that the money wasn't taken by people who were doing unofficial merchandise, which is ...
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Q. You mean bootlegging?
A. Exactly ... which happens very quickly when there isn't a deal in place, which there wasn't one for Michael Jackson. So it was probably a bit more of a rush than usual because there was no deal in place.
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Q. And so did you come to an agreement, ultimately, with AEG? A. Yes we did.
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Q. And do you remember roughly what the terms of the deal were?
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A. Yeah. The terms were that we had the rights to the 295 images and products that Michael had approved prior to his death. And we paid in advance of $5 million. Q. To AEG? A. To AEG, I believe.
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Q. And ultimately rather than AEG, did you end up working with Michael Jackson's estate? A. We did.
Q. By the way, between the time you made the deal with AEG and paid the $5 million, had you begun to manufacture merchandise? A. No. We wouldn't have manufactured until we had paid the $5 million. Q. Okay. After you paid the $5 million, did you begin to manufacture ...
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A. Yes.
Q. ... merchandise? And was this at a time before there was a deal with the estate?
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A. I believe so. Yes.
Q. So the merchandise had begun to go out to retailers, and I'm assuming some were sold. A. Yes.
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Mr. Voth: Objection. Leading.
Judge Holmes: Sustained. Watch the form, Mr. Weitzman: Q. Were some sold after ...
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A. Yes.
Q. ... it went out to retailers? A. The products were sold. Yes.
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Q. And what were the terms of the deal with the estate, if you recall?
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A. It was a broader body of rights where is the name and likeness for the artist over and beyond just the 300 items, which meant that we would be able to get into things like licensing out
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Michael's name and image, and we paid in advance of, I believe, $10 million ... an additional advance of $10 million for that. Q. And do you recall whether that deal had to be approved by the probate court? A. I believe it was.
A. I don't know, to be ... Q. Okay. The $5 million that was paid to AEG ... A. Yeah. Q. ... was that recoupable? A. It was.
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Q. Do you recall whether there were any objections to the deal in the probate court?
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Q. And how much was paid to the estate as an advance?
Q. Was that also recoupable? A. Yes, it was.
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A. $10 million.
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Q. So what does that mean when the phrase recoupable is used? A. Okay. It really is an advance against earnings, and it goes against every single income stream within our body of rights. Until we recoup back the $15 million, there's no more money payable from us to the rights holder ... in this case, the estate.
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Q. So after the deal was consummated with the estate ... by the way, did the estate also step into the shoes of AEG? So now there was only one deal with $15 million ... I think it was $15 million recoupable? A. I believe so. I think it was a little more complicated than that. I think AEG was still on the line for maybe half of the advance at some point if it didn't all recoup where they would have to pay us some portion of that monies back, which I believe they did.
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Q. Okay. So the merchandise began to go out into the retail marketplace. Were there any other deals done with the estate of Michael Jackson other than this merchandise deal you spoke about?
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A. No.
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Q. And in the years 2009, 2010, 2011, had you recouped very much of your advance?
A. I don't remember the exact details, but we have recouped some of that advance. But it was not the bonanza that we thought it may have been.
A. Yes, we did.
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Q. Did you try to license Michael Jackson's name and likeness to other third parties?
Q. In 2009, 2010, 2011, were you successful in doing that?
A. On occasion, yes. It was much ... it was a much harder sell into these licensees than we had thought.
A. Exactly. Mr. Voth: Objection. Leading. Judge Holmes: Sustained. Rephrase.
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Q. So I understand it, are you saying that you didn't get the response from the market that you thought you would get in licensing Michael Jackson's name and likeness?
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Mr. Weitzman: I'm not sure how I would rephrase it.
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Mr. Weitzman: Q. What ... when you tried to market Michael Jackson's name and likeness as an agent for the estate of Michael Jackson, what was the success and what did you find in the marketplace?
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A. Very quickly when you do anything like this, not just Michael Jackson, but the ultimate test is how it does in retail. So when we had shipped the original products ... basic t-shirts, et cetera ... the sales, although they had been good, had not been great. So therefore, when we would try to license it out to more traditional companies to do more traditional merchandise ... i.e., posters, calendars, and the type of product that you would see in the same sort of retailer that you would see the t-shirts in ... their response when, you know, you ring up a licensee and say would you like a Michael Jackson license, well, the first thing they do is ring the retailers. And they say, hey, you have a chance to pick up the rights to Michael Jackson, what do you think. And I think that fairly quickly the response from the retailers was more lukewarm than we had wished. Q. By the way, how does Bravado get paid out of this process?
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A. Two ways ... one on the basic apparel, t- shirts, sweatshirts, hats, et cetera. They actually manufacture those themselves. So they make a manufacturer's margin. And on the deals that they did with third-party companies ... i.e., a slot machine company, or a poster company, or a calendar company ... that becomes a license. And there's a split where Bravado gets a small ... to keep a small piece of the revenue, and the rest goes against the un-recouped balance.
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Q. You mentioned slot machines. Did you ultimately do a deal with a slot machine ... A. Yes we did ... Q. ... manufacturer?
Q. And when was that? Just year ... A. 2010 ... Q. ... not month or day. A. Yeah, I'm guessing. 2010 in the ... sorry. I'm
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A. Yes, we did with a company called Bally Tech.
Q. And did you begin to recoup some of your advance?
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A. Yes. The slot machine was a good deal because it was a nontraditional merchandising item for us, so we weren't as relied upon the retailers and their feedback.
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Q. And did the slot machine involve more than just the licensing of name and likeness? A. It did. It involved the music and the video.
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Q. And in your opinion, if the music and the video wasn't involved, could you have made the slot machine deal just on Michael Jackson's ... A. No. Definitely ...
Q. ... name and likeness? A. Definitely not.
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Q. Did you finally ... did you ... that is, Bravado ... finally recoup that $15 million advance? A. I believe we did after approximately five years. Q. Was that longer than you all anticipated?
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A. It was.
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Q. And were there different areas of the world where Michael Jackson's merchandise for name and likeness did ... or with his name and likeness did better than other areas of the world?
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A. There was nothing that ... no country stood out more than anywhere else.
Q. In your opinion, do you think that you would have recouped your $15 million had it not been for the unusual slot machine deal?
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A. We would not have recouped that money without the slot machine. Mr. Weitzman: I don't have anything further, Your Honor. Judge Holmes: Cross-examination?
Mr. Voth: Yes, Your Honor. And also, Respondent has listed Mr. Bennett as a witness. Mr. Bennett comes from New York, so we request to do the cross and also to call him out of order to ensure that he can go back to New York. Judge Holmes: That largely means you can exceed the scope of direct. Are there any problems with this?
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Mr. Weitzman: No, I have no problems. We agreed to that earlier.
Judge Holmes: That's fine. Then you can treat this as your direct.
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Mr Camp: I'll first do cross-examination, do the leading questions, and then I'll delve into ... may I do so from the podium, Your Honor?
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Judge Holmes: You can do it from the podium or seated. Your choice. CROSS-EXAMINATION
Mr. Voth: Q. Good afternoon, Mr. Bennett.
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A. Afternoon.
Q. Bravado was one of the leading merchandisers in 2009, correct? A. It was.
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Q. Worldwide? A. Yes.
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Q. Bravado has worked with well-known artists?
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A. Yes. Q. Such as The Rolling Stones? A. Yes.
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Q. Metallica? A. Yes. Q. Guns N' Roses? A. Yes. Q. Justin Bieber? A. Yes.
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Q. Rihanna? A. Yes.
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Q. Adele? A. Yes.
A. Yes.
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Q. So you are aware of the concert series known as This Is It.
Q. And it was your idea to reach out to Randy Phillips first. A. It was.
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Q. You wanted Bravado to be the exclusive tour merchandising. A. I did.
Q. Because you thought Bravado would make money out of this deal.
w.
A. Exactly.
Q. You were not concerned about being associated with Michael Jackson.
ww
A. It's ... you know, to be really honest, it's eight years ago. I can't remember what the thought process was about anything else other than the 50 shows that far back.
A. I personally didn't.
A. Yes I did. Q. On two occasions. A. Yes. Q. He was excited about the tour merchandise. A. Yes. I think he was.
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Q. So you had met with Michael Jackson.
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Q. Did you give consideration to the child molestation allegations?
Q. So the second meeting then you presented Michael Jackson with certain designs.
ae
A. Yes. We did.
A. Yes, they could.
ich
Q. With respect to the merchandise, Bravado could have produced the merchandise within days of the start of the tour, correct?
A. Yes.
mM
Q. After Michael Jackson passes away, you viewed that as an opportunity?
Q. Because of the renewed interest in Michael Jackson? A. Exactly right.
Te a
Q. The increased spike in music sales? A. Yes.
Q. You subsequently entered into the deal with the estate?
w.
A. Yes, we did.
Q. You expected to make a profit from that deal?
ww
A. We did.
Judge Holmes: Go ahead.
Mr. Voth: Q. When did you start working at Bravado? A. 1978 or '79. Q. And what years did you work at Bravado? A. Assume '79, '79 to '91 and then 2004 to 2016. Q. And what roles did you have at Bravado?
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DIRECT EXAMINATION
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Mr. Voth: All right, Your Honor. Now I'll move on to the traditional direct.
ae
A. Early on I don't think we had things like titles in the first go-around, to be honest with you. It was not that sort of company. But in our Atlanta stages, I was the CEO of America and then the worldwide CEO of Bravado. Q. And in 2009, can you describe what you did on a day-to-day basis?
ich
A. Played golf, you know ... A.... things like that. But no, listen. Truth, we would go to the office, and we were very lucky in 2009. Slightly before that, it was a growing business, and it was doing well. And so you know, all of our efforts were aimed at trying to grow the business to become the best merchandising company within the music in our area.
mM
Q. And did that eventually happen?
A. I think so, yeah. You know, slightly biased, but I think it did. Q. And why do you think so?
Te a
A. I think we worked really hard. We put a good team together, and I think we had a good worldwide distribution plan, particularly of the, you know, more basic products. I keep saying that because, 99 percent of the different artists we work with, that's the area where the focus is because it's rare that you get past that. And I think we were a very good solution for people on a worldwide basis.
w.
Q. And what did you consider your competition? A. I mean, personally didn't really ever think that any ... you know, I didn't really think of any as a competition. I felt it was up to us to do the best we could do and not worry about other people.
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Q. All right. So I'm going to focus now on some of the general operations of Bravado in 2009.
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A. Surely. Q. So in 2009, where did Bravado operate?
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A. In approximately 30 countries around the world with its headquarters in the U.S. out of New York and offices in New York and a few other countries around the world. Q. And did Bravado produce its own merchandise?
A. It produced the vast majority of all the basic upper body apparel items that it sold around the world. Q. And where did Bravado produce this type of merchandise?
ae
A. All different places based upon which country they were selling in, and as I ... retailers are very ... most retailers have preferred vendors where they have gone out and vetted them and made sure that they're working in the right environment, these factories. So you tend to have to use factories other retailers have approved. Q. And so in general, can you describe for us how licensing deals work with artists?
mM
ich
A. The way this one started, okay, 9 out of 10 deals that we do are predominantly aimed at being around concert tour cycles. So you would do a deal with an artist where an artist would say I'm going to play 100 dates around the world. Everybody has a different opinion, you know. The other side thinks they're going to earn way more money than you think, and you normally try to come somewhere in the middle and end up with a deal where you're basically paying the rights ... the money for the rights, majority of which is earned back from the actual tour dates. Q. And is there an average revenue split? A. Yeah. For the tour, yeah, there's an average revenue split for the tour. Q. And what would that average be?
Te a
A. In a very round term, somewhere between 85 and 80 ... 85 ... 80 to 85 percent of the profits would go to the artist. Q. And earlier you talked about licensing out to third parties.
w.
A. Yeah.
Q. Can you explain that a little bit more, please?
ww
A. Yeah. Again, in ... for most artists, that would involve items as simple as mugs, keychains, posters, calendars. And then for the very odd one, which, you know, we just talked about a few
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minutes ago with Mr. Weltzman, you would get into something like a slot machine deal, if you're, you know, one of the ... very lucky because there's good income associated with something like that. Q. And with respect to this type of licensing, is there an average revenue split?
lJa ck so
A. Well, within the deals, our splits would be anywhere from 90 to ... you know, 85 to 90 percent of that monies would go back to the artist's account.
Q. Okay. All right. Let's delve a little bit into retail versus tour merchandising in 2009. So at ... specifically with respect to 2009, where did Bravado produce its tour merchandise? A. It would depend which country the artist was touring. So if we're specifically talking about Michael Jackson in the '02, it would have been in England. Q. And if it's in a different country, would it be near that country, or
ae
A. If it's in America, it would be in America. If you produce the products in Europe, you produce most of those products within the UK and just export them around Europe. Asia you make in Asia; Australia in Australia. Q. So in general, how quickly could Bravado produce merchandise for a tour?
ich
A. Assuming there was designs and things like that, literally in days. Q. What about delivering the tour merchandise to the venue?
mM
A. It's a quite simple thing. You know, in England, you know, the printers that we use to print tshirts are in London. So to make it to the '02s (ph), an hour. Q. All right. Let's talk about retail. Where did Bravado produce its merchandise for retail purposes?
Te a
A. It would be in the territory that you were selling the merchandise in. That would be the ... where you make it. Q. And can you give us an ... some examples as to the different territories that were involved in ...
w.
A. In the U.S., you would make the vast majority of the goods within the U.S. With some retailers with longer lead times, you would possibly get it made in Mexico or in Honduras, countries like that where they can deliver the product at a better price, to go into lower price retailers. And in Europe, most of them would be done in the same territory they sold in.
ww
Q. And is there a particular country in Europe where some of the retail merchandise ...
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A. Yeah. I mean, just places like Turkey that are very big for apparel manufacturing.
Q. Now, can you give us an overview? With respect to the U.S., for example, in 2009, where did ... where is Bravado's merchandise sold at?
Q. No, just in general. Just in general.
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A. Do you mean Michael Jackson merchandise or just Bravado generally?
A. Bravado generally would be retailers along the lines of Hot Topic, Spencer's Gifts, JC Penney's, those types of retailers. Q. And let's say in Europe. What type of retailers?
A. Back then some ... sorry ... the retail landscapes changed quite a lot in the last 7-8 years ... but you know, places like H&M, Zara in the UK, Primark, stores like that. Q. And so you have different factories around the world that produce the merchandise?
ae
A. Yeah. We don't have them, but there are different factories around the world that do, do that. Q. So there ... okay. And is the merchandise sent directly from the factory to the retailer?
ich
A. The majority of the time, yes.
Q. So looking at 2009, were there any particular markets that you focused on?
mM
A. Yeah. I would say that we focused, you know, in 2009. Again, I'm not sure. I'm a little bit lost now when we did the deal with the estate or not. So in 2009 I think we were really focused on the UK because of the '02 dates. Q. Okay. And with respect to other artists, were there any particular countries that you were looking at?
Te a
A. Yeah. I mean, yes. You know, but you know, just in a normal course of business, America's probably the biggest market of retail merchandising. Parts of Europe are very good. You know and no one specific country sticks out, outside of America. Q. Okay. And in Europe are there any specific countries that stick out?
w.
A. Yeah. The UK is probably the biggest market per capita for music. Q. Okay. So let's talk about contracts in general, like in 2009. Tell us what your role is with respect to contracts.
ww
A. I didn't understand a word of that.
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Q. So with respect to contracts ... A. Yeah.
A. My role? Q. Yes.
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Q. ... that are entered into with different artists, can you describe what your role was?
A. I would be involved in the general agreeing of the actual deal. And then in-house business affairs people would actually do the drafting of the contracts and ... Q. Would you be the one in charge of approving the deal? A. Approving the deal, yes.
ae
Q. Regardless of who the artist is? A. Pretty much, yes.
A. No. They never are, no.
ich
Q. Now, in general are contracts always finalized ... are they finalized well in advance of the tour?
A. Yes.
mM
Q. During your time with Bravado, did you work with any deceased artists?
Q. Can you name them?
Te a
A. Bob Marley, Johnny Cash, part of The Doors is deceased, but you know, it's a non-working property so I would say The Doors. They would be three ... Kurt Cobain for a period of time, so that would probably be about it. Q. All right. So let's go back for a second to the meetings that took place with Michael Jackson. What was the topic of the first meeting?
w.
A. The first meeting I'd flown out to meet Randy to try and, you know, get the deal and he said, hey, why don't you come with me. And we went over to one of the rehearsals. I think it was a dancer's audition that was over there at the ... whatever that small building is at Staples.
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Q. Okay. And can you describe the topic of the second meeting?
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A. The second meeting we'd actually put together an art presentation and we went out to meet with Michael. I don't know when that was, but we came here to meet with Michael in Los Angeles. Q. Okay. Can you describe what art presentation means?
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A. We'd put together a book with approximately 300 items of different designs of which we were hoping to sell, or to sell some of, at the concerts that were scheduled to take place in the '02. Q. Can you describe visually for us some of these designs?
A. They were fairly basic based around the artwork for the '02, t-shirts, sweatshirts, hats, mugs, and different types of memorabilia that we thought would work ... Q. Did they ... A. ... at the shows.
ae
Q. Did they include Michael Jackson's name and likeness? A. Yes, they did.
ich
Q. Can you give us some examples of some of the designs with respect to his name and likeness? A. It would be ... the majority of the time it would be a picture of Michael, and it would have his name on it.
mM
Q. All right. So let's go ... you know, Michael Jackson passes away. Let's talk a little bit about that. What happened to the tour items that were approved ... the designs that were approved? A. They were part of the first deal that we did with AEG where we knew that they had been approved and we were ... I believe as part of that deal with AEG we got the rights to sell the approved items that were within the book, the 295 items that were approved.
Te a
Q. And so those items that were approved then were eventually produced? A. Yeah. And probably not all of them, but some of them, yes. Q. Okay. Tell us why Bravado was willing to enter into a contract with the Estate of Michael Jackson.
w.
A. It was the business that we were in representing celebrities, you know, dead and alive. And we saw it as a good business opportunity at the time.
ww
Q. Why?
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A. Because the initial feedback from retailers was that there was real interest there. And we were ... you know, we'd already gone a certain ways down the path where we had all the designs approved for the actual concerts, so we thought it was a good business decision to make a deal with them, with the estate.
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Q. Let's go back for a second to the pre- death. There's some arrangements with AEG. Did Bravado, at that time, prepare any revenue projections? A. Yes, they did.
Q. And do you recall what the forecast of those projections were?
A. Yeah. I think that we ... our hope was that ... here we go. This is all to my memory, so I'll do the best I can. I believe that we did not anticipate recouping the entire advance at the shows at the '02. So our hope was twofold: one, that we would get some retail action out of the fact, that there would be dates in the UK and everybody would now know that Michael was back as a fulltime recording music performer, and that we'd get some online sales. We hoped that these shows would, you know, drive up the interest level and the demand.
ae
Q. Now, let's go post death. You enter into a deal with the Estate of Michael Jackson. Did Bravado prepare any revenue projections at that time?
ich
A. Yes, they did.
Q. And can you tell us what you hoped for?
mM
A. We hoped it would do ... I remember it quite specifically. We hoped it would do well, but in my projections I actually, you know, I don't want to say it just because I knew I was right ultimately, but I had said that I think we could well take 12 ... 5 years to recoup this money. But I felt that we would over the long term get there. I didn't see it as a quick win, so to speak. I really thought it was a ... we were paying full price for the rights. Q. Okay. Let's talk about infringement in general, like going back to 2009. Can you describe Bravado's process in identifying how merchandising being infringed upon?
Te a
A. Yeah. Different in every country. Q. Sure.
w.
A. And there's different laws in every country. But in America which has probably got some of the better laws to protect yourself in this instance, we would hire an outside counsel. Whether it was because of our sales reps or the retailers, you would do your best to find out who was selling what and where and then you would ... with the outside counsel you would do everything you could to shut this down.
ww
Q. And when Michael Jackson passed away were there any concerns about infringement?
Mr. Voth: All right. No further questions, Your Honor. Judge Holmes: Any redirect or initial cross Mr. Weltzman?
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Mr. Weitzman: A little bit of the former. Not so much of the latter.
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A. Absolutely.
REDIRECT EXAMINATION
A. Yes. Mr. Voth: Objection. Leading. Judge Holmes: Sustained.
ae
Mr. Weitzman: Q. Dealing with retail merchandise today for musicians, there are some artists that do very well in that area, correct?
A. Yes, there are.
ich
Mr. Weitzman: Q. Are there some artists that do very well in that area?
mM
Q. Can you give us a couple of names of artists that do well? A. In the last say five years, people like Justin Bieber and One Direction have done really, really well and then looking for more classic artists, people like The Rolling Stones do well on a consistent basis in the marketplace.
Te a
Q. And as I understand it, in 2009 you did not believe that Michael Jackson would do well enough on the retail market for you to make a general merchandise deal, correct? Mr. Voth: Objection. Asked and answered, Your Honor. Judge Holmes: Overruled.
w.
Mr. Weitzman: A. Yes. We did not see a big opportunity in the non-touring marketplace.
ww
Q. And why do you think there wasn't a big market for Mr. Jackson in the general retail merchandise area at that time?
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A. Hadn't been active in the music space for elongated period of time. There had been issues which I believe I answered honestly earlier which I didn't pay much attention to on a personal level, but I do believe that maybe retailers and other people did. But you know he wasn't active in the music world at that time.
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Q. And was it your belief that the tour would have an impact on Michael's ability to become a better item in the merchandising business? A. I believed that the majority of the income would be from the live shows.
Q. And why did you believe that the majority of the sales would come from the live shows? A. Because there was only a handful of artists that traditionally do well on a long-term basis in the music retail space. Q. The ... do you recall whether you were still negotiating with either AEG or Mr. Jackson before he died on terms of the deal?
ae
A. I believe that we were negotiating right up to the day of his death, and I believe there was even negotiations that morning.
ich
Q. And did that negotiation have to do with the advance?
A. I think so ... you know, again, sorry if my memory's not great. I do know that the first run of the dates had been postponed, and I do know that made us very nervous.
mM
Q. When you say "very nervous," did you have some concern that the tour may not actually take place? A. We had concerns that it may start, but we didn't know if it would finish. Q. In my words, but ... or ... my words in this question. Was the deal contingent upon Michael doing the show?
Te a
A. Yes.
Q. Oh. People like Mr. Bieber ... A. Yeah.
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w.
Q. ... for example, how much money does someone like that make through licensing name and likeness with Bravado a year? And I realize you can't be specific, so if you'll give us just a general ...
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A. Yeah. I'm not sure, you know. I'm just sort of general . I'm not sure I can really answer that because it's not my business ... Q. Okay. A. ... to answer that.
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Q. So not referring to Mr. Bieber, individually, but in generally a successful artist in Bravado's view, or in your view looking back would make approximately how much per year, not including Justin Bieber himself. A. Okay. Looking at something like a more heritage classic type of artist it would really depend but say $2 to $5 million. Q. And would Michael Jackson have been in that ... Judge Holmes: Over ... I'm sorry. Per year?
ae
The Witness: Yes, sir. Judge Holmes: Per year.
A. He was not in 2009.
ich
Mr. Weitzman: Q. Would Mr. Jackson have been in that classic heritage legacy box?
mM
Q. Okay. And that's because of why? A. The very little retailer interest.
Mr. Weitzman: I have no further questions. Thank you. Judge Holmes: Let's see. You have the floor now, Mr. Voth, for a little bit.
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Mr. Voth: No further questions, Your Honor. Judge Holmes: Okay. Well, I have some. DIRECT EXAMINATION
w.
Judge Holmes: Q. Sir, from the backed ... who are heritage artists? Meaning?
ww
A. After last week's Super Bowl, Lady Gaga is one. So I think it's anybody that's been around for a certain period of time and I think that's up for interpretation. So maybe if an artist's been around for say 20 years and is still relevant and has big hits from over that course or period.
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Q. Okay. You talked about what sounded like what in publishing would be an advance agreement. They're called recoupable royalties or something you called them. A. Yes. In the merchandising world, all the advances are recoupable.
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Q. Okay. Under what terms are they recoupable? You said a percentage of retail that is then applied against the advance? A. Exactly. Yes.
Q. What percentage was that in the Michael Jackson deal?
A. It's different by every tier of retail based upon what level of retailer is. If it's a specialty retailer or a mass market retailer because the mass market ... Q. Give me an example.
A. The royalty rate would be lower in Wal-Mart than it would be in a Hot Topic.
ae
Q. Oh, okay. And do you have those different kinds of different tiered royalties in the Michael Jackson deal?
ich
A. I believe so, yes.
Q. And was ... were the tiered royalties comparable to other deals that you had at the time? A. Absolutely.
mM
Q. Okay. In setting the advance that you're willing to pay to the artist, do you have a rule of thumb as to how to calculate the anticipated royalties versus the advance? Do you advance what you think is going to be 50 percent of the total that you will make? A. As far as concert tours go, I would say 635 that you probably advance approximately 70 percent of what you think the artist will earn.
Te a
Q. Is it the same for like the posthumous death ... the non... concert retail merchandise? A. It's not so easy to work out because you obviously don't have the fixed events like the concerts, so you know, you pull the team together, you get everybody to make projections, and then it's a business risk.
w.
Q. What was your estimate in setting the deal with the Estate for Michael Jackson? What were you expecting the total revenues to be?
ww
A. I'm not sure what the total revenues were, but I could approximately answer what we thought the total earnings would be.
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Q. And what were the total earnings?
A. We had it over the five years that we thought we would get back the ... that he would recoup the $15 million over the five year period.
A. That's ... Q. Or do you sometimes do that ...
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Q. Okay. I mean you wouldn't make the deal; you wouldn't give him advance royalties if you didn't think you could ultimately recoup them, would you?
A. ... that's the idea. You try to make sure that you can recoup the money.
Q. It's conceivable you're in a relationship so you're willing to give up one deal for the next deal, but ... does that happen?
ae
A. I think it's a competitive space and I think that we're competitive by nature. Q. Okay.
Mr. Weitzman: Quickly.
mM
Judge Holmes: Okay.
ich
Judge Holmes: That's it for me. Any follow- up questions?
RE-REDIRECT EXAMINATION
Mr. Weitzman: Q. Was any of this advance refundable by either AEG or the Estate of Michael Jackson?
Te a
A. AEG I believe was refundable.
Q. Can you tell us the difference between refundable and recoupable?
w.
A. Recoupable means that you actually recoup the money through your business activities and refundable would be at the very end of the term. There would be a payback option for both sides normally, as the normal course of events. So we could call back any unrecouped balance and the other side could give us back the unrecouped balance during the term as well.
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Q. So the reason you would include ... well what is the reason you would include the refundable term as part of the merchandise agreement?
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A. Because historically music related merchandising is a very slim margin business, and it's not the most profitable business. You know, you've heard the splits being 90/10 to the artist or 85/15, so the advance is purely what it says. It's an advance, and if at the end of the term the artist either doesn't do the concert dates or even does, but doesn't recoup the money, they would be having to refund the balance.
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Q. And the Estate of Michael Jackson ... the AEG and the Estate of Michael Jackson deal ... A. Yeah.
Q. ... if you hadn't recouped whether it was over five or six years or a shorter term ... A. Yeah.
Q. ... whatever it was, what would have happened?
A. I believe the deal ran ... would extend until recoupment.
ae
Q. So it could extend another two or three years, whatever it was. A. Absolutely.
A. Probably not.
ich
Q. And the slot machine deal you told us about, if that deal had not been made, is it your opinion you would have recouped through today?
mM
Mr. Weitzman: I have nothing further. Judge Holmes: How about Mr. Voth?
Mr. Voth: Nothing further, Your Honor. Judge Holmes: And he can truly go back to New York, or where did you say?
Te a
Mr. Weitzman: Or wherever he's going. The Witness: Well, that would be nice. Thank you.
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w.
Judge Holmes: Thank you, Mr. Bennett.
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