What They'll Never Tell You About the Music Business

by Peter M Thall

  Some artists feel that a manager’s job is simply that: to manage. The manager is not expected to “create,” and his or her creative and artistic advice is not sought—or deemed to be necessary. For artists who think this way, a cap may be most appropriate. However, in situations in which artists obviously require (and receive) an enormous amount of creative guidance, it is not as reasonable or as compelling to talk in terms of a cap.

  Of course, I am assuming that the parties are both able to realistically assess their respective contributions—something that is, regrettably, not often the case.

  The Hybrid

  Let’s say your manager’s commission rate is 15%. A tour grosses $100,000 and the expenses, including agent, are $70,000. Your manager would ordinarily receive $15,000 and you would receive $15,000. But if the expenses are, say, $90,000, your manager’s commission would totally absorb the $10,000 profit and there would be nothing left for you. What’s more, you would owe him $5,000! Some music professionals might say that poor management may have led to this problem in the first place, so why pay the manager the full commission (in this example $10,000 and another $5,000 due later)? In anticipation of this situation, the agreement between artist and manager might provide that no matter what the net is, the artist (that is, the individual or the entire band) will never receive less than the manager. In our example, they would split the $10,000 profit into two equal parts.

  As noted above (“The Floor”), you can provide for a reconciliation to be made semiannually or annually by your business manager whereby the actual contractual ratio will be reestablished.

  The Compromise

  Pay the manager 7.5% of Gross plus 7.5% of Net, with both percentages governed by the hybrid rule just discussed.

  The Flat Fee

  This method of calculation is used mostly when you are an established act and it is possible to quantify objectively the value you seek to achieve from your manager. Much of what management responsibilities entail is quantifiable. Anyone can perform the requisite duties if they are well staffed and halfway organized and funded. Of course, much of what management brings to the table cannot be quantified, and this is where the conflict arises when the flat-fee approach is under consideration. Superstars are not usually any more willing to part with large sums of money than fledgling ones. If they are, their business managers and attorneys will often step in and protect them from the excesses of their own desires (or insecurities). But sometimes they are better off paying flat fees because, as we have seen, percentages have a sinister way of throwing off budget projections. Simple gross percentage commissions can be larger, or smaller, in relation to your net receipts, depending on things often out of your control. With flat fees, the artist has a much better handle on the bottom line.

  Of course, even here, hybrids flower abundantly. No successful manager wants to do his or her magic for a fixed amount of money. Thus, thresholds are often established whereby flat fees are payable for a predictable result and a job well done and percentages or bonuses are payable according to targeted levels of success. (Note that “targeted” does not mean “guaranteed.”) On some level, all stages of development have certain predictable plateaus of success, but this compensation method is most effective at the superstar level. With luck, the flat-fee scenario will be a subject of interest for you some day.

  THE TERM OF THE AGREEMENT

  In management agreements, the word term can mean many things, depending on the context. For example, the basic term is for the period of exclusivity—typically up to five years. However, managers will usually continue to commission, for many years to come, those products—such as records recorded or songs written—during the term of exclusivity. (These commissions are often reduced over a number of years following the end of the exclusive period of the management term.) More troublesome is the provision that after the exclusive period of the term has expired, the manager can commission deals entered into, or substantially negotiated, during the term. If, during the term of a management agreement, an artist enters into what can extend into a ten-year recording artist agreement, and the management agreement ends during this period, under the customary “form” contract, the manager may be entitled to a full commission on every derivative of every master recorded pursuant to the long-term recording deal. What about the impact of such a provision on an artist who signs a long-term booking agency agreement to book the artist’s tours? Is the manager entitled to commission on all of the tour dates booked pursuant to such a contract long after the exclusive management agreement has expired? What a disaster that would be. Yet many agreements are susceptible of such a reading, which is all the more reason to question the contractual language and make sure it means not what it says, but what you want it to say.

  EXTENDING OR TERMINATING AN ARTIST-MANAGER RELATIONSHIP

  The decision as to whether or not to extend an artist-manager contract past the initial term of the agreement (which may be specified in terms of years, number of album cycles—that is, the period ending a number of months after the release of an album and its attendant tour—or both) often depends on financial criteria, for example, whether the artist grossed $X during a specified time period. But what do we mean by “grossed”? Let’s say that your manager, through cleverness, persuasiveness, reputation, experience, or simply stubborn ability, has convinced third parties (record companies, investors, music publishers, and others) to advance money to you to help keep your career alive in an ever more difficult market? Let’s say further that these third parties have been persuaded to invest $1 million in your career—such as by advancing recording costs, paying for equipment and costumes, tour support, independent promotion, and general cash advances to keep the band going. Hasn’t this manager done a great job? None of this money is ordinarily commissionable, except for the cash advances. Should you discount the valuable service of a manager, who, through the sheer force of personality, has obtained significant investment so that you can stay in the ring?

  Suffice it to say that the amount of gross commissionable earnings alone does not tell the whole story of a manager’s successful contribution to the artist’s career. Yet some management agreements require that in order to count for purposes of a conditional opportunity to terminate the relationship, the amount of money obtained during the specified period must be commissionable income—that is, only actual earnings—not tour support, for example. Just actual earnings. This amount would necessarily be less than the number established were it to include all of the noncommissionable items, such as the loan mentioned earlier.

  Stipulating that such monies are commissionable or noncommissionable in part is the responsibility of the artist’s attorney. (The manager’s attorney should have only one role—to negotiate the management agreement with the artist. Ethical considerations come into play when the manager’s attorney acts on behalf of the artist, simply because the manager is comfortable with him or her, or knows he will be protected by him or her, or doesn’t trust the artist’s attorney.)

  Another factor to consider is that an artist’s perspective at the time of signing with a manager is likely to be different from his or her perspective five years later, when the precondition comes into play. For example, suppose the precondition to extend the term of a manager-artist agreement from a two-album cycle to a four-album cycle (or from three years to five years) is the receipt by the artist of gross commissionable income of $250,000 during the first period of the term (or the expenditure by a record company of $1 million of combined commissionable and noncommissionable income to promote the artist’s career). Those numbers may look awfully large on day one of the relationship and awfully small at the end of the time when the condition permitting or prohibiting termination matures. Yet for a new artist who has never grossed a nickel to receive $250,000 in three years (or to have a record company spend $1 million on promoting his or her record and career during the same period) sounds to me like a pretty successful achievement. Human nature being what it is, artis
ts do not always concur with this point of view.

  Finally, you should be aware of the ramifications of terminating an artist-manager agreement without cause. These can extend well beyond the contractual provisions that specify actual sums of money. For example, managers may claim that their relationship is so unique that a replacement manager could cause irreparable damage to the strategic plan the manager and artist devised during happier times. So the manager may seek to enjoin, or stop, the artist from pursuing career decisions within the area of the manager’s exclusivity. If your manager is also your producer, and you decide to contest such a claim, you are asking for a complicated legal battle, and your career could very well be placed on hold for a significant period of time. This happened to Bruce Springsteen. His manager-producer succeeded in enjoining him from recording for more than a year, claiming that anyone else who acted as producer would necessarily produce a product inferior to what he would have produced. Remember, he was asserting in his role as manager that only he, in his role as producer, should produce Springsteen’s records. As exclusive manager, his advice was not being heeded. In this case, the inherent conflict of interest was not decisive, and The Boss finally had to pay off the “manager-producer” in order to resume his career. There are innumerable examples of people filling the combined roles—I would even say it occurs in the majority of cases in certain genres of music. Deals in which artists sign production deals with their manager’s production (read: recording) company are back in vogue. The consequences are quite serious if the manager can find a court, as Springsteen’s manager did, that is sympathetic. The consequences can also be devastating if the artist does not have the resources to bring legal action to right the wrong. The disastrous effects of enjoining a career for a year or more speak for themselves. Springsteen survived the interruption of his career, at some cost; others would surely not have. See also the sad case of Ke$ha v. Dr. Luke, her producer, and his production company/label.

  Termination

  What happens when the criteria established for extension—or termination—of the term of the agreement are not met—or when you and your manager simply no longer get along? Even if your career has developed to an outstandingly successful level, you may not necessarily be able to relate personally with your manager over a tedious and frequently tense period of time, a time during which interests and needs change and goals often diverge. Even the two Sirs (Elton John and John Reid) have broken up their long-term relationship. Contractual issues relating to the termination of the relationship between artist and manager are extremely important, because the relationship may be, for all intents and purposes, in effect for the entire period during which the artist has a viable career potential. And, even when the formal relationship is no longer in effect, a personal manager’s financial entitlements will often last long after artist and manager have parted company—on a friendly basis or otherwise.

  A word about written contracts. In most states, a contractual agreement of the length and consequence of an exclusive management agreement must be in writing to be enforced. Without a piece of paper that documents the intention of the parties, the parties will not be able to prove to anyone’s satisfaction—not even each other’s—what precisely constituted their “meeting of the minds.” The details, and even the material elements, of their deal will be totally uncertain. As a result, both parties may suffer the consequences if they have to litigate their respective claims, and time and money—sometimes huge amounts of both—will be spent that should have been invested more constructively.

  Switching Managers

  Disaster can befall artists when they switch management in the middle of a management contract term. Not only might they owe commissions to the former representative for contractual commitments made during the term of the now-terminated agreement, they most likely will owe commissions to the former manager and the new one for future contractual commitments. How can they pay them both? One common solution applicable to live performances—absent offsets that might arise by virtue of the former manager’s misconduct—is to pay the former manager a full commission on dates played prior to the termination and one-half commission on dates played after the termination. (After all, the new manager will be charged with “managing” the new dates, and this amounts to a considerable amount of work, resources, and time.)

  The same concept may also be applied to agents, who are often replaced when a new manager steps in. But the circumstances with agents are slightly different. Often an agent can actually fulfill his or her duties with respect to dates booked before the agent was replaced, even if they are to be played later. This is because an agent’s job is fairly mechanical and is not characterized by the kind of personal, intimate, and confidential relationship that an artist usually has with a manager. I have seen even broader reduction of their commission percentages based on whether the dates were (1) actually contracted for in writing with deposits received, (2) merely confirmed in writing, or (3) simply discussed as part of a tour that was being planned. In the latter two circumstances, the dates would naturally have to be more fully negotiated by the new agent, thus entitling him or her to a larger percentage of the commission than if he or she were simply completing the services with respect to an otherwise substantially finished deal.

  Of course, the former manager’s claims, unlike the claims of the agent, will extend beyond live dates. For example, the issue of commissioning formerly released albums and those that have been newly recorded but not yet released becomes yet another hot issue to resolve—and one that most agreements do not anticipate or provide for. (One approach is to phase out a manager’s commission rate on formerly released CDs or reduce it dramatically on unreleased product if for any reason the manager is not actually “working” the record once it is released.)

  Negotiated Settlements

  Obviously, the best course for all parties involved in an artist-manager dispute involving termination of an agreement is to try to settle the dispute quickly. Litigations are costly and time-consuming. And, whatever one may say about the justice system’s effectiveness in assisting litigating parties to reach a considered and correct conclusion, you never know how a litigation will end up. My clients have won cases they should not have won, and they have lost cases they should not have lost. Even when they have won, they have lost time, opportunities, and lots of money. I am not suggesting that litigation is always an inappropriate route through which one can seek a remedy. Sometimes it is the only one. But negotiated settlements, or even mediations according to the producers of JAMS, are the preferred route for most people—no matter what side of the table they are on. Even disputes arising absent a breach of contract have breach-of-contract characteristics. If an artist just doesn’t like the manager anymore or wants one with more clout, and if he or she is willing to take the risk, the artist will seek to terminate the agreement and list an array of things that, taken together, he or she might be able to blend into a definition of a breach of one provision or another of the agreement. When one party wants out of a contractual relationship, a dispute exists by definition, and the parties are thrust into either a litigation or settlement mode. Arbitration is often required by the terms of management agreements, but this option is often merely “litigation lite.” The pitfalls of litigation remain, and arbitrations are still quite costly.

  If the presumed breach is immaterial or unprovable, the consequences to the artist are much more serious. The artist may be forced into a settlement that impacts on his or her ability to pay a new manager, the outgoing manager may stonewall the artist, blocking his or her ability to sign with a new manager who is unwilling to be sued for intentional interference with a contractual arrangement, and the potential new manager may see how the artist has dealt with the old one and say, “This one’s not for me.” The following guidelines for achieving an equitable negotiated settlement by paying the manager an agreed-upon recompense assume that no provable breach of contract (see box, this page) is involved.

&
nbsp; Methods of Payment

  The two most common ways to pay a manager in the event of termination are through a one-time payment of an agreed-upon sum of money, in which case the manager will be out of the artist’s life forever, or on a percentage basis. There are a number of ways to pay a manager on a percentage basis.

  You can pay according to a sliding scale, whereby you pay a full commission on product (songs and recordings) recorded and released prior to termination; a lesser commission on product recorded, but not released, prior to termination; and an even lesser commission on product recorded and released following termination up to the end of the term of the original recording agreement.

  Even these already reduced commissions can be further reduced, ultimately to zero, over a number of years following termination. The length of time these commissions apply will vary, depending on the negotiators’ respective strengths. A new artist will have to bear a longer phaseout of commissions, if indeed any phaseout at all is achievable; an established artist will have a shorter period during which to pay commissions on deals entered into during the term of the agreement or records recorded or songs written (and/or recorded) during the term. In the former situation, six years is not unusual, with rates being reduced gradually every two years; in the latter, two to three years seems to be the standard. (In my experience, managers will never agree that their right to commissions should end absolutely upon the expiration of the term of their agreement with the artist, however long it may last.) But everything is subject to the impact of other provisions in the agreement. For example, if a manager agrees to be employed for only one or two album cycles, he or she probably has enough confidence to believe that if he (or she) wants the agreement to extend beyond those cycles, the artist will be pleased to do so. But in return for agreeing not to require a longer term, the manager may demand, and receive, a provision that pays him or her a full commission forever on records recorded or songs written during the term.