US TAX.COURT US TAX COURT RECEIVED eFILED PA FEB 1 2017 FEB 1 2017 11:43 PM ESTATE OF MICHAEL J. JACKSON, DECEASED, JOHN G. BRANCA, CO-EXECUTOR AND JOHN MCCLAIN, CO-EXECUTOR, Petitioners, ELECTRONICALLY FILED Docket No. 17152-13 COMMISSIONER OF INTERNAL REVENUE Respondent PETITIONER'S PRETRIAL MEMORANDUM SERVED Feb 01 2017PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 Trial Calendar: Los Angeles, CA Date: Monday, February 6, 2017 PRETRIAL MEMORANDUM FOR PETITIONERS SRETRIAL MEMORANDUM FOR PETITIONERS NAME OF CAS) DOCKE’ Estate of Michael Joseph Jackson v. Commissioner 17152-13 Electronically Filed ATTORNEYS: [ Petitioner: Avram Salkin Respondent: | Donna Herbert Tel. No. G10) 281-3215 Tel. No. (805)371-6702 Steven Toscher R. Malone Camp (G10) 281-3221 (805) 367-0078 AMOUNTS IN DISPUTE: Years(s)/Period(s) Deficiency [ | Sec. 6662(a) Penalty] June 25, 2009 $505,142,894.00 | $196,910,310.00 STATUS OF CASI Definite Trial [Probable Seitiement Probable Trial_[ In CURRENT ESTIMATE OF TRIAL TIME; 13 Days | MOTIONS YOU EXPECT TO MAK! MOTIONS YOU EXPECT TO MAKE: Petitioner has filed or expects to file the following motions that, as of this date, have not been acted upon by the Court: |. Motion to exclude the expert witness report of Weston Anson (Consor) for the date of death value of Michael Jackson's Post-mortem right of publicity and the date of death value of New Horizon Trust TI, which held the Mijac music catalog. 1 TEPRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 2. Motion to enforce settlement and to strike portions of the expert witness report of Weston Anson (Consor) for the date of death value of New Horizon Trust Ill, which held the Mijac Music catalog. 3. Motion to shift the burden of proof to Respondent, 4. Motion to strike the supplemental expert report of Weston Anson (Consor) filed on January 31, 2017, for failure to follow the pretrial order relating to the disclosure of expert witnesses and the Court’s ruling regarding legal expert witnesses. be STATUS OF STIPULATION | Completed ] Tn Process OF FACTS: i 1. Whether Respondent erred in increasing the value, as of the date of death, of the decedent's interest in New Horizon Trust Il (Sony/ATV Music Publishing, LLC). 2. Whether Respondent erred in increasing the value, as of the date of death, of New Horizon Trust III (Mijac music catalog). 3. What is the scope of the right of publicity property right under Intemal Revenue Code §2033 4. Whether Respondent erred in increasing the value, as of the date of death, of the decedent's post-mortem right of publicity (referred to in Form 706 as “image and likeness”). 5. Whether Respondent erred in determining that Petitioner is liable for an accuracy- related penalty under IRC $6662. ISSUES THAT HAVE BEEN SETTLED: 1. The value of the real property located at 4641 Hayvenhurst Ave., Encino, CA. 2. The value of the Estate’s interest in Sycamore Valley Ranch Company, LLC. 3. The value of Policy B0638C09195, 2PRETRIAL MEMORANDUM FOR PETITIONER DOCKET No. 17152-13 4. The amount of additional cash recoverable by the Estate. The value of MJJ Ventures, Inc, 6. The value of decedent’s share of artist mechanical royalties related to Jackson 5 master recordings. The value of Michael Jackson’s master recordings The value of tangible personal property. Penalties related to the settled issues. e~e~ As a result of the settled issues, the Estate has conceded approximately $27 million of Proposed adjustments and the respondent has conceded approximately $164 million of proposed adjustments. ISSUES THAT HAVE BEEN DEFERRED: ISSUES THAT HAVE BEEN DEFERRED: The parties have stipulated that the following issues are deferred: 1. The amount of Petitioner's charitable contribution deduction. 2. The amount of claims and administrative expenses. 3. The amount of losses allowable under Sections 2053, 2054 and 2055 of the Internal Revenue Code. WITNESSES Petitioner may call the following witnesses to testify at trial in this matter: John Branca may testify on all issues in the case, including, but not limited to, Michael Jackson’s history, the acquisition of the ATV catalog, the formation of Sony/ATV Music Publishing, LLC, the Mijac Music catalog, Michael Jackson’s right of Publicity, Michael Jackson’s death, the administration of Michael Jackson's Estate, efforts to monetize the assets of the estate, the preparation of the Estate’s Form 706 and the appraisals for New Horizon Trust IT (Michael Jackson’s interest in Sony/ATV), New Horizon Trust II] (Mijac Music Publishhing, LLC (“Mljac Music”)) and Michael Jackson's post-mortem right of publicity, and all other topics covered in his deposition taken by the Respondent on December 29, 2016, and in his interview by the Internal Revenue Service during the audit, biasPRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 Karen Langford may testify about Michael Jackson’s history, efforts to exploit his right of publicity during his life, post-death efforts by the Estate to exploit Michael Jackson's post-mortem right of publicity, efforts made to determine and exploit Michael Jackson’s compositions that were not released prior to his death and all other topics covered in her deposition taken by the Respondent on January 5, 2017. David Byres may testify about the administration of the Estate and negotiations of various agreements on behalf of the Estate. David Lande may testify about the administration of the Estate and negotiations of various agreements on behalf of the Estate. Michael Kane may testify about his retention by Michael Jackson and services as Michael Jackson’s business manager, the events leading up to and transpiring immediately after Michael Jackson's death, Michael Jackson’s financial condition during the period Mr. Kane served as his business manager, and all topics covered in Mr. Kane’s deposition. Wallace Cristner may testify about the Sony/ATV operating agreement and related agreements, and the negotiations of the Estate’s agreements with Cirque du Soleil. Zia Modabber may testify about litigation the Estate was involved in, including, but not limited to, litigation relating to Michael Jackson's right of publicity, trademarks and related matters. Vincent Chieffo may testify about trademark matters and litigation the Estate was involved in, including, but not limited to, litigation relating to Michael Fackson’s right of publicity, trademarks and related matters. Randall Phillips may testify about the “This Is It” tour and AEG’s relationship with Michael Jackson and the Estate, including, but not limited to, the agreement for the concerts scheduled for the 02 Arena, financial arrangements between AEG and Michael Jackson and between AEG and the Estate, preparation for the 02 Arena tour, negotiations concerning the use of rehearsal footage shot for the 02 Arena tour, and the production of the film “Michael Jackson's This Is It.”PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 Tom Bennett may testify about Bravado’s negotiations to act as merchandiser for the 02 Arena tour and about the merchandising agreements entered into between Bravado and AEG and Bravado and the Estate after Michael Jackson’s death, Eric Bender may testify about Bravado’s negotiations to act as merchandiser for the 02 Arena tour and about the merchandising agreements entered into between Bravado and AEG and Bravado and the Estate after Michael Jackson’s death. Felix Sebatious may testify about Bravado’s negotiations to act as merchandiser for the 02 Arena tour and about the merchandising agreements entered into between Bravado and AEG and Bravado and the Estate after Michael Jackson’s death. Phil Holthouse or Kent Froehlich may testify about their activities as Michael Jackson's business manager between 1998 and 2000, Michael Jackson's financial condition during that period and Michael Jackson’s business transactions during that period. Justine Grant Ruffalo may testify about Michael Jackson’s right of publicity income prior to his death and the Estate's accounting information. David Dunn may testify about his work for Michael Jackson, Michael Jackson’s financial condition, the refinancings secured by Michael Jackson’s interest in Sony/ATV, the financing secured by his interest in the Mijac Music catalog and the 2016 sale by the Estate of its interest in Sony/ATV. John Doelp may testify about the recordings of Michael Jackson that he listened to in order to select materials to release after Michael Jackson’s death. Owen Dahl may testify about the value of New Horizon Trust II (Mijac Music) and about the preparation of the appraisals of Mijac Music and Michael Jackson's name and likeness for purposes of the Estate’s Form 706, Marvin Hills may testify about the preparation of Petitioner’s Form 706, Andy Heyward may testify about a proposed animated program being discussed with Michael Jackson and Tohme Tohme shortly before Michael Jackson’s death, L. A. Reid may testify about the recordings of Michael Jackson that he listened to in order to select materials to release after Michael Jackson’s death, 5PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 Matt Forger will testify about Michael Jackson’s method of composing and his compositions that were unreleased as of the date of death, Durham (“Michael”) Prince will testify about Michael Jackson's method of composing and his compositions that were unreleased as of the date of death, Jamie Salter may testify regarding the Estate’s efforts to market Michael Jackson's name and likeness. Alan Wallis may testify about the value of Michael Jackson's interest in Sony/ATV Music Publishing, LLC. Mark Roesler may testify about Michael Jackson’s historical right of publicity income and the potential cash flow a hypothetical buyer could reasonably anticipate from right of publicity if Michael Jackson’s image was rehabilitated ‘ay Fishman may testify about the value of Michael Jackson’s post-mortem right of publicity. Nancy Fannon may testify about tax affecting in determining the fait market value of pass-through interests in assets. Eugene Volokh may testify in rebuttal about the scope of the right of publicity Roy Salter may testify about the preparation of the appraisal of the Estate's interest in New Horizon Trust II (Sony/ATV) for Purposes of the Estate’s Form 706. Petitioner reserves the right to call any person listed by Respondent as a witness, SUMMARY OF FACT: Petitioner anticipates that the following facts will be adduced at trial: Background Facts 1, Introduction In death as in life, Michael Jackson was a complex and enigmatic individual, One of the most popular and successful recording artists and entertainers of the past $0 years, 6PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO, 17152-13 he died burdened by a mountain of debt, having borrowed hundreds of millions of dollars against the equity in his major assets, From 1993 until his death, Michael Jackson was haunted by the pale cast of child molestation allegations, first leveled against him in 1993 and then again in 2003. Although there was no civil judgment against him, and he was acquitted in 2005 of criminal molestation charges, the allegations devastated his reputation and continued to plague him until his death, His sometimes eccentric behavior and changes in his appearance earned him regular tabloid coverage and a number of colorful nicknames. Following the child molestation allegations, he was unable to generate any meaningful revenues through the commercialization of his name and likeness, At the same time, his recordings and musical compositions continued to generate millions of dollars a year in revenues, Shortly before his death, Michael Jackson announced plans for a tour in London, Tt was to be his first tour in twelve years. As a result, there was great interest in seeing him perform and all tickets had sold out. Nonetheless, as of the date of his death there was no sponsor to help underwrite the tour and no merchandising agreement. The tour promoter, AEG, was conducting negotiations with Bravado International Group Merchandising Services, Ine. (“Bravado”) to act as the exclusive tour merchandiser, but the parties had not come to an agreement as of the date of Michael Jackson's death and no merchandising agreement was ever executed. Michael Jackson died in a rented home in the Holmby Hills area of Los Angeles, California, on June 25, 2009, of acute propofol and benzodiazepine intoxication, He was in the final stages of preparation for a series of concerts at London's 02 Arena. His death was ruled a homicide by the Los Angeles County Coroner. Conrad Murray, the physician Michael Jackson hired to oversee his health in the lead up to the concert series, was convicted of involuntary manslaughter in 2011 for causing Michael's death and sentenced to two years imprisonment. When John Branca and John MeClain were appointed co-special administrators, after contentious court proceedings, they found an estate that was facing the prospect of bankruptcy. The significant assets were highly leveraged. Less than a year before his death, he had transferred his interest in the Neverland Ranch property to the Sycamore Valley Ranch, LLC, in order to avoid losing the property by foreclosure. He received a non-controlling interest in Sycamore Valley Ranch, LLC. The other member in the LLCPRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO, 17152-13 was 1224 LLC, which was controlled by Colony Capital and was the sole manager of the LLC! In addition, there were more than 60 unsecured creditors who filed claims against the Estate, He was embroiled in litigation and additional lawsuits were filed against the Estate after his death. It was through the synergy of their combined skills as one of the country’s premier music lawyers (Mr. Branca) and a respected music producer (Mr. McClain) that they were able to refocus the public on Michael Jackson’s unrivaled talent as an entertainer, to create a meaningful legacy and to save the Estate from financial disaster, 2. Michael Jackson's Background Michael Jackson was born on August 25, 1958, into a working-class family in Gary, Indiana. He was the eighth child of Joe and Katherine Jackson. In 1964, at the age of five, Michael joined his older brothers Jackie, Jermaine, Tito and Marlon in a tmusical group that was originally called “the Jackson Brothers.” The brothers practiced and performed under the strict supervision of their father, who served as their manager. Michael's talent as a singer became clear early. By 1965 he was the lead vocalist for the group, whose name was changed to “The Jackson 5.” In 1966, the Jackson 5 won a local talent competition. Joe began booking the group for paid professional gigs. Over the next two years, The Jackson 5 performed in a number of clubs in the Midwest and Northeastem United States, including as the opening act for nationally-known soul groups. In August 1967, the group won a weekly talent competition at Harlem’s Apollo Theater. In July 1968, The Jackson 5 auditioned in Detroit for Motown Records. They subsequently signed a recording contract with Motown, Each of their first four singles issued on the Motown label, “I Want You Back” (released in 1969), “ABC,” “The Love You Save,” and “I’ll Be There” (all released in 1970), reached number one on the Billboard Hot 100 Chart. As the lead singer, Michael Jackson became a musical celebrity before his twelfth birthday, appearing on the cover of Rolling Stone magazine. In 1971, the Jackson family moved from Gary to an estate at 4641 Hayvenhurst Avenue, Encino, California. The Jackson 5 continued to record for Motown Records * The value of Michael Jackson’s retained interest in the LLC has been settled. 8PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 until 1975, when they signed with the Epic Records subsidiary of CBS Records. Between 1972 and 1975, Michael released four studio solo albums on the Motown label: Got to Be There, Ben, Music & Me, and Forever, Michael. After the move to the Epic label, The Jackson 5 changed its name to “The Jacksons.” Jermaine, who remained with the Motown label, was replaced by Randy Jackson. From the mid 1970s until the mid 1980s, The Jacksons released several albums, including three that went platinum in the United States: Destiny, Triumph, and Victory. In 1978, Michael Jackson co-starred in the film version of the musical “The Wiz,” where he formed a close working relationship with the film’s musical supervisor, Quincy Jones. 3. Michael Jackson's Solo Career Takes Off In 1979, Michael released his first studio solo album on the Epic label, Off the Wall. The record was produced by Quincy Jones. The album included ten songs, two of which were written and one of which was co-written by Michael Jackson, The album included other songs written by Stevie Wonder, Paul MeCartney and Rod Temperton, among others. The album was a commercial and critical success. Two songs on the album (neither of which was composed by Michael) reached number 1 on the Billboard Hot 100 Chart: “Rock with You" and “Don’t Stop Till You Get Enough.” Ultimately, Off the Wall sold almost 10 million copies in the United States and 30 million copies worldwide. In 1980, Michael Jackson retained John Branca, a 29-year old music lawyer with the Los Angeles firm of Zifften Brittenham, to represent him as his entertainment lawyer and general counsel. Mr. Branca represented Michael Jackson until late 1989 or early 1990, and from 1993 until 2005. Eight days before his death, Michael Jackson, once again, retained Mr. Branca to represent him as “general and entertainment counsel in my business and personal affairs.” In 1982, Michael’s second studio solo album for Epic was released: Thriller Thriller had nine songs. Michael Jackson wrote only four of the songs: “Wanna Be Startin’ Something,” “The Girl Is Mine,” “Beat It” and “Billie Jean.” Rod Temperton wrote three of the songs: “Thriller,” “Lady Be Mine” and “The Lady in My Life.” The album became an international suecess, It was number | on the Billboard Top 200 album chart for 37 weeks and in the top 10 albums for 80 consecutive weeks. Seven songs on the album were released as singles. All reached the top 10 in Billboard’s Hot 100 singles 9PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO, 17152-13 chart. To date, Thriller is the best-selling album in history, having sold over 100 million copies worldwide. Thriller also earned eight Grammy awards in 1984, seven of which were awarded to Michael Jackson. Several music videos for songs from the Thriller album were released during 1983, including videos for “Beat It,” “Billie Jean” and “Thriller.” These videos are credited with revotutionizing music videos and making MTV a major channel. The “Thriller” video was a breakthrough in music videos. It is listed in the Guinness Book of World Records as the best-selling music video of all time and is the only music video currently included in the National Film Registry of the Library of Congress. 4, The Victory Tour Jn 1984, Michael Jackson and his brothers did their last tour together, The Victory Tour. The Tour was funded and promoted by Charles Sullivan, whose family owned at the time the New England Patriots football team and stadium. Pepsi sponsored the tour and paid the Jacksons $5 million, which was split among the six Jackson brothers Pepsi’s logo was on concert tickets and its signage was prominently featured at each concert. In connection with its sponsorship of the tour, Pepsi released a special edition Pepsi can featuring the signatures of all six Jackson brothers. The Victory Tour grossed over $70 million. Each of the Jackson brothers received $6 million, Michael donated his share to charity. Mr. Sullivan, however, lost money on funding and promoting the Tour. AS part of the tour sponsorship agreement, the Jackson brothers were required to film two commercials for Pepsi. During the filming of the second commercial in January 1984, Michael Jackson’s hair caught on fire and he was rushed to Brotman Medical Center in Culver City, where he was treated for second-degree burns. The constant pain resulting from these burns marked his introduction and eventual reliance on painkillers like Demerol. As a settlement, Michael Jackson had Pepsi donate money to build a bum center at Brotman Medical Center. 5. Captain EO, The Bad and Dangerous Albums and Tours In 1985, Mr. Branca negotiated Michael Jackson’s acquisition from Epic/CBS of the ownership of his master recordings made while signed with Epic/CBS, In 1986, Michael Jackson starred in Captain ZO, a 17-minute long film produced by George Lucas and directed by Francis Ford Coppola. The first “4-D” film, due to its 10PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 technological innovations it was the most expensive film per minute in history at the time of its release. The film opened at Disneyland and was an attraction at Disney theme parks for several years, Michael Jackson’s next studio album, Bad, was released on August 31, 1987, The album was co-produced by Quincy Jones and Michael Jackson, The album contained ten songs, eight of which were written by Michael Jackson. Bad was the first album that had five singles reach number 1 on the Billboard Hot 100 Chart. Between the release of Thriller and Bad, Michael Jackson's appearance had changed. His skin treatment for Vitiligo (a condition that affected his skin’s pigment) made his skin much lighter. His face had undergone several plastic surgeries, including changes in his nose and chin. His change in appearance was fodder for the tabloid press. Despite this, Bad eventually sold over 35 million copies worldwide and earned him two more Grammy Awards. Bad did not, however, approach Michael Jackson's original goal of selling more albums than Thriller. Michael Jackson began his first solo tour, the Bad World Tour, in September 1987. The tour ended in January 1989. During the tour, he performed before 4.4 million fans. The Bad World Tour grossed $125 million. Pepsi was the official sponsor of the tour. During the Bad World Tour, Michael Jackson was involved in several other Projects that increased his presence in the spotlight. In February 1998, he released his memoir Moonwalk. The book became a New York Times bestseller. Despite its success, the book was criticized for not revealing enough information about him. In 1988, the film Moonwalker was released on VHS, The film was a compilation of videos from Bad and co-starred Joe Pesci. The film sold 80,000 copies in the U.S. In 1988 Sega Genesis released a video game, Moonwalker, featuring an animated character based on Michael Jackson who saved children and danced his enemies to death, In 1988, Mr. Branca, on behalf of Michael Jackson, negotiated the purchase of Sycamore Valley Ranch, a property of approximately 3,000 acres located in Santa Barbara County, California, at 5225 Figueroa Mountain Road, Los Olivos, California 93441. Michael renamed the property “Neverland Ranch.” During the years following the acquisition, he made substantial and costly improvements to the property, including a 1PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 floral clock, numerous artistic garden statues, a 200, and an amusement park that featured ‘wo narrow-gauge railroads, a Ferris wheel, a carousel, a pirate ship, bumper cars, and an amusement arcade. In April 1989, at the Soul Train Awards, Michael Jackson received the Heritage Award for Career Achievement, the Sammy Davis Jr. Award for Entertainer of the Year, and two awards for the song “Man in the Mirror,” written by Glen Ballard and Siedah Garrett. His friend, Elizabeth Taylor, introduced him as the “true King of Pop, Rock, and Soul.” Michael Jackson embraced the title; a shortened version, “The King of Pop,” eventually became his nickname Michael Jackson’s album Dangerous was released on November 26, 1992. Its Producers were Michael Jackson, Teddy Riley, Bill Bottrell and Bruce Swedien, ‘The album contained fourteen songs, three of which were written by Michael Jackson. He was also credited with co-writing nine songs on the album. Dangerous received mixed reviews. Despite the critiques of Jackson's music and album art aesthetics, Dangerous sold 600,000 copies in the US in its first week. It eventually sold over 30 million copies worldwide. Following the release of Dangerous, Jackson launched an international tour, the Dangerous World Tour. Pepsi sponsored the Dangerous World Tour. The Tour began in June 1992, and ended in November 1993. On January 31, 1993, Jackson performed at the Super Bowl half time show at the Rose Bowl in Pasadena, California. The performance received the highest ratings of any Super Bowl half-time show since 1987. A few weeks later, Michael Jackson did a live interview with Oprah Winfrey. It was his first televised interview in 14 years. It was the most widely-watched television interview in history. 6. The 1993 Child Molestation Allegations In the summer of 1993, Evan Chandler Publicly accused Michael Jackson of sexually abusing Chandler's 13 year-old son, Jordan, Michael Jackson had befriended the Chandler family in mid 1992. Evan Chandler demanded money from Michael for the alleged conduct. When Michael Jackson did not agree to his terms, Evan Chandler made his accusations public. A media feeding frenzy followed, Michael Jackson denied any 2PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 wrongdoing and was never criminally charged with child-molestation of Jordan Chandler. In November 1993, after Jordan Chandler filed a lawsuit against him in Los Angeles County Superior Court, Michael Jackson cancelled the remainder of the Dangerous World Tour. Pepsi cancelled its sponsorship deals with him. Michael Jackson entered a rehabilitation facility to deal with an addiction to painkillers he developed following being burned while filming the Pepsi commercial. In 1994, he settled the Chandler lawsuit. 7. Michael Jackson's HiStory and Jn le Albums In August 1994, Michael Jackson married Lisa Marie Presley, the daughter of Elvis Presley. The marriage was short-lived. The couple filed for divorce in January 1996, Michael Jackson’s next studio album, HiStory: Past, Present and Future: Book d, a double-disc album, was released in June 1995. Disc 1 contained songs that had been released on prior albums. Disc 2 contained fifteen songs: seven were written by Michael Jackson and he was eredited with co-writing five others. Sony reportedly paid him $50 million in advances and spent another $30 million to promote the album, including the strategic placements of large statues of Jackson modeled after the statue featured on the album cover. Michael Jackson was attacked in the press due to the perceived anti- Semitism of the lyries to the song “They Don't Care About Us.” Despite this, HiStory eventually sold 20 million copies, becoming the bestselling double-disc album of all time. The HIStory World Tour began on September 7, 1996, and concluded on October 15, 1997. Michael Jackson hoped the tour would prove that he was (literally and figuratively) “back and bigger than ever.” Unlike his prior tours, which were sponsored by Pepsi, the HIStory World Tour could not find a sponsor. Sony Signatures, Inc., was the official merchandiser for the tour. The HIStory World Tour grossed $165 million, Despite the tour's success, sales of tour merchandise did not meet expectations and Michael Jackson was required to repay Sony Signatures approximately $4 million of the $6 million advance it had paid him. In late 1996, Michael Jackson married his dermatologist’s nurse, Debbie Rowe (“Rowe”). Two children were born during the marriage: Prince Michael Joseph Jackson, BPRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 who was bom on February 13, 1997, and Paris-Michael Katherine Jackson, who was born on April 3, 1998. Michael Jackson and Debbie Rowe were divorced in 1999. Michael Jackson was awarded custody of their two children. A third child, Prince Michael Jackson II, was born on February 21, 2002. In 1997, the album Blood on the Dance Floor: HiStory in the Mix, was released. The album is a compilation of eight remixed songs from Michael Jackson’s album HiStory: Past, Present, and Future: Book 1, plus five new songs. He wrote one of the new songs and co-wrote the other four, Blood on the Dance Floor eventually sold over 11 million copies worldwide, making it the most successful remix album of all time. Michael Jackson continued to perform publicly, but in a limited capacity. There ‘were no more tours after 1997. In 1999, he was headlining a charity concert for the International Red Cross, Nelson Mandela's Children's Fund, and UNESCO in Munich, Germany, when he suffered another performance related accident, He was singing on a bridge onstage that malfunctioned, causing him to fall four stories to the floor. The landing was rough. Being the consummate professional entertainer, he immediately continued with his performance. The consequences of that fall were, however, serious; he was treated for back injuries. Two tribute concerts to mark the thirtieth anniversary of the recording of Michael Jackson’s first studio solo album were held on September 9, and September 10, 2001, at Madison Square Garden in New York City. On October 30, 2001, Michael Jackson released the Jnvincible album, which sold 366,000 copies in its first week. The album contained fourteen songs. Michael Jackson wrote two and co-wrote twelve of the songs. He did not tour in connection with this album. /nvincible ultimately sold approximately 10 million copies. Although it sold well, sales of Invincible did not compare to sales of Off the Wall, Thriller, Bad, Dangerous ot HIStory. Sony did not renew Michael Jackson's contract due to the costs of producing and promoting /nvincible and his refusal to go on tour. This failure to renew sparked a feud between Jackson and Sony which culminated in Jackson parading around New York City, atop a double-decker bus, holding up a picture of Tommy Mottola, the CEO and Chairman of Sony Music, with devil homs drawn in red. 4PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 in Michael Jackson’s Financ: In the years following the Jordan Chandler allegations, due to the loss of endorsements and his extravagant spending habits, Michael Jackson faced mounting financial woes. In 1999, he borrowed $140 million from Bank of America, secured by his interest in the Sony/ATV and the Mijac Music publishing catalog. Mijac had been established in the early 1980's and owned the publisher’s share of the copyrights to Michael Jackson's compositions together with other songwriters’ compositions, In 2000, he refinanced with Bank of America, increasing the amount of the loan to $185 million, In 2006, because of the criminal trial, Bank of America wanted out and sold the loan to the sub-prime lender Fortress Credit Corp., a member of the Fortress Investment Group (“Fortress”). Michael Jackson refinanced the debt in 2006, with Fortress. Sony obtained the right to take both his interest in Sony/ ATV and Mijac in the event of a default, At the brink of foreclosure and about to lose both Mijac and his interest in Sony/ATV, Michael Jackson again refinanced in 2007, creating separate loan structures for Sony/ATV and Mijac. In 2007, the amount of the loan secured by his economic interest in Sony/ATV was $300 million. He also had two loans totaling $79 million that were separately secured by the Mijac Music publishing catalog, as well as mortgages exceeding $25 million against Neverland Ranch and his childhood home in Encino, California, 9. The Bashir Documentary and the Criminal Child Abuse Case In 2002, Michael Jackson agreed to have British journalist Martin Bashir (“Bashir”) and Bashir’s film crew shadow him for nearly a year at Neverland Ranch. Bashir's documentary, Living with Michael Jackson, was televised in the United States and the United Kingdom in February 2003. It focused heavily on controversial topics, including Michael Jackson's love life, skin bleaching, plastic surgery, and his relationships with young boys. Instead of having a positive impact similar to that which the Oprah Winfrey interview had in 1993, the documentary was a detrimental blow to Michael's public image. The public’s perception of him became increasingly negative following the release of the Bashir documentary. In hopes of salvaging his public image, Jackson created a rebuttal video, Take Two: The Footage You Were Never Meant to See, which was broadcast on Fox. The video included home videos from Neverland and aimed to expose Bashir for creating a 15PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 skewed documentary that only used footage that showed Jackson in a bad light. Jackson received $3 million from Fox for this video, The rebuttal video did not achieve its goal. Following the release of the two documentaries, in late 2003 the Santa Barbara District Attomey’s office began a criminal investigation of Michael Jackson. He was charged with molesting 13-year old Gavin Arvizo. Gavin was a child cancer survivor who had appeared with Michael in the Bashir documentary, praising Michael for saving his life. Michael Jackson self-surrendered to the Santa Barbara County Sheriff's Department. A felony complaint was filed against him, charging him with seven counts of child sexual abuse and two counts of administering an intoxicating agent. He pled not guilty. He was subsequently indicted by a grand jury. After a lengthy and highly Publicized trial that began on January 31, 2005, he was acquitted of all counts in June 2005. 10. The al Years The trial took an immense toll on Michael Jackson, physically, emotionally and financially. For the remainder of his life he was haunted by the 1993 and 2003 molestation allegations. Following his acquittal, he traveled with his three children to the Kingdom of Bahrain where he stayed as a guest of Sheikh Abdullah, son of the King. When he left for Bahrain, Michael Jackson’s financial state was dire. His debts from the loans had grown, he owed legal fees associated with the criminal case and he continued to spend money without any earnings from working. He had not released a new studio album in over four years, had not toured in over nine years, and had not made any endorsement deals in over 12 years. His abrupt departure from Bahrain in 2006 spawned more litigation over finances and alleged contractual breaches in a lawsuit filed by Sheikh Abdullah, Michael Jackson travelled with his children to several countries before moving to the outskirts of a small town in central Ireland, where they stayed for a few months. He returned to the United States in late 2006, where he and his children continued to live a vagabond existence, residing in different locations, including Las Vegas. By early 2008, Michael Jackson was again on the brink of bankruptcy. He was deeply in debt, at risk of losing Neverland Ranch, his interest in Sony/ATV and the Mijac music catalog. The cash flow from Sony/ATV and Mijac Music were entirely dedicated to servicing only the interest payments on his mounting debt. Despite continuing efforts 16PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO, 17152-13 to capitalize on his right of publicity, Michael Jackson’s earnings from his name, likeness and image, including merchandizing deals and endorsements, had dwindled to nothing since the Chandler allegations became public. In late 2008, Michael Jackson and his three children moved back to Los Angeles, where they lived in a rented home in the Holmby Hills area. In an effort to return to financial stability, in January 2009, Michael Jackson, through The Michael Jackson Company, LLC, entered into an agreement with AEG Live, LLC, d.b.a. Concerts West, to perform a series of concerts at London’s 02 Arena. Michael Jackson announced his first tour in 12 years in March 2009, where he said that these would be his final stage performances in London and that “When I say ‘this is it, it really means this is it." The Concert series was eventually named “This is It.” The concerts were to begin in July 2009. Under the tour agreement, Michael Jackson was to do a minimum of 18 shows and up to 31 concerts, or such other greater number as the parties agreed to. Initially, AEG offered tickets to ten concerts for sale. After these sold out, it offered tickets for an additional 40 concerts, which also sold out. Kenny Ortega was selected to direct the concerts. Intensive rehearsals began in preparation for the concerts. Michael Jackson requested that a videographer be hired to film rehearsals, as was his custom, in order to assist him in preparing, planning and developing the concert performances. AEG paid for the videographer as a part of the cost of production. None of this rehearsal footage was intended for release. Under the agreement, AEG controlled the tour merchandise rights. It entered into negotiations with Bravado International Merchandizing Group, Inc. (“Bravado”) to be the exclusive merchandiser for the concerts. No written agreement was ever entered into before Michael Jackson’s death. As was the case with the HIStory tour, a sponsor could not be found for the “This Is It” concert series because of Michael’s negative image and Teputation, despite the near instant sell-out of tickets. Unfortunately the failure to reach a merchandizing deal with Bravado and the failure to find a tour sponsor were not the greatest of Michael Jackson’s problems. He was again on the brink of financial disaster and potential bankruptcy. He was unable to service his debt and depended upon advances from AEG to cover his living expenses in addition to the tour production costs. ‘There was general concern about his health and 7PRETRIAL MEMORANDUM FOR PETITIONER DockeT No, 17152-13 ability to meet his performance obligations. He missed rehearsals. During rehearsals, the show’s director, Kenny Ortega, expressed concem about his health and the behavior he witnessed, Michael Jackson died in his home on June 25, 2009, only a few weeks before the Concert series was to begin. His death was caused by acute propofol and benzodiazepine intoxication. The drugs had been administered by his doctor, Conrad Murray. Sony/ATV In the early 1980s, flush with cash from the success of Off the Wall, Michael Jackson began buying the copyrights to compositions written by other songwriters, including the Gamble and Huff and the Sly Stone music publishing catalogs. (To assist the Court, we include an addendum of music terms at the end of this Memorandum.) In 1984, he learned from John Branca that Robert Holmes 4 Court, a wealthy Australian businessman, had put up for sale the ATV music Publishing catalog. ATV held the copyrights to a number of compositions. The jewel in the crown of the ATV catalog was the catalog of compositions written by John Lennon and Paul McCartney of the Beatles, Excited about the possibility of acquiring the Beatles copyrights, Michael Jackson authorized Mr. Branca to bid on the ATV catalog. Ata meeting with his financial advisors, most of them cautioned against his spending the money needed to meet other bidders. Michael Jackson passed a handwritten note to Mr. Branca that read “John: Please let's not bargain. I don’t want to lose the Deal... IT’S MY CATALOG.” After several months of negotiations, Mr. Branca convinced Mr. Holmes 4 Court to sell the ATV catalog to Michael Jackson for $47.5 million plus Michael Jackson performing at a benefit concert in Perth, Australia. The composition for the song “Penny Lane” was not included in the deal, since Mr. Holmes & Court wanted to gift it to his daughter Penny, Following the 1993 Chandler allegations, Michael Jackson was no longer able to get the endorsement deals previously available to him. He found himself without the income and liquidity needed to meet his financial obligations and pay his living expenses. Several people had advised Michael to sell the ATV catalog to raise needed money. Michael called John Branca, who at that time was not Tepresenting him. Mr. Branca advised him not to sell ATV. In 1995, on Michael’s behalf, Mr. Branca began ‘negotiations with Sony Music Entertainment to contribute the ATV compositions into a new music publishing venture to be formed with Sony Corporation. The joint venture 18PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 would initially consist of the ATV compositions as well as compositions contributed by Sony Music Publishing (“SMP”) with a goal of creating a full scale music publishing company. Michael and SMP entered into an agreement to form a company, Sony/ATV Music Publishing, LLC. The operating agreement, dated November 7, 1995, and a sales and contribution agreement, provided that SMP was to contribute its musical compositions plus cash and that Michael Jackson was to contribute the ATV catalo, additionally, Sony paid Michael Jackson a cash advance. The Sony/ATV Operating Agreement explicitly states that a principal purpose of the company was to grow through the acquisition or administration of additional music publishing catalogs. It further provides that Sony was to be the sole manager of the business as long as it retained at least a 20% interest in capital and profits. As manager, Sony had exclusive managerial control of the “overall business, operations and tax, accounting, financial, and other affairs of the company,” subject to a limited number of trictions. SMP and Sony/ATV entered into a services agreement under which SMP and its affiliates were retained to perform managerial, administrative and other services for Sony/ATV for so long as Sony entities owned at least a 20% interest in Sony/ATV. | Sony/ATV’s goal was to join Warner Chappell, EMI and Universal as one of the major music publishing companies. To achieve its objectives, Sony/ATV had to maintain a financial and operational staff to identify and investigate potential acquisitions of catalogs and other music publishing companies, integrate acquisitions into the company, administer the music copyrights it owned and those it administered, and to sign and develop promising new songwriters. All of this required substantial investment. Asa result, cash distributions were not a main priority of the business. The Sony/ATV Operating Agreement limited Michael Jackson’s right to inspect Sony/ATV’s finances to “reviewing the Company’s annual audited financial statements to determine the accuracy of the Company’s gross receipts and MJ's share of New Income and Excess Cash flow of the Company...” To support his spending and living expenses and meet his debts, Michael Jackson continued borrowing, now using his interest in Sony/ATV as security. As the amount of his debts increased, Michael’s interest in Sony/ATV and the copyrights contained in the Mijac Music publishing catalog were not of sufficient value to secure the loans. As a result, each time he refinanced his debt, as a condition for providing the financing, the 19PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO, 17152-13 lenders required a guaranty from Sony. As consideration, each time it was asked for a guaranty, Sony required Michael Jackson to agree to increasing restrictions on his rights in the business. Under the 2006 documents, a default would result in Sony taking both Mijac and Michael's interest in Sony/ATV. The final refinancing of his debt prior to death was in December 2007. In 2007, the debt encumbering Sony/ATV and Mijac was separated. The loan structure involved the issuance of bonds secured by Michael Jackson's interest in Sony/ATV with interest and principal guaranteed by Sony Corporation and two separate loans secured by the Mijac Music publishing catalog. The bonds secured by the interest in Sony/ATV were issued with a face value of $300 million, Michael Jackson's interest in Sony/ATV was divided into two parts: the non-economic interest was held by the MJ-ATV Publishing Trust (“MJ-ATV”), a grantor trust, and the economic interest was held by the New Horizon Trust II (“NHT II”), a bankruptcy- remote trust for the benefit of the note holders. MJ-ATV was the grantor of NHT II. Distributions to Michael from Sony/ATV were to be paid to NHT II to service the debt. As part of the December 2007 refinancing, NHT II entered into an interest rate swap agreement with Barclays as the counterparty. As a result, NHT II was obligated to Pay fixed interest at a rate of 5.792% on a notional amount of $300 million in return for floating payments at LIBOR plus 1.6%. Because the distributions by Sony/ATV to Michael, limited under the Operating Agreement to $11 million per year, were not sufficient to cover the annual interest payments of $17.4 million, an interest reserve was created to cover the shortfall As in effect on the date of his death, Sony had the full right to control and manage Sony/ATV, subject to Michael Jackson having only certain veto rights, He had no right to audit the company other than to determine the accuracy of gross receipts and his share of income and excess cash flow. SMP, as manager, determined the amount and timing of distributions, except that both Michael Jackson and SMP had a right to annual cash distributions of $11 million each through 2011, at which time the right to minimum distributions terminate, The distributions to Michael were paid to service a portion of the interest on the $300 million of debt secured by his economic interest in Sony/ATV. Sony/ATV also owed Sony Corporation $692 million for operating and acquisition expenses incurred primarily to purchase two large music publishing companies, Acuff Rose and Famous Music. After 2011, no distributions could be made to members until the debt owed to Sony was repaid. 20PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 Post-Mortem Rights of Publicity Atthe height of his popularity, Michael Jackson was able to enter into agreements for the commercial use of his name, likeness, voice and personal endorsement of products (hereafter “rights of publicity”). Most of these were negotiated by Mr. Branca and his firm. Following the 1993 child molestation allegations, these deals dried up. Triumph International, Ine. (“Triumph”), was an S corporation wholly owned by Michael Jackson. Its purpose was to license Michael’s right of publicity. In July 1984, Triumph entered into a multi-category licensing agreement with Entertainment Properties, Inc., a company owned by the Sullivan family. ‘The agreement, negotiated by Mr. Branca on behalf of Michael Jackson, was for a five-year term, and gave Entertainment Properties the exclusive right to use Michael Jackson’s right of publicity for a number of product categories, including apparel and fragrances. ‘The agreement called for Michael Jackson to be paid $18 million. The agreement made Michael Jackson the first musician to have his own clothing line. Sales for the clothing line were disappointing and Entertainment Properties lost money. In fact, the losses incurred by the Sullivan family as a result of the Victory Tour and the licensing deal contributed to their being forced to sell the New England Patriots football team and stadium, In 1990, Michael Jackson entered into a merchandising agreement with LA Gear, Under the agreement, which was negotiated by Mr. Branca, he received $4.5 million cash and $3 million in LA Gear stock up front, with additional amounts upon the fulfillment of certain performance obligations under the agreement. The product line, featuring the “Unstoppable” sneaker, was scheduled to be introduced in conjunction with the Dangerous album. The album’s release was delayed, but LA Gear began selling the sneaker line as originally scheduled. Despite the fact that Michael Jackson was at the peak of his popularity, only a limited number of pairs of sneakers were sold. LA Gear's stock prices plummeted. In 1992, LA Gear filed a complaint against Michael Jackson in Los Angeles County Superior Court, alleging breach of contract and fraud. The parties ultimately settled the case, with Michael Jackson paying LA Gear an undisclosed amount. Merchandising for the Dangerous World Tour (1992-1993) was handled through Winterland Productions, which entered into a tour merchandising agreement with Triumph. Winterland paid Triumph advances and deposits of $4,200,000. Pepsi, which Sponsored the tour, paid $15 million under its sponsorship agreement. The Dangerous 21PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 World Tour was Michael Jackson’s last tour prior to the Chandler molestation allegations. Following those allegations, he could not find a sponsor for his subsequent tours: the HiStory Tour and the ©2 Arena concerts, While there was no sponsor for the HIStory tour (1996-1997), tour merchandising was done through Sony Signatures, Inc. (“Sony Signatures”), which in 1994 entered into an exclusive worldwide merchandising agreement with Triumph. The agreement covered both tour and general merchandizing. Under the agreement, as amended, Sony Signatures paid Michael Jackson $6 million in recoupable advances. Despite the tour grossing $165 million, sales of tour merchandise did not meet expectations, As a result, Michael Jackson was required to pay back almost $4 million of the amounts advanced. He only received approximately $2 million for tour merchandising, notwithstanding the success of the tour itself. During the last years of his life, Michael Jackson tried desperately to earn money from any source available, including through the licensing of his rights of publicity, His efforts were futile. In 2001, he entered into a licensing agreement with Dieter Wiesner and an entity called “MJ Net.” The agreement led to litigation, In 2007, the dispute was settled by Michael Jackson paying Wiesner almost $3.5 million, From 2002 until the time of his death, earnings from his right of publicity were virtually nonexistent. At the time of his death, he was unable to obtain a sponsor for the upcoming This Is It concert series and no agreement had been reached with Bravado International Merchandizing, the company selected to design and market tour merchandise, even though tickets to all 50 concerts had sold out. Atthe time of his death, claims were made in the U.S., Japan and Europe by People asserting that they had rights, or the exclusive right, to Michael Jackson's right of Publicity cither as a result of contracts allegedly entered into with Michael Jackson, documents allegedly signed by Michael Jackson or, in one case, as the result of a judgment obtained in2006 in a federal lawsuit, Jackson v. Vaccaro, CV 04-1946-FMC (CD CA), due to Michael Jackson’s failure to prosecute. ‘These claims all cast a cloud on title to Michael Jackson's right of publicity. ic Music Besides his interest in the Sony/ATV music publishing business, Michael Jackson owned Mijac Music, a music publishing catalog that held the publisher's interest in 22PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 copyrights to songs he composed and songs other writers had composed where Michael had acquired the publishers’ interest in the copyrights for investment purposes. The compositions written by third parties included songs by Sly Stone, Gamble and Huff (Expressway to Your Heart,” “Love Train” and other hits) and such classic rock songs as “Great Balls of Fire,” “Runaround Sue,” and “Crying in the Chapel.” At the date of death, Wamer-Tamerlane Publishing Corp., a division of Wamer/Chappell (“Wamer"), was the administrator of the Mijac Music catalog As the owner of the publisher's interest in these compositions, Mijac received royalty payments for (i) mechanical rights, which is when a composition is sold on a record, a compact disk or downloaded, (ii) performance rights, which is when an owned composition is performed in a concert, played on the radio or television or played in a public place, (iii) synchronization, which is when a recording of the composition is used in a commercial or film and (iv) royalties for other uses including printed sheet music and things such as ring tones. As the administrator, Warner would sell rights and collect the entire amount of royalties due on a particular composition. For compositions where Michael owned only the publisher's interest, Warner would pay the third party writers (e.g. Sly Stone) their “writers’ share” of all royalties on all streams with the exception of the writers? share of Performance royalties which are paid to songwriters directly by the performance rights organization (“PRO”) with whom they are signed. Similarly, Michael Jackson received royalties associated with his writer’s share of performance outside of Mijac directly from Broadcast Music, Inc. (“BMI”) the PRO with which he was signed. At the time of Michael Jackson's death, Mijac Music was held through New Horizon Trust III (“NHT III”), a bankruptcy remote trust, and the toyalty income earned by the catalog as well as advances due under an agreement with BMI were paid by Warner and BMI directly to NHT III, which used the royalties to service the debt secured by the copyrights held by Mijac. The BMI advances were made pursuant to an agreement entered into before the Arvizo allegations surfaced. At the time of Michael Jackson’s death, the BMI advances were unrecouped. The Estate of Michael Jackson On June 29, 2009, Michael Jackson's parents, Katherine Jackson and Joe Jackson, filed petitions for letters of administration and for letters of special administration with 23PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 the Los Angeles County Superior Court, initiating in re Estate of Michael Joseph Jackson, Los Angeles County Superior Court Case BP 117321 (“the Probate Case”), On June 29, 2009, in an ex parte proceeding, the Court appointed Katherine Jackson as special administrator with limited powers, Michael Jackson had executed a will in 2002 that named John Branca and John McClain as his executors. On July 1, 2009, Mr. Branca and Mr. McClain filed a petition to probate the will and a petition for appointment as co-special administrators of the Estate. Katherine Jackson opposed the appointment of Mr. Branca and Mr. McClain, At a hearing held on July 6, 2009, the probate court appointed Messrs. Branca and McClain a co-special administrators of the Estate, with limited powers as set forth in the Order and letters of special administration, neither of which was signed by the probate court until the week after the hearing due to disputes regarding the terms of the order. Under the Order, Messrs, Branca and McClain could not enter into any contracts with respect to the Estate or its businesses without approval by the probate court. At the time of their appointment, Messrs. Branca and McClain were faced with an estate that was strapped with debt and was perilously close to bankruptcy. It owed approximately $500 million in debts. Prior to Michael Jackson’s death, AEG had advanced over $35 million for production costs for the This Is It tour and Michael Jackson personally, all of which it claimed was owed by the Estate. The Estate had to service the $300 million debt secured by Michael Jackson's interest in Sony/ATV, with interest of 5.792%, and the debt secured by Mijac, with interest on the $30 million first lien cash pay note of 6.9% and interest on the $40 million non-cash pay note of 16.5%, Servicing the interest alone on the debt secured by the interest in Sony/ATV and the Mijac assets required in excess of $27 million a year in interest payments. The Jackson family home on Hayvenhurst was part of the Estate and secured over $4 million of debt. It was where Mrs. Jackson and Michael's three children lived. The loan was in default and foreclosure proceedings were imminent. There were also past due utility bills, There was virtually no cash on hand and almost all of his income went to service the debts secured by the Mijac music catalog and the interest in Sony/ATV. Mr. Branca, Mr. McClain, and their advisors were contemplating liquidating the assets as there seemed few other alternatives, Following the July 7, 2009, memorial service for Michael Jackson, Mr. Branca and Mr. McClain began discussions with Randy Phillips and other representatives of 24PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO, 17152-13 AEG about whether there was a way to generate funds from use of the footage from the This Is It rehearsals. Initially they discussed a possible pay-per-view television show. During discussions, AEG claimed that it owned the footage and could exploit it without the Estate's consent. The Estate disputed this claim. AEG recognized, however, that it Could not use the music without the Estate’s consent and that the music was essential for any film using the footage. Because the opportunity to capitalize on the interest generated in Michael Jackson by his death would be lost if ownership of the footage was litigated, AEG and the Estate entered into an amendment to the tour agreement between AEG, The Michael Jackson Company, LLC., and Michael Jackson (“AEG Amendment”), which was subject to Probate Court approval. The Estate and AEG began discussions with several studios, including Fox, Paramount, Universal and Sony. This led to a bidding war. Sony, which controlled the masters, submitted the highest bid for the right for its Columbia Pictures division to create a documentary-type film using Michael Jackson’s music, the rehearsal footage and other footage. By the end of July 2009, the Estate, AEG, and Columbia Pictures had reached an agreement, memorialized in a term sheet, to make a film using the rehearsal footage. The deal was contingent on the Probate Court approving both the term sheet and the AEG Amendment. Initially, Mrs. Jackson objected to all of the agreements. After she withdrew her objection to the Columbia Pictures deal, the Probate Court approved the term sheet. Mrs, Jackson, however, continued to oppose the approval of the AEG Amendment. Since implementation of the Columbia Pictures deal was contingent on approval of the AEG Amendment , a film could not be made unless the Court approved the AEG Amendment. After discovery and a full day evidentiary hearing on August 21, 2009, the Probate Court approved the AEG Amendment. Over the next two months, the Estate, AEG, and Sony/Columbia worked to create a film that could be exhibited commercially. Kenny Ortega, who had been the director of the This Is It concert series, was selected to direct the film. Dozens of hours of rehearsal footage had to be reviewed and edited, together with other footage. ‘The rehearsal footage was raw, having been shot with a hand held camera; commercial release had not been anticipated. Due to the poor sound quality of the rehearsal footage, Michael Jackson’s master recordings were used for much of the music, It was uncertain whether a commercially viable film could be produced, or that it would be favorably received by 25PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 the public. At the insistence of the Estate, the film was titled “Michael Jackson’s This Is 1K.” The film opened on October 28, 2009, to rave reviews. The film focused the public on Michael Jackson the artist. This began the rebranding of Michael Jackson. In late August 2009, Mr. Branca was contacted about possible interest in a Cirque du Soleil (“Cirque”) “show highlighting the music of Michael Jackson.” In September 2009, Mr. Branca travelled to Montreal, where he met with Daniel Lemarre of Cirque and began preliminary discussions to create a Cirque show using Michael Jackson’s music. A memorandum of understanding for a Las Vegas resident show was executed in April 2010. Formal paperwork was completed in September 2011, made effective as of December 7, 2010, for the creation of a touring show using Michael Jackson’s music. The show, Michael Jackson THE IMMORTAL World Tour, cost upwards of $60 million to produce. The Estate worked closely with Cirque in the creation of the show. It premiered in October 2011. As described in a Cirque press kit, Michael Jackson THE IMMORTAL World Tour “is a once-in-a-lifetime electrifying production that combines Michael Jackson's music and choreography with Cirque du Soleil creativity to give fans worldwide a unique view into the spirit, passion and heart of the artistic genius who forever transformed global pop culture.” Michael Jackson THE IMMORTAL World Tour ended in August 2014, In June 2013, Cirque premiered Michael Jackson: ONE, a Las Vegas resident show at the Mandalay Bay Resort. The show is is an immersive musical experience created by Cirque du Soleil and the Estate of Michael Jackson. It is a fusion of acrobatics, dance and visuals that reflects the showmanship of Michael Jackson, immersing the audience in the world of Michael Jackson's music. It is driven by Michael Jackson's music. The cast includes four Cirque du Soleil performers who appear as “misfits” who set out on a journey into Michael Jackson’s music. The characters are not based on Michael Jackson. Both Cirque shows were successful. ‘The Preparation of the Form 706 The Estate retained the national accounting firm of Crowe Horwath to act as the accountant, including for purposes of preparing the estate tax return (Form 706). It retained the Salter Group to value Michael Jackson's interest in Sony/ATV (held through 26PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 NHT I and the MJ-ATV Publishing Trust). The Salter Group had previously valued Sony/ATV. Based on its analysis of the information available, the Salter Group determined that the value of the Estate’s half interest in Sony/ATV after minority and marketability discounts was $273,265,000, while the debt secured by the interest was $303,379,000, resulting in a net value of zero. The Estate retained the national accounting firm of Moss Adams to value Mijac (held through NHT II), Michael Jackson’s name and likeness (i.e., post-mortem tight of Publicity, or “ROP rights”) and other assets, Moss Adams had previously valued Mijac Music for Bank of America. To value Mijac, Moss Adams used revenues for the four years prior to death to calculate the value, taking into account a post-death spike in income from Michael Jackson compositions, tax affecting and adding back the benefit of amortizing the value of catalog rights over 15 years. This resulted in a value of the Mijac catalog of $70,680,000. After deducting the net debt secured by the catalog, the value of NHT Ill (Mijac) was determined to be $2,207,351. For purposes of valuing Michael Jackson’s right of publicity, Moss Adams considered the fact that he had minimal earnings from his right of publicity in the years prior to death, that his scores on the Davie Brown Index? prior to death for appeal, aspiration, endorsement, breakthrough and trust were far lower than other well-known musical celebrities, that he was plagued by “self image issues, erratic behavior, drug addiction, and lingering doubts about the sexual abuse charges” and that despite considerable efforts, he had been unable to procure any endorsement deals before death, This led Moss Adams to conclude that despite the popularity of his music, “Michael Jackson had lost his credibility with the public and had done irreparable damage to his likeness” as of the date of death. Declining to speculate on what might happen following Michael Jackson’s death, Moss Adams valued his right of publicity at $2,105, The values determined by the independent appraisers were reported by the Estate on its Form 706. The Estate’s Form 706 was timely filed within the extended due date. Itreported a total taxable estate plus adjusted taxable gifts of $7,026,436, and a tentative *The Davie Brown Index and Q scores are two metrics widely used in the marketing, advertising, media and public relations industries to determine the familiarity and appeal ofa celebrity, The Davie Brown Index quantifies consumer perceptions of a number of celebrities. There are Q scores for a number of categories, including celebrities, sports figures, television shows, and cartoon characters. 27PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 tax of $3,042,696. With gift tax paid plus the unified credit, the Form 706 reported net estate tax of zero, The Audit of the Estate’s Form 706 and Subsequent Proceedings The IRS audited the Estate’s Form 706. As a result of the audit, a statutory notice of deficiency was issued, proposing total adjustments of $1,125,006,867, a deficiency of $505,142,894 and an accuracy-related penalty of $196,910,310. All adjustments relating to valuation were settled with Appeals, other than the values of NHT I (Sony/ATV), NHT III (Mijac Music) and the post-mortem ROP rights. The adjustments proposed in the notice of deficiency for the three assets whose values remain in dispute were: Description As Reported As Determined Image & likeness $ 2,105 $434,264,000 Interest in NHT IT (Sony ATV) -0- 469,005,086 Interest in NHT IIT (MIJAC) 2,207,351 60,685,944 Based on the valuations of his current appraiser, respondent now asserts that these three assets had the following values as of the date of death: Description Determined As Revised Image & likeness $434,264,000 $161,307,045 Interest in New Horizon Trust II 469,005,086 206,295,934 Interest in New Horizon Trust III 60,685,944 114,263,615 28PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 Respondent thus now claims that the combined date-of-death value of the three assets that remain in dispute is approximately $481 million rather than approximately $963 million as asserted in the notice of deficiency. BRIEF S PSIS OF LEGAL AUTHORITIES: Petitioner’s position is summarized as follows. Burden of Proof This case is appealable to the Ninth Circuit. Under Golsen v Commissioner, 54 T.C, 742 (1970), this Court should follow the law in the Ninth Circuit regarding the burden of proof. Under established Ninth Circuit case law, where the respondent changes the value of an asset from the amount shown in its notice of deficiency, the burden of proof shifts to respondent at trial. See Estate of Simplot v. CIR, 249 F.3" 1191, 1193 (9% Cir. 2001); Morrissey v. CIR, 243 F.3" 1145, 1148-49 (9" Cir. 2001). In cases appealable to the Ninth Circuit, this Court has recognized that respondent has the burden of proof where it changes the value of an asset from the amount asserted in the notice of deficiency. See Chapman Glen Ltd. v. Comm'r, 140 T.C. 294, 314-15 (2013) (“[T]he presumption of correctness that attaches to a notice of deficiency is forfeited where the Commissioner adopts a litigating position different from the valuation stated in a deficiency notice.”). Under Internal Revenue Code §7491(c), respondent has the burden of proving penalties. Thus, respondent should have the burden of proof on all issues at trial. The Estate Tax Internal Revenue Code § 2001(a) imposes a tax “on the transfer of the taxable estate of ... decedent.” The estate tax is not “levied upon the property of which an estate is composed. It is an excise imposed upon the transfer of or shifting in relationships to property at death.” United States Trust Co. v. Helvering, 307 U.S. 57, 60 (1919). Because the estate tax is on the transfer of property at death, the property to be valued is the interest transferred at death, "rather than the interest held by the decedent before death or that held by the legatee after death." Propstra v. United States, 680 F.2" 1248, 1250 (9th Cir, 1982). Thus, the property is valued at the moment of death, taking into account the fact of death. See Ahmanson Foundation v. Commissioner, 674 F.2™ 761, 767 (citing 29PRETRIAL MEMORANDUM FOR PETITIONER DOCKET No. 17152-13 United States v. Land, 303 F. 2" 170, 171-75 (5" Cir, 1962), for the proposition that it is “undisputed that that value is to be determined at the moment of death.”). For estate tax purposes, every item of property is valued at fair market value, which “is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.” Treas. Reg. § 20.2031-1(b). The willing buyer and willing seller are presumed to be hypothetical parties; that is, parties who are “envisioned as disembodied actors free from the passions and other personal characteristics of the owner of the property being valued and, if the most likely buyer can be identified, unaffected by the latter's special characteristics." Bittker & Lokken: Federal Taxation of Income, Estates, and Gifs, § 135.1.2 "Governing Standard-Willing Buyer, Willing Seller" (WG&L); see also Simplot Est., supra, 249 F. 3" at 1195; Rev. Rul, 59. 60 (“the hypothetical buyer and seller are assumed to be able, as well as willing, to trade and to be well informed about the property and concerning the market for such Property.”). With these general principals in mind, we discuss each of the assets whose value remains in dispute. Tax Affecting The Estate's three valuation experts, Alan Wallis, Jay Fishman and Owen Dahl, used tax affecting in determining value under the discounted cash flow method, In Gross v. Commissioner, T.C. Memo 1999-254, and subsequent Tax Court cases following the holding of Gross, the Court declined to tax affect because the Court found that the taxpayers failed to provide evidence and argument that tax affecting was appropriate. See Gallagher v. Commissioner, T.C. Memo 2011-148 (tax affecting not allowed because, “[a]bsent an argument for tax affecting ... we decline to do so...."); Dallas y. Commissioner, T.C. Memo 2006-212 (explaining that “[w]hether tax-affecting applies furs on valuation principles including consideration of the hypothetical willing seller and buyer, the experts, and the specific facts of the case.”). Nancy Fannon will present evidence that tax affecting is necessary, Ms, Fannon’s report provides a factual foundation for the necessity of taking owner-level taxes into account in valuing assets that do not pay an entity-level tax, explaining that in all events, the income taxes paid by the owner (hypothetical buyer) of the asset on the eamings of 30reer PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 the asset must be taken into account in a cash flow analysis and that if the hypothetical buyer would not pay additional capital gains or dividend taxes on these earings, an appropriate adjustment to the cost of capital should be made. This analysis and supporting evidence provides the foundation for the Estate’s experts’ decision to tax affect in their discounted cash flow analyses. It is the type of expert analysis that the Tax Court was lacking in prior cases to support tax affecting in a discounted cash flow analysis of an asset that does not pay entity level tax. Sony/ATV ‘At trial, petitioner will offer into evidence the report of Alan Wallis. Mr Wallis, leads the Media & Entertainment team within Emst & Young London’s Valuation & Business Modelling (“V&BM”) practice. He has over 33 years’ experience valuing media assets. He established the music valuation practice for EY in London and works with music publishers and record companies (large and small), artists and their managers, the banks that provide debt financing for music assets and music lawyers. He has been appointed as a valuation expert in a number of music related disputes. He has testified in the UK High Court as an expert, including for Sir Paul McCartney in Sir Paul’s divorce case regarding the value of Sir Paul’s business interests, Mr. Wallis determined the enterprise value of Sony/ATV, recognizing that it was an operating business that was young in relation to other major music publishing companies, such as Warmer Chappell and Universal Music Group, and was in an expansionary phase. It had acquired the Acuff-Rose catalog for $157 million in 2002, the Lieber & Stoller catalog for $45.8 million in 2007, and Famous Music, a music publishing company, for $370 million, in 2007. Thus, in the seven years preceding the valuation date, Sony/ATV had spent over $570 million in pursuit of its stated goal of growth. It also expended funds to find and nurture new talent. Mr. Wallis applied both a discounted cash flow approach and a market multiples approach to arrive at an equity value for Sony/ATV. Based on the discounted cash flow approach, he determined the enterprise value of Sony/ATV at the date of death had a range of between $800 million and $1,050 million. Based on the market multiples approach, he determined a range of values of between $800 million and $1.1 billion Because Sony/ATV controlled the Lennon/McCartney catalog, he attached a premium to Sony/ATV and concluded that the enterprise value was $1.1 billion. a1PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 Mr. Wallis concluded that the value of the Estate's interest in Sony/ATV was zero, computed as follows: Inmilllions Concluded Enterprise Value Sony/ATV $1,100.00 Less: Sony/ATV Debt (692.10) Less: Off balance sheet debt (66.10) Plus: Sony/ATV Cash 116.20 Plus: Off balance sheet cash 62.73 Less: Class B Interest 80) Concluded Equity Value, 100% (Control, marketable) 508.00 Value of MJ's stake pre discounts: Value of 25% 127.00 Value of 25% (subject to Purchase Option cap of $242.1m) 127.00* 254.00 Less: DLOM20% (50.80) Less: DLOC15% (38.10) Value of MJ's stake post discounts 165.10 Less: New Horizon Debt (net of swap and cash) (304.30) Net value of interest ($139.20) Respondent's expert for all three assets is Weston Anson of Consor. Mr. Anson in his report determined the value of the half interest in Sony/ATV as $206,295,934, Mr. Anson arrived at his value by ignoring that Sony/ATV is an operating business. Instead, he treated it as a mere catalog of copyrights. Mr. Anson used “Net Publisher's Share,” a trade custom more appropriate to value a music catalog or a small music publishing enterprise, rather than EBITDA, which is the generally accepted business valuation approach for a large operating business such as Sony/ATV. Mr. Anson ignored ‘management plans and forecasts for catalog acquisitions, capital expenditures, working capital and talent costs. When looking at comparable sales, Mr. Anson looked to sales of small music catalogs and ignored the one sale of a comparable business, EMI, that * In specified circumstances, SMP has an option to purchase 50% of NHT Il’s interest in Michael Jackson’s membership interest (i.e. 25% of Sony/ATV) for an “Option Price” equal to the greater of an amount determined under a specific formula. Since the value of one-half of Michael Jackson’s interest prior to discounts was less than this amount, the purchase option was inapplicable. 32PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO, 17152-13 occurred in 2011. Additionally, Mr. Anson did not provide for any discounts and did not tax affect. As summarized by Mr. Wallis in his rebuttal report, the key differences between his valuation and that of Mr. Anson are: Tem Te Arson ‘ie. Walle ‘General and Background Understanding the business Treats the business as ifit wore a of SonyiATV catalogue of copyrights 2 ~~ ~SonyiATV is one of the four music publishing majors. The activties are broader than a catalogue and recent “releases” and “new music" represent a Significant part of the business. ‘The worst of the recession had come and Sergemnecememe Snead ho ooo er a0 as ae Semis ‘The economy was stil weak and significant isks remained Recognises the reslience of music Publishing but doos not ignore the ‘background of (a) the ferment in the Indusity folowing digitalisation and significant dectine in sales of physical Ds that was ongoing; and (b) the impact recession was heving on syne income The state of the music Considers there to be an active acquisition industry market Methodsiogy — — = : = Generally accepted that music publishing Fo" @ mejor musie publishing business it arket approac ciogues are aed ore eal tt"® is appropriate to adopt a musiple of a ree ee yame eee! 1 eSrInA ereece ape sree — Sense check Considers @ nuriber of salir catalogue tions around the valuation date: but ally excludes EMI as a “distressed ‘The most relevant transaction is the sale Cf the music publishing business of EMI to Comparable transactions Hansa a the Sony-ted consortium ‘Management's mid-range plan musi be the starting point and then review the ‘assumptions underpinning those figures Relies on Sony/ATV's historic fnancials Fears Mormation: a prject LTM result end trwcae! cooh Forecasts me Ferg roger Induct reeate Income approach: Astunos saunas repressing 5.04 on Managomannc eecrce Catalogue acquisitions ___ approximately 8% of NPS each year _B@8ed on Managements forecast incom Proides fr no capex in forecasts‘ ased on Managomont’s forecasts Income approach; Working No allowance fr required working capital = capital & wiomt coe "9 and calcitesslowance kr llr cota Based on Managemonts reaste PI 28 a percentage of historic NPS. _ 'ncome approach: Terminal 3.2%, apparently based on histone 2 1%, based on forecast longterm ination ination Elective tax rato of 39.615% consistent with a C Corporation based in New York ‘Discount for lack of marketability: 20% Discount for lack of control: 15% ‘AS a Delaware statutory trust is not Subject to income tax. No deduction for {ax is necessary No discounts are required 33PRETRIAL MEMORANDUM FOR PETITIONER DockeT No. 17152-13 Mr. Anson’s deficiencies can be highlighted by his treatment of acquisition costs. In his analysis, he projected that Sony/ATV would have acquisition costs of $15.98 million jn the year ending June 30, 2010, growing slowly each year thereafter. Mr. Anson ignored historical annual acquisition costs by excluding costs for 2007 (Lieber & Stoller and Famous Music, with a combined cost of approximately $415 million). Based on management forecasts, acquisition costs were projected at $50 million a year, Similarly, Mr. Anson did not project any cost for capital expenditures or for talent costs (which he concedes exceed $13 million a year), even though these costs were inherent in Sony/ATV’s stated goal of growth, a goal that allowed it to become the world’s largest music publishing company several years after Michael Jackson's death, Mr. Anson’s many deficiencies make his valuation report unreliable. After taking into account the debt owed by NHT Il, the Estate correctly valued Michael Jackson’s interest in Sony/ATV at zero. Post-Mortem Rights of Publicity 1. Scope of the Right of Publicity Includible in Michael Jackson’s Gross Estate A threshold issue for this Court is whether a decedent’s right of publicity is property owned by the decedent that is includible in his gross estate under Internal Revenue Code Section 2033 and, if so, the scope of the property right. This is an issue of first impression for the Tax Court, which has not previously addressed whether a decedent's right of publicity is an asset includible in the decedent’s gross estate. This issue goes beyond just the case at hand. Public policy concems arise from an overly expansive interpretation of this property right or from an inflated valuation of this property right, with estates potentially facing liquidity issues from being unable to monetize this right in accordance with the IRS’s valuation or heirs being faced with having to potentially commercially exploit the name and likeness of their deceased loved one in a manner that infringes on the integrity of the decedent. This issue has come to a head with the Government's lodging of a report by Weston Anson, “Supplemental Report; Valuation Analysis of the Fair Market Value of Various Assets Controlled by the Estate of Michael Jackson as of June 25, 2009,” dated January 30, 2017. Mr. Anson explains in this report that he has valued Michael Jackson’s right of publicity by taking a more expansive view of the right of publicity than provided 34PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 under California Civil Code Section 3344.1, which is the statute that creates a descendible property right in the decedent’s post-mortem right of publicity. Mr. Anson's report attaches an “Expert Report of David Nimmer,”* Respondent's legal expert, which details his view of what the right of publicity encompasses. Mr. Nimmer’s Expert Report details potential income that he believes a holder of a decedent's right of publicity could derive that goes well beyond any descendible legal rights that Mr. Jackson owned at the moment of death. Respondent is purporting to value this property right by including income streams that do not derive from Mr. Jackson’s property right under Section 3344.1, by including in a discounted cash flow analysis income streams that Respondent's expert believes a holder of such rights could extort from somebody who wanted to use the right of Publicity in a manner that falls under an exception covered by California Civil Code Section 3344.1(a)(2) (what we have previously referred to as the “Creative Works Exception”), by filing or threatening to file frivolous litigation to stop the use of the decedent's right of publicity. Any such money coerced by a license holder out of threat of frivolous litigation or paid to a license holder out of fear of frivolous litigation is a transaction separate from and not attributable to income eamed from the property right held by the decedent at his moment of death and includible in his gross estate becauseit would be paid due to the threat of a frivolous lawsuit rather than because of any legal right of the owner of the right of publicity. Moreover, Respondent is attributing value to rights Respondent's legal expert even concedes did not exist on Mr. Jackson’s date of death, but that he speculates might exist at some future time and could cause somebody to pay money to the holder of a decedent's right of publicity to obtain their consent to avoid that possibility. For example, while admitting that on his date of death, Mr. Jackson did not have a common law post-mortem right of publicity, Mr. Nimmer speculates that the law might change in the future to create one and includes income attributable to that possibility. Similarly, without identifying specific jurisdictions that create a more expansive post-mortem right of publicity property right that would be includible in Mr. Jackson’s gross estate under ‘Petitioner intends to file a motion to strike the supplemental expert report of Weston Anson (Consor) filed on January 31, 2017, for failure to follow the pretrial order relating to the disclosure of expert witnesses and the Court’s ruling regarding legal expert witnesses based on the inclusion of Mr. Nimmer’s “Expert Report.” 35PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 Section 2033 (and that would not run afoul of the First Amendment), Mr. Nimmer speculates that somebody may pay money to the holder of a decedent's right of publicity to avoid the risk that another state law or an international law might provide additional Protections. In addition to violating the Ninth Circuit rule in Estate of Simplot v. Commissioner, 249 F.3" 1191 (9th Cir. 2011), against speculating about imaginary scenarios, the Government’s approach goes beyond the property right includible in Mr. Jackson’s gross estate under Section 2033. Petitioner anticipates the Government will emphasize the unprecedented success that the executors Mr. Branca and Mr. McClain have been able to create for Mr. Jackson's Estate after his death—income on which the Estate has paid substantial income tax—in support of their grossly inflated right of publicity valuation. The question before the Court is not what the executors have been able to accomplish after Michael Jackson's death, but instead what is the fair market value of Mr. Jackson's post-mortem right of publicity property right at the moment of his death. The value must be limited to the value of the actual legal rights transferred at the moment of Mr. Jackson’s death. The right of publicity is the right of an individual to control the commercial use of his identity. A person’s right of publicity is determined by the law of the state where the person was domiciled when he died. Milton H. Greene Archives, Inc. v. Marilyn Monroe LLC, 692 F.3 983, 986 (9" Cir. 2012); Cairns v. Franklin Mint Co., 292 F.3 1139, 1149 (9th Cir. 2002); Rogers v. Grimaldi, 875 F.2" 994, 1002 (2d Cir. 1989). Because Michael Jackson died domiciled in California, California law determines the extent of his post-mortem right of publicity. The right of publicity developed out of the right of privacy. In Lugosi v. Universal Pictures, 25 Cal. 3 813 (1979), the California Supreme Court held that the right dies with its subject, and post-mortem uses of a person’s identity are not actionable. In response, the California Legislature enacted Cal. Civ. Code §3344.1 to create a statutory Post-mortem right of publicity. This right applies to uses of “a deceased personality’s name, voice, signature, photograph, or likeness.” Consistent with the First Amendment, §3344.1(a)(2) provides that the post- mortem right of publicity does not cover any “play, book, magazine, newspaper, musical 36PRETRIAL MEMORANDUM FOR PETITIONER DOCKET NO. 17152-13 composition, audiovisual work, radio or television program, single and original work of art, work of political or newsworthy value, or an advertisement or commercial announcement for any of these works ... if itis fictional or nonfictional entertainment, or a dramatic, literary, or musical work.” Federal copyright law gives copyright owners the exclusive right to exploit and license their works. Federal copyright law preempts any state-law right of publicity Purporting to take away what the federal right grants. Generally speaking, a right of Publicity claim cannot be maintained where the defendant simply used a copyrighted work, under license from the copyright owner, unless the use was in a commercial advertisement. Thus, in Dryer v. NFL, 814 F.3" 938 (8th Cir. 2016), former NFL players sued NFL Films, claiming that NFL football videos infringed their right of publicity. The Eighth Circuit held that the players’ claim was preempted. In so holding, the Court noted that the Copyright Act protects video recordings of athletic performances. Jd. at 942. The copyright in any such video is secured to the videographer or the videographer’s employer, not to the people being recorded. Garcia v. Google, Inc., 786 F.3 733, 741 (9th Cir. 2015). The Dryer court thus held that the “right-of-publicity claims challenge{d] a ‘work . . . within the subject matter of copyright.” Dryer, 814 F.3" at 942. The Dryer court further held that “[wJhen a right-of-publicity suit challenges the expressive, non-commercial use of a copyrighted work,” it impermissibly “seeks to subordinate the copyright holder's right to exploit the value of that work to the plaintiff's interest in controlling the work's dissemination.” /d. at 943. Such a suit therefore “asserts rights equivalent to ‘exclusive rights within the general scope of copyright’ and is preempted by copyright law.” Jd. “Because the films represent speech of independent value and public interest rather than advertisements for a specific product, the NFL's economic motivations alone cannot convert these productions into commercial speech.” Id. at 944, Use of the right of publicity in an attempt to block the copyright-licensed use of one song in another (i.e., sampling) “challenges control of the artistic work itself and could hardly be more closely related to the subject matter of the Copyright Act.” Laws v. Sony Musie Entm't, Inc., 448 F.3" 1134, 1142 (9th Cir. 2006) (finding preemption in such a case, and distinguishing “photographs used in advertising,” id, at 1141, as to 37