Stocks, Bonds, Rock 'n' Roll

Donna summer is concerned about rent control. Pink Floyd gets a sinking feeling following every maritime disaster. Peter Frampton is checking attendance at soccer games. And Seals and Crofts are keeping a close eye on the Costa Rican coffee market.

Sound a little off the wall? Welcome to the real New Wave in the music business. It's called business. Elton John has a friend at Chase Manhattan. Paul McCartney is a capitalist tool. And when Linda Ronstadt talks, E. F. Hutton listens.

Yes, it's only rock 'n' roll, but life--and unbelievable amounts of money--in the fast lane has turned antiestablishment / outlaw music heroes into prime candidates for the Fortune 500.

"Ten years ago, artists didn't want to admit they made money in the music business," says Ken Fritz, George Benson's personal manager. "Today, no one's ashamed of the money. Show me a guy in the music business for the 'art' of it," Fritz challenges, "and I'll show you a guy who doesn't have a record deal. Today we're no longer in the music business, we're in the business of music. We deal in bottom lines, just like everybody else. And if we mess up, then the same red ink that gets written at Chrysler also applies to us."

So far, Fritz hasn't blown it. "George Benson is functioning as a mini profit center," he claims. "I've never had a client who retained more of his income before taxes than George." Benson is now heavily invested in residential real estate, precious metals and various types of securities.

But Benson can't even come close to the Doobie Brothers, who are more of a full-service music corporation than a rock group. In 1970, they were a struggling bar band from the student ghetto of San José. But the moment they began to sell records (more than 13,000,000 to date), they started a financial plan. In 1973, they incorporated in San Francisco, California. "We were one of the first rock-'n'-roll groups to start pension and profit sharing within a corporation," boasts manager Bruce Cohn. "And it wasn't just for the members of the band but for everyone who works for the corporation, including the roadies."

Next came real-estate deals. Nearly nine acres in Alameda, California, leased to Volkswagen for its northern state distribution center. Then shopping centers in Texas (since sold), the Pacific Telephone building in San Rafael, California, and a record store and office-building complex in Santa Rosa. Mike McDonald restores brownstones in St. Louis. Patrick Simmons owns an antique-motorcycle shop in Santa Cruz. "We're set for the rest of our lives," says Cohn. "When we started, I thought the Doobies would last five years, maybe. Now the struggle is over. If they want to go play clubs, that's fine--but at least they'll know the rent is covered."

And then some.

No one, though, can touch the likes o£ John Lennon and Paul McCartney. Not content with just one expensive apartment at the exclusive Dakota in New York, John and wife, Yoko Ono (see this month's Playboy Interview), now own five apartments in the mammoth building. Then there are the Long Island and Palm Beach mansions--not to mention the 1000-acre vacation retreat in Delaware County, New York, which Lennon bought in 1978 for a meager $178,000. That's where he raises his registered Holsteins. The Lennons also own a twin-engine Piper Seminole and a 62-foot yacht--presumably to help them get around from property to property.

Because they wrote and kept the publishing rights to most of the Beatles' songs, Lennon and McCartney made more money than fellow band members Ringo Starr and George Harrison. In the music business, retaining the publishing rights to your songs is considered the ultimate investment, because you are supposed to receive a royalty every time your song is performed.

In McCartney's case, there has never been a need to be a one-man band on the run--except to the deposit window. He's not only kept the publishing rights to his own songs but he's invested thousands of dollars and scooped up entire music-publishing catalogs that include the rights to hit songs from Broadway shows and a smorgasbord of standards. In fact, McCartney even owns the rights to songs like On, Wisconsin. Students in Madison may not realize it, but every time the song is performed--at football half-time ceremonies, for instance--a royalty payment is credited to McCartney's account.

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Lennon and McCartney are the lucky ones from the Sixties. When it came to rocking to the big-money beat, few groups from that era have survived, much less prospered. A look at the financial records of once-successful acts such as The Rascals, Blood, Sweat and Tears or The Mamas and the Papas could easily be a depressing experience.

"Success," says Fritz, "is a financial curse for many people in music--because of the sudden money. They may have known all about Dolby, but when it comes to dollars, they didn't know shit."

The Mamas and the Papas' John Phillips moved into Jeanette MacDonald's former mansion the day he got his first royalty check for $65,000. He furnished it with his second check. A few months later, he was out--he couldn't afford it. (In fact, none of the original group has much to show for their efforts today.) And Phillips almost got a look at real estate of a different kind: a furnished jail cell in connection with his drug-sales arrest in New York last summer.

Come and Get These Memories was the tune that took a young $35-a-week Detroit secretary to the top of the charts in 1962. Martha and the Vandellas was a glory name in the Motown dynasty; she recorded seven albums and 11 top-20 hits for the label.

Today you can find Martha Reeves living alone with those memories in a small, dark and cramped one-bedroom apartment in West Hollywood. A few old black-and-white pictures hang on the wall next to a quintet of well-used tambourines. Cardboard moving boxes cover the stained carpet. Martha Reeves is broke. Soon she will have moved from her ninth to her tenth apartment in less than ten years. To say the least, she's not exactly dancing in the streets.

When she left Motown in 1970--or, as she likes to put it, when Motown left her in Detroit to move west--the money stopped. In the process, she had also signed away all her rights to royalties. Then, in 1972, the IRS came knocking. By the time the audit was over, Reeves was in debt to the Feds for more than $250,000--money she claims was actually an advance from Motown against studio and recording time billed to the artist. But records from the company had been lost or misplaced. To the IRS, it was all taxable income.

"The best I could do was to keep from going to jail," she now says. "I finally was able to pay the money over a three-year period. Like a car note. So whenever I think of Motown these days," she laughs, "I think of the Rolls-Royces I could have had."

Soon after the IRS debacle, Reeves had no choice but to declare bankruptcy. "At one time," she recalls, "I had four managers suing me, all for $20,000 each.

"When people ask me where my money went, I can't tell them," Reeves laments. "I still can't imagine what monies are still being made off my voice right now. I'm not receiving any royalties from any company, and I've been on four major labels. I have no investments where I'm recouping any money. So up to now," she sighs, "it's just all been fun, I guess."

Reeves gets an occasional booking these days to appear on "oldies but goodies" shows around the country, but the performances are barely enough to make ends meet. "An artist puts his heart into the words he sings," she likes to say, "and I have become a victim of those words. People hear you sing about a low-down rotten lover and they want to treat you that way. Or they hear you sing about hard times and difficulty and they want to pity you. I have become a victim of my lyrics and bad management of my money. When everything came to a screeching halt, I finally had to accept the fact that I was not as successful as I had been made to seem. I had to look around and see that I had no big returns from what I had put out. My time and my dedication had gone unrewarded. Sure," she says, "people knew of me. But when it came down to life and reality, I didn't have any backing. I never was supported. I've been like a fighter who's been in the ring just swinging his head off and getting hit a lot of times really hard and then being T.K.O.'d and having nobody to drag him back to the corner or wipe his face or give him a cool drink of water."

Now, despite the financial hardships, Reeves says she's on the right track. She is an active member of L.A.'s Mount Zion Missionary Baptist Church, and most of her singing takes place there, where, for the time being, the Gospel royalties are going to God.

A few thousand miles away, in Fort Lee, New Jersey, Phoebe Snow is also probably wondering where it all went. Last April, Snow also filed for bankruptcy, claiming no assets. She's also being sued by her former lawyers, alleging nonpayment of $33,931.28 in legal fees. "It's hard to say what she's doing now," says Robert Prinz, spokesman for the agency that represents her. "She's without a manager at present and we hear from her only about once a week."

"In so many of these tragic cases," says one manager, "it's very difficult to know if the artist wasn't advised properly or whether the artist didn't listen. A lot of these people are broadcasting when they should be tuning in," he says. "Often in this business, people aren't trapped by a lack of money but by too much of it."

Grace Slick has never had trouble handling money. She simply has mastered the fine but rather unproductive art of earning millions while managing to live a hand-to-mouth existence for more than a decade. In her career with the Jefferson Airplane, Jefferson Starship and as a solo performer, Slick recorded more than 16 albums. Today, she lives with her husband-manager Skip Johnson in a small, mortgaged two-bedroom house in Mill Valley and drives an 11-year-old Aston-Martin that's been through three engines.

"We never looked at ourselves as anything more than Bay Area hippies and fuck-offs," Slick now says. "After the Volunteers album, we saw some real money. So everybody got a house. Everybody got a car. And then it went up (continued on page 206)Stocks, Bonds, Rock'n'Roll(continued from page 202) noses, it was inhaled and drunk. We did stupid things," she laughs, "like spending $100,000 on a swimming pool. I gave a Mercedes to one of the people who handled our paperwork. I was real dumb, but then I was almost going to write a song, What Are You Saving It For? I still feel that right now is where it is. But I guess that's not real bright."

At one point, the Starship tried to have a financial plan. "We got together," Slick recalls, "and said, 'Well, this is ridiculous. We should make some investments.' Then this guy came over and said he had a great deal, a trailer park in Arizona. But who cares about a trailer park? Then for about two minutes we were considering buying California bonds. Then everybody went to sleep. I remember, when I was with Starship, Gene Simmons from Kiss was amazed that we didn't pump stuff out at concerts. He said to me, 'Why don't you guys put out belt buckles and comic books? You guys could make $3,000,000 a year just on the junk!' But we couldn't get together on which belt buckle we liked, so it didn't happen. But I have never had a real problem with money," she laughs, "because nothing's a problem if you don't pay attention to it."

Michael Nesmith didn't pay attention to it in a different way. One day in 1966, he saw an ad in Variety. The next day, he was one of the four Monkees, a fabricated rock group backed by Screen Gems to headline a new TV series. In the next two years, the "group" recorded 75 songs, nine albums. Then there was a massive merchandising campaign featuring Monkees T-shirts, Monkees lunch boxes, Monkees buttons and everything short of Monkees condoms. By 1969, Nesmith had made almost $4,000,000 from the show. Two years later, he was $500,000 in debt.

First he bought a 10,000-square-foot Bel Air mansion. Then came a host of expensive cars, expensive trips and outrageous hotel bills.

"The money came so quickly and my lifestyle changed so radically that I developed an incredible overhead without realizing it. I went from paying $300-a-month rent to $2000 a month for a mortgage. The numbers didn't seem staggering at the time," he says, "but what was important were the multiples. I had increased my standard of living by factors of tens. The biggest single problem was that almost no one outside the oil business understands the influx of cash. Because all of a sudden, the influx stops. In my case, I wasn't prepared for it. I had to start telling stories to the tax man as they were putting little red tags on the furniture."

Now, more than ten years later, Nesmith is back on his feet again. He now lives in Carmel with his wife and three children. "I've got an office building, a good stock portfolio and nine acres in downtown Santa Monica." He is also heavily involved in a cable-TV series called Popclips featuring five-minute visual promotions of new record hits.

"Most people in the music business have yet to realize that, with few exceptions, their major income will be shortlived," Nesmith cautions. "You're not looking at $1,500,000 a year over a steady long-term period where you can justify blowing $30,000 a month. You're looking at a five-year run where you may make $5,000,000 and that's all the money you'll make in a lifetime. Aside from drugs, money has to be the biggest single hazard in the industry. If you're going to succeed, you need a basic money-management plan."

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"Nobody was really smart about money in the Sixties," says Shep Gordon, who manages Blondie, Alice Cooper and Teddy Pendergrass. "Nobody was into managing money--only making it. But things are different today. Any one of my acts can stop working and live for the rest of their lives on their investments."

Gordon relies heavily on the advice of Bert Padell, a New York business manager and one of the elite new cadre of specialized money men for entertainers.

Padell's business is booming. He occupies an entire floor of a large office building in Manhattan and boasts a staff of 65. Padell, who likes to tell people he was the first Jewish bat boy for the New York Yankees, now handles more than 200 clients, including Pink Floyd, Foreigner, Elvis Costello, Blondie, The B-52's, The Cars, J. Geils Band and sports stars such as Earl Monroe and Spencer Haywood. Not to mention Faye Dun-away, Ben Vereen and Madeline Kahn.

Despite the long list, Padell offers the personal approach. Every rock group maintains its own office within his offices. "It's not just for their egos," he says. "Many of these guys take an active interest in where the money goes."

When Alice Cooper went to Padell in 1974, he was far from being a billion-dollar baby. In fact, although he had already sold millions of records, Cooper was an Alice in disasterland.

"He didn't have any money," says the 46-year-old Padell. "He had just blown it being nice to people. When he came to me, he didn't even own a house and all his furniture was rented."

All that soon changed. The income and expenses were tightly controlled, and before long, Alice Cooper was in movie tax shelters financing films like Funny Lady, Shampoo and a host of others released by Columbia. Then he got into art, antiques and tax-free municipal bonds. Of course, he's gotten burned occasionally, too: an apartment complex in Minnesota that went bankrupt, an oil venture--and Whiplash, a cosmetics line that went nowhere.

"But at least he had the other investments to offset the losses," says Padell. "As a business manager, I can only lead the people to the water. They don't always listen to me."

One of the recurring problems with some rock stars, he says, has been in reconciling their cash flow with their cocaine flow. One business manager jokingly likes to call this the "deviated septum" factor. But to Padell, it's no laughing matter, especially when it comes to the money. One major artist's cocaine bills are currently driving his business manager to drink. "We looked at the figures and couldn't believe them," the manager says. "Then we added again. Five thousand dollars a day! I Some days fifteen thousand! The guy is very wealthy, but these are real dollars he's spending and it's gotten out of control. The guy is now beginning to sell off assets to support the coke. It's crazy. And he'll be the guy who cries foul when he's got nothing; but the bottom line is that he's ripped himself off."

"My phone is constantly ringing," Padell laments, "with calls from stars who want me to manage their money after they've lost it. It's too bad sometimes. But if we can get in there early enough, we can often save them."

A few blocks away, the phones are also ringing for David Krebs. He is only 40, but rock 'n' roll made him middle-aged crazy at least eight years ago. Along with partner Steve Leber, Krebs runs one of the more successful music-management firms in the country. What keeps him going isn't just the records or the concert tours but the brave new world of tie-ins--mail-order merchandise, posters, T-shirts and tour books on the stars he manages.

Krebs runs a high-energy office to support all of these ancillary projects, and the only thing relaxed about his operation is the small green-fabric alligator resting comfortably above the pocket on (continued on page 264) Stocks, Bonds, Rock'n'Roll (continued from page 206) his blue short-sleeved shirt. "There's no such thing as middle-class rock 'n' roll," he says between phone calls. "Either you're rich or you're poor."

Most of the acts he manages are rich--1,000,000-plus sellers such as Aerosmith and AC / DC. Some are even richer--such as Ted Nugent. The 32-year-old Michigan native can boast two gold and five platinum albums, but that's just the past. The future, according to Nugent and his advisors, is agribusiness.

It may have taken him some long, hard years to finally make it to the cover of Rolling Stone; but it took only a few short months for Nugent's face to adorn the cover of another magazine: Fur Rancher. Fur Rancher? That's right, all you semiaquatic-animal lovers. Ted Nugent is heavily into mink.

Two years ago, on the advice of his attorney and financial advisor Bob Weed, Nugent bought the King Mink Ranch in Michigan. Not only does he raise thousands of the furry animals (his operation will sell more than 10,000 pelts this year) but the 80-acre ranch is also the site for Nugent's Clydesdale operation. Beer drinkers everywhere will be delighted to know that Budweiser will have no problems now that Nugent also raises the big-footed draft horses.

And if that isn't enough, not far from East Lansing is Nugent's rainbow-trout-farm operation. "All of this fits in with Ted's plan for acquiring land," says Weed, a former criminal lawyer who has advised Nugent for the past eight years. "Sure, we're involved in some oil-and gas-lease tax shelters, but when I tell him about property, that's something he understands.

"Besides," Weed argues, "Ted's got the cash to get involved in this kind of specialized farming without being confronted with the tremendous debt service that has ruined so many other farmers. It also allows him to have his expenses offset income."

At least on paper, the Nugent agribusiness is at present a losing operation, thanks to accelerated depreciation and tax investment credits on feed, buildings and animals. Then there are some Nugent over-the-counter investments. He is, for example, a limited partner in the building of the new Flint, Michigan, Hyatt Regency Hotel, to be opened later this year.

"Within a year," boasts manager Krebs, "Ted will be financially protected for the rest of his life. But I guess it won't do great things for his image if his fans find out he reads The Wall Street Journal instead of Creem magazine every morning."

Krebs has even bigger plans for his artists. "I want to take three or four of my acts and start our own mutual fund," he says. "Can you imagine the possibilities? It will be enormous."

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Group investments for rock stars have become very popular among business managers who want their clients to diversify and spread their financial liability. Then again, some group investments sound great on paper--but don't always work out according to plan.

Enter the Lutine bell. It is not a musical instrument. It hangs in the underwriting room of Lloyd's of London and is one of the few salvaged items from the frigate Lutine that went down with all hands off the Dutch coast in 1799.

By tradition, every time there is a big shipping disaster involving a Lloyd's client, the chief clerk walks into the underwriting room and rings the bell.

Lately, the old Lutine bell has been clanging off the wall. A $340,000,000 computer-leasing company loss, a host of airplane crashes and the mysterious disappearance in November 1979 of a freighter and its cargo of iron ore with an insured value of $19,000,000 have all combined to give the venerable British company a whopping loss. This information does not please Pink Floyd. You see, the rock group belongs to an underwriting syndicate at Lloyd's and, as such, the losses, as well as the gains, are divided. And while the group refuses to talk about its investments, the word is that it will soon be out of its insurance deal before the group is forced to become Floyd's of London.

But the group investments that have paid off have almost always been directly tied to real estate. And almost every major rock group, including Pink Floyd, can boast some major real-estate partnerships. Donna Summer and some two dozen partners own a 226-unit apartment complex in Houston and another 216-unit operation in Dallas.

"It's a proper investing approach," says one business advisor, "because it gives the artist diversification and flexibility. If the units go belly up tomorrow, Donna's risk is limited. She'll survive."

Still, there are some stars who prefer sole ownership and ignore the old Monopoly-game rule that you can't build a hotel until you build four houses first.

In 1971, Rod Stewart exploded on the scene when his first solo album, Every Picture Tells a Story, went to the top of the charts in both England and the U.S. Now, picture this: a small, 30-suite European-style hotel on the Sunset Strip in L.A. called the Bella Riva. Its owner: Rod Stewart.

"I've always said that Rod isn't a rock star," says his manager, Billy Gaff. "He's a growth industry." Gaff is sitting at the pool of the Beverly Wilshire Hotel, waiting for the contractors and the decorators to finish his own manse in Beverly Hills (Rod already has two--one in Bel Air, one at the beach).

"Rod is essentially very conservative," says Gaff. "He doesn't invest in football [soccer] clubs or crazy movie- or record-financing schemes. The tax-shelter scams are all a little scary, so we stick to art and real estate."

The current Stewart breakdown shows him with land or buildings in England, Spain and California. "We don't even buy bonds," Gaff explains. "If we put $5,000,000 into municipal bonds, you get maybe nine percent tax-free. But when you take inflation into consideration--inflation running, I think, at 14 percent in the United States--your nine percent is wiped out.

"For us," Gaff says, "the answer is property. But the real salvation was in leaving the oppressive tax situation in England. Now we concentrate on a slow, deliberate investment plan. Investing to us doesn't mean making money. It means keeping it. What we struggle to do is to hold on to it. And make sure that the millions you're saving today will buy the same 20 years from now. A good piece of land will keep going up, even if you're not making anything out of it."

Even Barry Manilow may be getting land crazy. Lately, he has confided to friends that he's seriously interested in purchasing the small (population: 18) town of Harmony, California. It's on the block for a meager $700,000--for which the buyer gets the town and all its eight buildings. Manilow is already apologizing for the fact that the place has only one small street. "We could have a parade there," he has joked, "but the band would have to stand still and the people would have to walk around them." Better yet, some cynics have even suggested the site as the perfect location for an annual Barry Manilow music festival. Stay tuned.

For those rock stars who love mass visibility without the feeling they have to be responsible for a whole town, there's a slightly less risky investment approach: that with the right combination of money and ego, every music star should own his own bakery, restaurant or night club. Lou Adler (who produced and managed Carole King and Cheech and Chong) was an original investor in a number of L.A. eateries, not to mention The Roxy on the Sunset Strip. Helen Reddy was a prime backer of Roy's (a superchic L.A. Chinese restaurant where the stars go to get estimates on egg rolls). She is also still the major stockholder in the Famous Amos cookie empire. And now a deal is being negotiated for the Aacme diner in L.A. Included in the group of prospective owners are Elektra Records chairman Joe Smith, rock manager Irv Azoff and a few of his clients, such as Jimmy Buffett and the Eagles. The Doobie Brothers lease out space to a Northern California chain of seafood restaurants; Donna Summer holds the lease on Au Petit Café, a chic French restaurant in Hollywood.

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But the unforgiving economics of today's music business have eliminated many of the extravagances of the late Sixties and early Seventies. Take the case of Elton John. In 1972, he gave his agent a $48,000 Rolls-Royce and boasted one of the largest collections of glitter shoes and eyeglasses (who could forget the pair with the windshield wipers or the $5000 model that lit up to spell E-L-T-O-N?). Captain Fantastic toured in a lavish chartered 707 called Starship and his weekly entertainment budget was rumored to be close to the gross national product of Upper Volta.

As a favor to friend Billie Jean King, Elton invested in something called World Team Tennis. To hype the new tennis franchise in 1976, he also recorded Philadelphia Freedom, in honor of the Pennsylvania team. The song was a big hit. Team tennis was a loser and is now history.

Then Elton invested in a new franchise with the L.A. Aztecs, a soccer team. After three financial partnerships failed to get the team into the black, Elton pulled out. In the meantime, he was slightly more successful in picking up artwork (ranging from Rembrandt etchings to originals by David Hockney) and original Bugatti furniture.

In the late Seventies, Elton's album sales started to slip, and for a while he stopped touring. But his huge overhead remained the same. Finally, last year, he went on the road again. Gone was the 707, the expensive hotel suites and the entourage. "He had to go back on tour," says one close friend, "because he finally came to the realization that once you create that kind of lifestyle, you have to support it."

Part of that lifestyle now includes yet another soccer team. Five years ago, Elton bought the losing Watford Football Club--complete with stadium--north of London. "He's come to understand that it's only a hobby for him," says manager John Reid. "But it's an expensive hobby. Elton's carrying about 100 people. It's a very successful club. And we're doing really well. We've kept the loss down to only $30,000 a year."

Elton isn't the only heavy to have bankrolled a soccer team. The directory of the New York Cosmos lists Mick Jagger as an "international consultant." And who could forget the Caribous of Colorado, which in 1978 was one of the newer teams in the North American Soccer League? Some of you may know that there aren't any caribou in Colorado, but that, as it turned out, was just the first flaw in the team--named for the ranch turned recording studio owned by former Chicago producer-manager Jim Guercio, who just happened to be a co-owner of the team.

At the time, the Caribous' PR people liked to boast that rock-'n'-roll marketing techniques were helping the selling of the team. Their marketing director, who had once designed rock album covers, also developed the team's logo--a dumb-looking caribou with a soccer ball stuck in its antlers. Then there were the Caribou uniforms: The shirts boasted a brown-and-black Western yoke with simulated rawhide fringe hanging from it. To complete the outfit were a pair of black-satin shorts and a rock-'n'-roll brown-satin jacket.

The rock-'n'-roll uniforms didn't help. In their first and only season, the Caribous jumped off to a dismal 8--22 record. Attendance at Denver's giant Mile-High Stadium averaged an embarrassing 7418 per game. By the end of 1978, Guercio was out of the soccer business and the Caribous were out of Colorado. They were bought by Ted Turner and are now known as the Atlanta Chiefs.

Then there's the Philadelphia Fury, recently owned by a group that includes rocker Peter Frampton. Unfortunately, the Fury has done only slightly better than the mighty Caribous, with a 10--20 season. Last October, the franchise was sold and the team moved to Montreal.

"Almost everyone in rock 'n' roll is looking to shelter income," says a business manager who handles a gaggle of L.A. performers. "The problem is that there are fewer and fewer shelters left."

Well, not exactly. The scams stop short of things like tapioca mines and dental-floss ranches, but shelters still exist. The Marshall Tucker Band not only has real-estate holdings in Spartanburg, South Carolina, but is also into oil-and-gas-drilling tax shelters.

Other less-than-button-down groups have discovered the value of the lithographic-plate tax-dodge boogie. In this strange shelter, the rock star is offered an original litho plate, usually made by an unknown artist. The star then pays $200,000--$300,000 in cash and the balance in a note due in 12 years. "The way we figure it," says one business manager, "my clients would more than recoup their out-of-pocket costs in tax savings and credits the first year. In the second year, the benefit would double."

Then, for those stars who have discovered religion and tax write-offs simultaneously, comes the Bible game. A performer buys 1000 Bibles for ten dollars each, wholesale, holds them for a year (to limit capital-gains taxes), then donates them to his favorite church, taking a retail deduction of $30 per Bible.

The IRS has a word for these shelters: abusive. But none has yet been tested in court. "Until that happens," says one manager, "we'll keep doing it. If the court rules against us, the most that will happen is that we pay a penalty and some back taxes at an interest rate much lower than we could have even gotten from a bank."

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Not everyone in the music business believes in tax shelters. A sign above Aaron Russo's desk at Paramount Pictures, where he now produces films, asks visitors to remember the Golden Rule. Whoever has the Gold makes the Rules.

When he was managing Bette Midler, Russo says he put almost everything they made into gold. "Paper money was worthless," he says. On numerous occasions, when gold was selling for a reasonable $168 an ounce, Russo tried to write Midler's contract in ounces, not dollars. "But her lawyers intervened and told me I was crazy," he says. "Do you know," he starts to yell, "how much we would have had today?" Russo shrugs. He's made enough, and it's only money.

Another rock manager has an even better idea. "I have an artist they want to tour for $1,000,000. But I don't want $1,000,000. I want the official contract to read only $60,000, because I want them to pay me $60,000 in silver quarters, which," he snorts, "have a market value of $1,000,000. Is the IRS going to tell me it's not $60,000?"

The answer is yes. "If he tries it," says a top litigation lawyer for the IRS in Washington, "he'll get nailed. We interpret everything based on value, and he'll get busted. In fact," says the IRS man, "we're looking closely at all the abusive tax shelters--especially the art scam and real estate where the accelerated depreciation is beyond belief."

It was the accelerated depreciation that got Helen Reddy and her manager-husband Jeff Wald into trouble last year. "We had a tax-shelter deal for Helen in College Station, Texas," says Wald, "and the IRS ended up auditing everybody in it." The audit, by the time Wald finished negotiating with the IRS, cost him $130,000 in deductions the Government questioned between 1975 and 1978.

But Wald isn't worried. Reddy has more than enough investments to keep them going for a long time. Recently, they bought KDEO, an AM radio station in Hawaii. "We even have our own transmitting tower," Wald boasts. "But the best part of the deal is that the property is zoned so we can put up a seven-story condo."

"What saved us," Wald admits, "is that Helen and I acquired most of our assets pre-inflation." Seven years ago, the pair bought a house in Brentwood for $600,000. Today, it's worth approximately $4,000,000. They bought a warehouse and turned it into an office building when space was selling for 55 cents a square foot. The Walds just leased it to I Time-Life Television for two dollars a square foot. "We'll make a $2,000,000 profit by accident," Wald laughs. Then there's the house in Tahoe, the three Mercedes-Benzes, the Rolls-Royce convertible....

"Rock stars like to collect houses," says Elektra-Asylum Records chairman Joe Smith. "Anybody who makes it out here wants a big car and a big house. Don Henley of the Eagles is very deeply into real estate," Smith says. "He's got houses stashed all over L.A. In fact, there are people renting houses right now who don't know that their landlord is one of the Eagles. On the other hand," Smith says, "Glenn Frey likes to hold cash. He likes to be liquid."

Smith, as a record-company executive, often finds himself these days in the role of loan officer. When Linda Ronstadt wanted to buy a $1,000,000 estate in Brentwood, her business people went to Smith. Interest rates were soaring and she wanted to avoid an outrageous mortgage by paying for the place in cash. "They deal with us almost as a bank," Smith says. "We lend it to them at a lower interest rate than any bank, and it's essentially an advance against royalties. They'll pay us for the use of the money and take it up front. When it's someone like Linda Ronstadt, we'll always oblige an artist."

But when the artist is Helen Reddy, who hasn't had a hit in a while, the going gets tough. "For seven years, I was able to go to Capitol and get $200,000-to-$400,000 advances without any interest," says Wald. "Today, I can't even get it from them with interest."

The answer has been to reduce his monthly overhead from $110,000 to $80,000 until Helen's new hit comes. "After all," says Wald, "I don't want to wind up in the toilet, especially with my attitude toward money. Can you imagine me without any money, sitting around with just a bunch of memories?"

•

"I get really weirded out by all the money," says Ann Wilson of Heart. "It's become almost as much of a job keeping the money we make as it is making it. When you're nouveau riche like we are, you think you have to have all this stuff, but then comes the moment when you come to depend on it."

So far, the Wilson girls are doing just fine, thank you. In addition to Seattle houses for themselves and their parents, Ann and Nancy own a 243-acre Arabian-horse breeding ranch on the southern Oregon coast, a number of antique cars and a tremendous amount of money stashed away in municipal bonds, high-interest bank accounts and treasury bills.

"A lot of people know we have money," Ann says, "and so they come running to us with these crazy deals or new inventions they want us to back." Not too long ago, the group was offered a "dream" deal: They could buy up an entire city block in Seattle as part of an urban-renewal program. "These guys came in and showed us drawings and maps, and all they could say was, 'Well, it's in pretty bad shape now, but one day you'll probably make your money back.' We backed off," Ann says, "because things like that gave us the willies. We only want to be into sure things."

Things like a boutique, which Ann and Nancy plan to open soon in Seattle, and the building of mini storage warehouses in the same city. Miniwarehouses? "We think building these things is a great investment," Ann argues. "In Seattle, we've got all these people moving in. There's a shortage of housing and people need a place to store their stuff. What we do is buy a piece of undeveloped land, erect these little heated garages and they'll pay for themselves. Later on, you tear them down and build apartments."

The Wilson sisters claim they have only a sketchy idea of what they really have, but each month the girls get a detailed report on their earnings and assets from their accountants. "I'm trying to shelter all the money I've got," Ann confides. But not from the IRS, she says, as much as from ex-boyfriend Mike Fisher (the two of them are embroiled in a rock-'n'-roll palimony dispute).

"It's gotten to the point now where Nancy and I know we're not going to be starving a few years down the line," she says. "Our various pension plans will see to that." But she does have one small problem. She's a little overloaded right now with cars: two Porsches, a Ford Fiesta, a Plymouth Arrow and a 1967 Land Rover. "I'm trying to get rid of the Arrow," she says. "But they tell me the market is soft."

Jim Seals believes the entire economy is soft, and he's decided to protect himself. The first half of Seals and Crofts has decided to liquidate many of his assets, including two apartment units, some gold coins and his home in L.A., and has bought a large coffee plantation near San José, Costa Rica. Dash Crofts is doing likewise and moving to an estate in Cuernavaca, Mexico.

"The U.S. is a dictatorship of a different kind," the 38-year-old Seals argues. "You're free to make as much money as you want, but not free to spend as much." Seals has made another discovery as well. "If you're smart enough to hire somebody to handle your money, then he's smart enough to also take you. So then you hire somebody else to watch him, and then you hire somebody to watch the watchers. Then one day you go down to the Beverly Hills Hotel and they're all sitting at the same table. We have arrived at the point where we are handling everything ourselves."

Seals and Crofts now have their own in-house bookkeeping staff in L.A. and are slowly but surely developing the proper tax shelters. "Right after Diamond Girl," says manager Marcia Day, "we had a real problem. There was no way to shelter the money and a lot of it went right back to Uncle Sam." After Seals and Crofts started making big dollars, Day took a large advance from Warner Bros, and put it into a $2,000,000 recording studio, apartment buildings, African art and even a Convair 580 prop jet. Then, last year, they sold the plane, the houses and the apartment units.

"The U.S. economy is too scary," says Day. "So Jim and Dash have decided to live elsewhere for a while. Jim knows absolutely nothing about coffee, but he's learning," she reports. "He even bought himself a tractor."

While the duo will stay together, returning to the States to record in L.A. and perform in Las Vegas, Seals sees the brightest future for himself south of the border. "I feel that Central and South America are on the upswing. They may go through revolution and change, but they are going to grow rapidly. Right now, I'm just trying to pick the softest place to land."

So is everybody, even Eddie Money, who says he changed his name from Mahoney when he got serious about the music business. Signed to a management deal with rock impresario Bill Graham at Winterland in 1977, Eddie Money has been making his last name ever since.

"I'm not ashamed about money," he says. "I love talking about it. I can still work a bar and count the number of drinks they're selling from the stage. I'm not Mick Jagger," he says, "but I'm an American kid who can handle his money."

When Money had his first hit, Two Tickets to Paradise, he was already headed for bankruptcy, with stops at welfare and food stamps. He was $67,000 in the red. But Graham got him performances with Fleetwood Mac and The Rolling Stones and the rest was uphill.

Money now has substantial holdings in office buildings and an apartment complex. Perhaps most appropriately, the ultimate absurdity is that he is one of the owners of stock in a savings and loan in San Luis Obispo, California. "If I ever get any real money, maybe I'll open an account there," he laughs. "Maybe I'll even give myself a toaster."

" 'My phone is constantly ringing from stars who want me to manage their money after they've lost it.' "

" 'I've always said that Road [Stewart] isn't a rock star,' says his manager. 'He's a growth industry.' "