The term “investing legend” gets thrown around a lot, but in the case of Carl Icahn, it truly fits. He kicked off the modern era of corporate raiding by taking influential stakes in many companies and forcing changes to his personal advantage. In some cases (e.g., Trans World Airlines) this involved taking over and dismembering the firm, and selling off the pieces. He is considered by some measures to be the most successful “activist” investor ever. His personal wealth is (or was) on the order of $20 billion.
Icahn has rolled much of his personal holdings into a limited partnership called Icahn Enterprise L.P. (IEP). According to its blurb, “…Icahn Enterprises L.P., through its subsidiaries, operates in investment, energy, automotive, food packaging, real estate, home fashion, and pharma businesses in the United States and Internationally.” This partnership structure allows Icahn to cleverly avoid paying income taxes on the earnings from his enterprises. Another score for the old wolf.
This arrangement has also allowed us mere mortals to nibble on the crumbs from his table. IEP has paid a very large and growing dividend for more than ten years. Since 2019 it has paid $ 8.00 per year ($2.00 per quarter). This generous payout has made it popular among retail investors and has kept the price of IEP steady in the $50-$55 range for a number of years. This gives around a 15% yield.
It has always been understood that IEP does not actually generate enough cash to pay out $2.00 per quarter on every share, but since “Uncle Carl” owns some 82% of the shares and takes all his dividends in stock (again, to beat the taxman), it has all worked out. That is, until the past month, when IEP was the target of a “short attack” by the ominously-named Hindenburg Research. A short attack is when some outfit takes a short position in a stock, then publishes a report claiming all sorts of misrepresentation and malfeasance on the part of management, to scare the public into dumping the stock. The attacker pockets a tidy profit on their short position when the stock price tanks. Then on to the next victim.
Often, there is not much actual substance to a short attack, but in the case of IEP Hindenburg had something of a real case. Their claim is that the actual net asset value (NAV) of IEP is way, way below $50 / share, and even lower than the NAV officially reported by IEP. Hindenburg made lots and lots of other dire accusations, describing IEP’s operation as a giant Ponzi scheme. Ouch. Also, it seems Icahn has actually lost his mojo in the past decade (he is 87), making several market bets that went sour and lost billions. Anyway, some of Icahn’s old victims are not sorry to see the former shark being mauled by tactics similar to those he once employed.
The IEP stock price quickly dropped from 50 to 30 when the short report came out, then rallied back to about 36 after Icahn gamely announced that the usual $2.00 dividend was still going to be paid (stock chart below). That is where I sold about half my IEP shares to de-risk my position (disclosure: I had bought a very small amount before the Hindenburg report). The price then meandered around in the low 30’s for a couple of weeks, then started to slide down again.
Share price for Icahn Enterprises L.P. (IEP). Source: Seeking Alpha.
Icahn made numerous enemies in his career, including fellow corporate raider Bill Ackman. Icahn went very long on a company (Herbalife) that Ackman was heavily shorting, back in the day. One YouTube you can listen to a 2014 CNBC show where they had both called in, where they were hurling very personal insults at each other on the air. Ackman recently piled onto the short thesis for IEP, tweeting that even after the recent fall in price, the shares were still overvalued by at least 50%. IEP shares promptly plunged another 14%, to under $20. Icahn’s response: “Taking advice from Ackman concerning short selling is like taking advice from Napoleon or the German General Staff on how to invade Russia.” Some things don’t change.
When music rights make the news, it’s generally because a superstar’s entire catalog is selling for hundreds of millions of dollars. That may be why I always assumed that buying music rights would be difficult and expensive- that you’d both have to know the right people to even hear about potential deals, and have to be quite rich to afford them.
But this week I found out about Royalty Exchange, a site that currently lists hundreds of music rights for sale. They certainly appear to make the process of finding and buying rights, and collecting royalties, easy (I haven’t bought any yet so can’t say for sure). They currently list songs and partial catalogs from all sorts of artists you’ve heard of:
When I say I find many listings to be surprisingly cheap, I mean this relative to the hundred million dollar deals you hear about. Of those that offer a list price (as opposed to simply asking for offers), the vast majority are over $10,000, and many are over $100,000. Overall I’d put it in the “luxury car” bucket- expensive enough that its a bad idea for a normal middle-class person to buy one, but cheap enough that they could if they really wanted to. It’s a bit of a better idea than a luxury car, since its more investment than consumption. But if I actually bought the Flogging Molly catalog like I want to, I’d be taking an unnecessary risk by putting a large proportion of my net worth in a single investment. Their music is great and I think it will maintain its popularity, but if I’m wrong and people stop listening to it I’d lose out. So, for most people it’s a bad idea in the same way that putting half your retirement account into a single company’s stock is bad idea. But I’m surprised its even possible.
Why are these rights so affordable? Sometimes, of course, its because the artist isn’t that popular. But why are the rights to songs and musicians that are household names affordable? It seems to mainly be because the rights have been sliced and diced so that you’re only buying a small piece of them. Consider Miley Cyrus above. First of all its only the rights to one of her songs (admittedly a hit song). Second, you’re only buying the rights for ten years (lifetime rights are sometimes available but naturally they cost more). Finally, you’re only buying some of the rights, in this case the right to get paid when someone publicly performs the song (but not when someone streams it or buys a copy):
Even given all that though, I’m surprised how cheap the rights are. I expected that people would overpay for them because they like an artist, or for the bragging rights. But the yields seem pretty reasonable, often over 10%. Yields could rise or fall over time as an artist becomes more or less popular, or as the economics of the music industry change, but current prices generally seem justified by the income stream. I look forward to having enough money that this could make sense as an investment for me; I expect I might in 10 or 20 years, but maybe some of you are already there.
The cheapest listing from an artist I’ve heard of, Busta Rhymes (only performance rights, only certain tracks)
Economist Writing Every Day 