The Bank of ASCAP: ASCAP Authorizes $25 Million in Personal Loan Guarantees

In its 2009 Annual Report, ASCAP’s auditors have disclosed that the performing rights society has authorized $25 million in personal loan guarantees for members who have loans with financial institutions. ASCAP’s press department did not respond to emails asking how members can apply for the guarantees or how the society determines which members are eligible for the guarantees. Given the current economic climate and the state of the music industry, the personal loan guarantees may represent an important financial benefit for ASCAP members who are seeking bank loans to maintain or expand their careers.

The note from ASCAP’s auditors Ernst & Young, LLP in the ASCAP 2009 Annual Report states:

MEMBER GUARANTEES
The Society has provided guarantees of payment to financial institutions for personal loans provided to certain of its members. Royalty earnings attributable to each of these members are being distributed directly to the financial institutions as part of the loan repayment terms. To the extent that the cash flows of the future royalty earnings are not sufficient to the financial institutions, payment of each respective member loan may be accelerated by the financial institutions and payment would be guaranteed by the Society. The Society would collect any amounts paid as a result of the guarantee through future royalty earnings of the respective member. As of December 31, 2009, the Society authorized up to $25.0 million in guarantees to be made, of which approximately $23.6 million is outstanding. The fair value of the guarantees is not considered to be material.

The ASCAP personal loan guarantee program raises questions including who is eligible for the guarantees, who approves the guarantees, what the appeal process is (if any) if a member is turned down for a guarantee, and what types and amounts of loans are eligible for the personal loan guarantees. Banks and non-bank lenders who offer loans to musicians based on royalty income in many cases charge high interest rates which could be substantially reduced for those members who receive personal loan guarantees from ASCAP.

In a statement to Film Music Magazine, ASCAP board member Doug Wood said, “All three of the PROs [performing rights societies] exist in a highly competitive environment where fractions of a percentage in terms of market share can mean millions of dollars of revenue over the course of a multi-year, industry-wide licensing agreement. To address growing and very serious competitive concerns, the Board, after a lot of deliberation and consideration of available alternatives, approved this program as the best solution at this time. I think the statement contained in the financial report is appropriate, and is about all that can and should be said publicly about this. If ASCAP members want to talk to me about this in my capacity as a member of the Board, they should feel free to do so.”