Four poor kids from Liverpool formed a band and became the greatest rock group of all time. And they made a lot of money. Although most musicians make their big money on tour, the Beatles have not performed live since 1966. Two of its members are dead, so there won’t be a reunion tour (although that hasn’t stopped Pete Townshend and Roger Daltrey).

But the money rolls in, and for all of the members or their heirs. To celebrate the release of The Beatles: Rock Band and the release of remastered and mono boxed sets of the Beatles’ albums, this week’s Numberscruncher will look at some of the band’s money matters.

Musicians are paid several ways. They are paid for their professional services whenever they perform, which is why touring can be a good deal for a band with a loyal fan base. For a recorded performance, the artist may have received a one-time fee or may be eligible for a royalty from each sale or play. Then, if they wrote the song, they receive a payment for the use of it, whether when performed by the band or by someone else. That songwriting royalty is split in half, with a share going to the songwriter and another share going to the publishing company that handles the licensing and distribution of the song and the sheet music. Publishing involves a lot of clerical and administrative work that most musicians are not interested in doing, so the separation makes sense.

The Beatles set up their own publishing company in 1963, mostly for tax reasons. At the time, the U.K. was walking the road to socialism as well as still rebuilding after World War II. The highest tax rates on income were 90%, so the band members wanted to convert some of their publishing profits to long-term capital gains by setting up a public company called Northern Songs. Had they worked with a traditional publishing company, that money would have been easier for Her Majesty’s Revenue and Customs to touch. Controlling interest in Northern Songs was sold to Associated Television Corporation (ATV) in 1969. ATV added other songs that it owned to the catalogue, and then sold it to Michael Jackson in 1985 for $45.7 million. Jackson outbid Paul McCartney in that deal. Jackson then sold off half of ATV to Sony in 1995 for $95 million. (Snopes.com has an excellent explanation of the situation.)

Michael Jackson, of course, is dead, and the Sony-ATV catalogue is a significant part of his estate. It is believed that he used it as collateral for $300 million in loans, so it will have to be sold or turned over to his creditors. Estimates of the value of Jackson’s share range from $250 million to $1 billion.

One of the many factors that Jackson’s executors have to consider is current Beatles frenzy, especially The Beatles: Rock Band. In 2008, Viacom reported that Rock Band and Rock Band 2 sold over 3.8 million bundles, 1.5 million units of standalone software and 900,000 units of standalone hardware domestically; players downloaded 30 million songs to use with it. And this pales behind the sales of Guitar Hero, the leading competitor. Viacom doesn’t report sales for Rock Band, but I’d estimate them $381 million for 2008 based on information in the company’s annual report. Those sales were not profitable. Viacom has not disclosed its payments to the Beatles and the widows for performance, likeness, and logo rights, but it is likely that they are generous. The company needs this game to make the Rock Band franchise succeed. If 1.7 million copies of Rock Band: The Beatles are sold this year, as estimated, the payday could be pretty big. It’s safe to assume that each of the four Beatles stakeholders would walk away with at least $1.00 per copy.

Bands receive royalties at a rate of roughly 10% of retail sales, although the calculation is hardly straightforward and almost always in the record company’s favor. They receive payments only after advances and recording costs are covered. The Beatles being the Beatles, they are probably receiving more, at least now that they are experienced and sober enough to have good advice.

The remastered Beatles set retails for $259.98 and the mono edition for $298.98, so 10% of each sale would buy a pizza for the four Beatles stakeholders to share. The songwriters then receive their royalties on top of that, benefiting Yoko Ono and Paul McCartney in most cases.  Ringo gets to collect on “Octopus’s Garden”, of course, and only the songwriters receive royalty from radio airplay. Let’s assume that 100,000 copies of the remastered boxed set sell; that would give Ringo a cool $649,500 – before his agent and manager take their cuts, of course. Downloads for Rock Band run about $1.99, so each one would give Ringo just a bit less than $0.05. But if 100,000 Beatles songs were downloaded, that wuld be $5000.

Bands founder over money all the time, and performers receive rotten advice from agents, managers, and lawyers who do not always have their best interests at heart. Throw in a little substance abuse and a pinch of immaturity, and it’s almost a wonder that more bands aren’t broke. Paul McCartney had a secret weapon: a father-in-law who was an entertainment lawyer. Lee Eastman gave him excellent advice about managing the financial side of his career, although that almost certainly led to conflicts with the rest of the band.

The difference between what the songwriter can earn and what the rest of the band can creates an internal class system that breaks up many groups. If the singer-songwriter can afford a ski house in Tahoe but the drummer can’t, that’s going to cause some tension. In his autobiography, Shane McGowan complains about how the other members of the Pogues always wanted to go on tour to make money, while he was happy sitting in a bar, drinking away the publishing royalties from “Fairytale of New York”. (Aspiring musicians: learn to read and write music so that you can pick up songwriting credits easier!) The Rolling Stones make their big money from touring, especially over the last 30 years, and that money is spread evenly among the members. One of the many reasons for U2’s long-term success is that the band shares its songwriting credits, no matter who actually wrote the lyrics and composed the tune. Hence, the members of U2 have equal earnings to reduce the internal tension from normal human jealousy. Fifty years from now, graduate students can write dissertations on Larry Mullen Jr.’s textual contributions to The Joshua Tree; today, he’s an equal partner.

By the way, if you are really interested in money and the Beatles, there’s a fabulous blog, Beatle Money, that covers the group’s finances, especially during its active days.