The following comes from music industry attorney Steve Gordon, author of the upcoming 4th Edition of The Future of the Music Business (more on the book at futureofthemusicbusiness.com).
Managers have never played a more important role in the music business than today. And if your musical career has reached a certain level, you probably need one. But, What Is a Music Manager Anyway?
A good manager should be able to advance the career of his client. Among the things that managers traditionally do are providing advice on all aspects of an artist’s professional life, using his relationships to generate opportunities, negotiating deals when those opportunities arise, and helping the artist select other members of his “team” such as accountants, lawyers, booking agents and publicists.
Perhaps his principal function has been and still is to hold the artist’s hand through all the inevitable trials and tribulations of being an artist in the rough and tumble of the music business. Traditionally, though, the manager’s principal task was “shopping” the artist to a record label to trigger the holy grail of a recording agreement, particularly with a major label.
That was the “payday” for both the artist and the manager. Managers work on commission, so the goal used to be to sign with a major label and negotiate the largest “advance” possible. When I was a lawyer at Sony Music, advances for a new artist ranged from $250,000 to $500,000 and up. And if an artist caught on, the artist and consequently his manager could become very wealthy — just from record sales. Those days are largely over.
In 2014, record labels, who have lost roughly 75% of their income accounting for inflation from 1999, are signing fewer and fewer artists and when they do, the advances are far less lush. In fact, the artist may never get a “deal” or may be dropped from the roster faster than the old days when the labels had spare cash to support an artist through one or two not very successful albums. For instance, it is well-known that Bruce Springsteen did not catch fire until he had already put out two albums on Columbia. But the company had faith and kept with him. That is less likely to happen today when even the major labels are trying hard just to survive. They would rather put resources in already established acts where a return on investment is more likely.
In these days of financial chaos in the record business, the manager’s role is more crucial than ever. In the old days, once the artist was signed to a big label, the manager’s function was principally to serve as a liaison between the record company and the artist, and sometimes a shield against the record company. For instance, if the label pressured the artist to change their style or record a particular song, the manager would intervene on the artist’s behalf or try to work a compromise with the label. The manager would also work in conjunction with and sometimes prod the marketing department at the label to spend more time and money in marketing and promoting his artist.
But due to budget cuts and massive layoffs at the labels, the manager himself may be called upon to do some of the work himself. For example the manager may take over social networking, try get his artist’s music in movies or advertising campaigns, or find branding opportunities with sponsors. And if the artist can’t find a deal or a deal good enough to accept, the manager may become the artist’s de facto label. In that case they may try to secure monies to produce records and videos from investors or crowd funding, and arrange for both physical and digital distribution, and everything else that record companies traditionally
Most manager agreements have boilerplate wording stating that the manager’s role is to counsel the artist and do everything possible to enhance the artist’s career. The artist on the other hand is supposed to agree to pay a manager a “commission” in exchange for the manager’s performance of these duties. The most important terms in a management agreement
The definition of the manager’s “commission;” The duration of the agreement; The period of time during which the manager is entitled to a commission; and Who collects the money.
Definition of the Commission
Managers work on spec. If an artist pays an hourly rate or salary, then that person or company may be performing the same functions as a manager but they should be called a paid “consultant.” Managers are, or are supposed to be, people who believe in the artist so much that they are willing to work for little or no money until the artist becomes successful, although some managers will not take an artist on unless they are already earning at least a moderate income from which they can pay themselves a commission.
In any event, the manager’s income consists of a piece of the income that the artist earns in the entertainment business. That piece is referred to as a commission and is generally 15% to 20%. Usually, but not always, the commission is based on “gross receipts or earnings.”
Here is a typical clause:
For the purposes of this Agreement, subject to the terms and provisions of this Agreement, the term “Gross Earnings” shall mean the total of all earnings and other consideration, whether in the form of salary, bonuses, royalties (or advances against royalties), settlements, payments, fees, interests, property, percentages, shares of profits, stock, merchandise or any other kind or type of income or remuneration, related to Artist’s career in the entertainment industry in which Artist’s artistic talents or services are exploited that is received at any time by Artist, or by any person or entity (including Manager) on Artist’s behalf”
This clause is from a standard “pro-management” deal. It’s a kind of contract that almost every music lawyer has on his shelf (as well as the “pro-artist” agreement). It is crucial for the artist that this definition is revised so that “Gross Earnings” excludes certain forms of income that the artist needs to spend in furthering his or her career.
For instance, if a recording agreement provides that a label will pay an advance of $50,000, most of that money may be used for recording costs, such as payments for studio time, producers, side musicians and mixing. If the payout to those third parties amounts to $40,000, and manager’s commission is 20%, the manager’s take would be $8,000 and the artist would only receive $2,000. Moreover, the artist would still be responsible for paying taxes, and all his other expenses such as the accountant, attorney, vocal coach, etc.
Similarly, if the artist is unsigned and paying for the costs of touring, unless the management agreement is carefully negotiated, the artist could easily end up being left with little, nothing on even owing the manager money. For instance, if the artists makes a total of $15,000 playing live gigs on a tour, the expenses — such as a tour bus, gas, hotel, etc, – could end up costing $12,000. The manager’s commission would be 20% of $15,000 or $3,000, leaving the artist with exactly nothing.
The bottom line is all reasonable expenses such as production costs including videos as well as records, touring costs including light and sound expenses as well as travel and accommodations, have to be spelled out in the agreement and deducted from “Gross Earnings.” The quibbling comes in when the attorneys try to define reasonable expenses. For instance, if the artist has to fly to a gig, the manager’s attorney may insist that he or she flies coach, spend less than $50 a day on food, rent an economy car and stay at no better than a 3 star hotel. The artist’s attorney will want to deduct car rental and any other costs that the venue does not cover.
The duration of the agreement is just as important as the definition of the manager’s commission. Management-artist relationships are like marriages, they can be great, or they can go bad. If things do not work out, it is very disadvantageous to the artist if the manager still has the right to his commission because the artist may want to have nothing more to do with the manager. It’s in the management’s interest for the term to be longer because he then 1. has a longer period over which to help make the artist successful (which could be in the artist’s interest if things work out); and 2. have a longer period of time over which he can claim a commission (which is practically never in the artist’s interest). A “pro-management” form of agreement, which most music attorneys have ready at a moment’s notice, may be three years with options to extend the term of the agreement at the manager’s election. A fairer deal would be 18 months with the option to extend being tied to certain performance goals. For example, the manager would have the right to extend the term for an additional year, but only if the artist makes over a certain amount of money, and an additional year after that if the artist makes more than he did in the first option year. The actual amounts are often spelled out – after protracted negotiations.
Alternatively performance goals can be tied to other goals such as getting a deal with a label or publishers. Everything is subject to negotiation, although everything also depends on the bargaining power of the parties and the negotiating skills of their attorneys.
How Long the Manager Is Entitled to a Commission
An off the shelf pro-management agreement will have absolutely no time limits on the manager’s right to receive a commission from agreements entered into during the Term. It will state that any agreement entered into during the Term, or any “renewal, extension, modification or substitution” of that agreement will be subject to a manager’s commission. This means that as long as the artist is with the same label or music publisher as the one the manager helps the artist get signed to, the artist will have the obligation to continue to pay the manager. Many successful artists such as Bruce Springsteen, Billy Joel and Bob Dylan have been with same the record company for decades. For example, Bob Dylan signed with Columbia Records in 1961 and is still with that label!
The artist will want to negotiate a “sunset clause.” Sunset clauses specify that even if the artist is making money from a contract originally entered into during the term of the agreement, the manager will not receive a commission after the termination of the agreement or at least receive less than his full commission. Here is a typical sunset clause:
Following the commission term, artist shall pay manager’s commission (“post term commission”) with respect to artist’s gross earnings, as and when collect ed, derived from term products, term services and pre-term products as follows:
Post-Term Years Consultant’s Commission
1 Year = 12.5%
2 Year = 7.5%
3-4 Year = 2.5%
5+ Years = 0%
Sunset clauses reward managers for their work during the term of the agreement and at the same time afford the artist the ability to sign with another manager and avoid paying two full commissions.
Who Collects the Money
Many good managers do not want to collect the money and be required to prepare accounting statements to an artist because that can be a big job in itself. These managers would prefer generating opportunities. The artist in turn may not feel completely comfortable relying on the manager to pay him. A good alternative, at least when the artist is making significant income, is for the parties to mutually approve a third party “business manager” (usually a certified accountant) who can collect and accurately account to both the artist and the manager.
The business manager can also be responsible for paying the artist’s taxes, managing the artist’s money (so he doesn’t spend it too quickly), and advise the artist on investment opportunities. Business managers usually receive a 5% fee for these services. Again, just as in the deal between the artist and the manager, that fee should be a percentage of the artist’s income excluding income that the artist must spend for production costs, touring and other reasonable expenses.
Other Important Terms and Issues
Power of attorney: Some managers will ask for the right to enter into agreements on behalf of an artist. The artist may wish to give the manager the right to sign agreements on their behalf but only after the manager consults with him and he is apprised of terms of any agreement and accepts the contract.
Audit and Accounting: if the artist or the manager collects the money, there should be an accounting and audit provision applying to that party;
“Key Man” provision: if the manager is in an individual working at a management company, a “key man” provision stating that person will have day-to-day responsibility for managing the artist’s career. Here is a typical “key man” provision:
During the Term, (“Key Person”) shall be actively involved in rendering services hereunder. In the event both Key Persons are not actively involved in rendering services hereunder, Artist shall notify Manager of such default and Manager shall be allowed a period of thirty (30) days after receipt of such written notice, within which to cure such default. In the event that such default is not cured within said thirty (30) day period, Artist’s sole remedy shall be to terminate the Term of this Agreement by written notice to Manager, effective upon Manager’s receipt of such notice.
“Carve-out” clauses. These are clauses designed to exclude income that it may be unfair for a manager to commission. For instance, if a DJ at a radio station who makes a salary but wants to hire a manager to promote his career as a live performer and recording artist, it may be reasonable to “carve-out” the salary from the radio station from the income the manager can commission;
Songs, masters and other intellectual property. A truly pro-management form will include a clause allowing a manager to commission
…any product of Artist’s services or talents or of any property, including musical compositions, created by Artist in whole or in part during the term hereof.”
This is sometimes referred to as a manager’s “pension” clause. Since one great song can generate income for a lifetime or longer. Unless revised, this little sentence would allow the manager to commission income from a song that the artist happened to write during the term forever (or at least until the song fell into the public domain – life of the artist and 70 years!)
In any competently drafted management agreement, there should also be a clause that states that the manager has no duty to find an artist “employment” but if he does, this will be “incidental” to his other duties. In most states including New York and California, only licensed talent agents are authorized to find an artist employment including live gigs.
Image by Spencer Hickman, licensed under Creative Commons Attribution 2.0 Generic (CC by 2.0).