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The Restructuring of Wale

The Restructuring of Wale

 Illustration by Ope Arogunmati

Illustration by Ope Arogunmati

In banking, there is a term known as de-market, which means a corporate relationship will be terminated for not providing a justifiable business case to provide banking services to the client. Service businesses, for example, a record label, operate under a similar business model, hence, the relationship with an artist depends strictly on the business case for the record label.

Wale was dropped recently from Atlantic records, following the weak sales performance of the SHINE album. It would be naïve to suggest that the termination of the relationship was based solely on the album’s performance given the likelihood that Wale and his representatives may have been in negotiation to terminate the relationship prior to the release of SHINE.

Record labels are investors utilizing shareholder and bank loans to fund the creativity of their artists in order to generate a return on investment. Wale, a seasoned rapper, was an investment that was profitable to the record label until the cost of funding could not justify the investment. Management works for the shareholders and not the artists, so it is ridiculous to hear media personalities speaking as though it is a negative thing to get dropped from a label.

In the aforementioned, I suggested that de-marketing can occur once an artist is no longer profitable for the bankers, however, this does not mean an artist is not profitable any longer in the absolute sense. However, an artist or company can still be profitable and de-marketed

While there are obvious differences between an artist and a company, there are restructuring approaches that can be applied using conventional business techniques to improve the strategic positioning of an artist, for example – Wale.

New Chief Executive Officer and Chief Financial Officer

Apart from a manager, the next person artists mention is their lawyers. Unfortunately, most managers and lawyers are not strategic experts or finance experts that can steer the company, not the artist in the direction most profitable. Wale has a company called Every Blue Moon, which has his flagship artist Philade, however, to be truly successful, hiring professional managers can assist in repositioning not only Wale as the artist, but also as an executive.

Sell off non-core assets of the business

Companies realize that they are unable to be dominant in all areas of their business, as such, there is a push to eliminate all non-core assets from the business and just focus on the core operations that can drive the best results for the company. Likewise, an artist should eliminate non-core aspects of their creative interests and focus only on the core competence that he or she excels in and perfect that core competence.

Change the capital structure

A company can only be formed using debt or equity. If you are an artist under a label, the majority of the funding is considered debt. While debt is good in driving excess returns for a business, it is just as dangerous when times are bad. Music is not selling at the rate we have seen in the past, and with streaming platforms becoming the new record labels, it will be much tougher to exist as an artist without the support of a streaming platform. Artists have to start considering their capital structure and whether the optimal level of debt or equity has been placed in a particular project.

Implement financial metrics on projects

The third person that an artist reference is their accountant. An accountant is not a finance expert, and likely is more interested in the historical results than future expenditures and projects. Wale should have metrics that are finance focused and project three to five years out to stay target. Wale should start focusing on his free cash flow, EBITDA, capital expenditures and return on equity to get a true projection on financial performance.

Wale has spoken at length about his business being “fucked up” and how he has had to deal with recouping funds from projects that were out 5+ years ago. I have no proof if things have improved for him with regards to his financial situation, however, utilizing the concepts above practiced by successful businesses may alleviate some of the financial issues he has faced in the past.

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