Rippling effects from the lack of liquidity

I was sifting through twitter and saw something about a book reading involving the history of Superman and his creators, Jerry Siegel and Joe Shuster. The article mentioned recent court cases, so I did some digging.

Apparently, Jerry Siegel’s heirs won a case four years ago to retain 50% of the rights of Superman. But in a more recent case, the heirs of his partner, Joe Shuster lost due to a huge game changer. Jean Peavy, Joe Shuster’s sister, had struck a deal with DC Comics back in 1992 to pay off her brother’s debts and included receiving $25,000 a year for the rest of her life.

I don’t have all the details, but several disparate things I had heard recently came together in my mind, and I thought I would share them.

Liquidity can help avoid dangerous debts

I have mentioned before how cash reserves can protect from financial disasters. I don’t know the specifics of Joe Shuster or his sister, but I can speculate that if either one had maintained better cash reserves to shield them from hiccups, she never would have panicked and sold off her rights to Superman.

Or look at it from DC’s point of view. If you had the chance to buy 50% of the rights to Superman, an American icon connected with seven movies in the past 30 years that grossed over $1.4 billion at the cost of a little debt and an immediate annuity of $25,000/year for one person, would you do it? Heck yeah! In financial-speak, it’s called a steal.

How much is enough?

I have seen this example several times. If someone could promise you 5x your current annual income at retirement, would you take it? Would you trade in some cash flowing assets for such insurance? It sounds pretty big, right? But do you really know what things will be worth in 30 years?

I have a friend whose family owns a chunk of land down in Mexico. It includes mineral rights. This results in them getting rent payments periodically due to pipelines that run over the property. She has been told by her family to never, ever, EVER sell that land. And that advice is very good. Makes sense, right?

So what might cause someone to sell that land in the future? Tragic, badly managed debts that drives someone to panic. When we panic, we tend to make emotional decisions, not rational and well reasoned ones. We try to stop whatever is causing us to panic no matter the cost.

Thinking ahead

Someone that comes to mind when I think of future rights is George Lucas. When he was pitching the original script for Star Wars, a lot of people didn’t think he had much. He was finally able to get a studio to produce his movie, but he deliberately declined taking a director’s fee in exchange for a lot of rights including merchandise as well as the sequels. Back then, this was relatively unheard of. People that wrote a script and directed a movie didn’t do stuff like that. But George Lucas traded in a lot of immediate payments on Star Wars and instead held onto what would become a boon in intellectual property.

Now let’s be honest. If Star Wars had failed miserably, he probably would be relatively broke, so it was a risk. But because it was a success, George Lucas was able to start reaping an incredible flow of cash from toys, kits, books, future movies, and ultimately selling all of LucasFilm to Disney for $4 billion.

Anytime you have the opportunity to create something, whether it’s a business, a book, or something else, think about how much you can skip now in exchange for more down the road. Can you take a smaller payment in exchange for equity? Can you afford it? Do you have enough cash stored up in the bank to hedge such a risk? Are you taking steps right now to build up your cash reserves making you are prepared for these future opportunities?

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