Artist Management - The Contract

In our last article we outlined some background to the artist/manager relationship. In this article we’ll delve a little deeper into the artist management contract itself and consider some of the terms which you’ll come across.

Some people might ask why it’s necessary to enter into a contract in the first place. It’s true that some artists don’t have a written agreement with their managers and everything is done on trust and a handshake but as with any business relationship you’re dealing with two opposing interests, which therefore means there’s scope for differences of opinion and potential future disputes. It’s far cheaper to get a lawyer to assist you with the negotiation of an agreement upfront than it is to hire one to fight a battle for you in court after the damage has been done.

The first draft of the contract will usually favour the party who hired the lawyer to do the drafting and in the majority of instances this will be the manager. However, as with any contract the terms are there to be negotiated and the aim is to reach an agreement which is fair to both parties. Unfortunately it’s far too common for artists, blinded by the lure of success, to rush into signing contracts without fully understanding the terms and their implications so the purpose of this article is to highlight some of the things you should be aware of.

The 360 degree deal

The first thing to watch out for is an artist manager who seeks to tie you into a 360 degree deal. This is not uncommon in the South African music industry as you’ll often find managers who will attempt to extend the scope of their relationship to cover all the main income streams (management, live bookings, recording, publishing and merchandise) while also acquiring rights on publishing and recording. These deals have a very bad reputation and there has been a heavy backlash against them, predominantly because there is potential for a huge conflict of interest, and also because such deals are often structured very unfairly for artists. This is not to say that a 360 degree type management deal cannot work but its essential that an artist gets expert legal advice so that the implications are fully explained and understood before signing. Each part of the deal would have to be fair both in isolation and when considered collectively as a whole. There is however an obvious danger in putting all your eggs in one basket, especially when management, record label and publishing are all distinct disciplines and it’s unusual to find one person has the skills, experience and expertise to do everything to the requisite level.

One big danger of the 360 degree type management agreement is that the artist inadvertently agrees to the manager “double dipping” with regards to commission and earnings. Often a contract will be worded in such a way that a manager would be entitled to take their agreed share of recording and publishing revenue and then still take a management commission from the artists share of such revenue, which in effect would mean taking two cuts of the pie. Honest managers who operate with integrity wouldn’t do this but it’s far safer to ensure the wording of the agreement precludes this from happening in the first place.

The Term

The Term is one of the most important clauses in the agreement. It takes times to build an artist’s career so assuming that the relationship is healthy and the manager is doing his job well it is in both parties interest to be tied to each other for a number of years. Typically an artist management agreement will be for a period of between 3 and 5 years and will include options to extend for further periods upon reaching certain predefined goals or milestones such as securing a deal with an established record label or music publishing company.

Remember the artist/manager relationship is a personal and intimate one so its best to be sure that it’s a team that fits well together before committing to the long term. It is therefore often advisable to agree on a trial period for anything between 6 months and a year during which time the parties can test the waters and see how they work together.

The rate of commission

Most people will tell you that 20% is a reasonable commission for an artist manager to earn and although this is true and fair in many situations the rate is open to negotiation and will depend on the particular circumstances and relationship in question. Some artist managers will agree to 15% commission whereas others will receive 30% or more. As explained in our previous article, due to the seismic changes which have occurred in the music industry over the past decade, an artist manager’s role has also changed significantly and consequently so has the nature of an artist/manager relationship. Some artists and their managers have even opted not to follow the traditional commission model and instead entered into partnerships where they split revenue and rights ownership. This certainly isn’t the norm but is on the increase and will generally only be done where the manager works exclusively with one artist and invests all his time and resources to building that artists career from scratch. This type of deal isn’t necessarily suitable or advisable for the majority of artists but it goes to show that no two scenarios are the same and there’s always scope for negotiation.

Some agreements will contain a sliding scale for commission that reduces at certain thresholds as earnings increase. Others will have different rates of commission for different activities and revenue streams. For example, one rate for live performances, one for sales and another for endorsement and sponsorship deals. The problem with this approach is that arguably it could disincentivise a manager from concentrating on particular areas of an artist’s career. A manager’s job is to raise the overall profile of the artist and if this is done successfully then all aspects of the artist’s career will benefit which will attract opportunities from various sources. Logic would therefore suggest that a manager should be compensated equally across all income streams.

Gross or Net earnings

Once you’ve agreed on the rate of commission you still need to determine whether it’s applied to gross or net earnings as one word can have a serious impact on the amount of commission in question. The fairest option is to base commission on net earnings which means you apply the agreed commission percentage to income after the deduction of expenses. However, it’s not uncommon to see South African artist management agreements using gross income and although this seems to be the norm in the US market, for reasons of fairness and equity push for net. At the end of the day the decision will largely come down to the bargaining power of the parties involved but where they settle on gross the contract will usually stipulate what is included in the definition of gross earnings and outline certain expenses that are to be deducted from the calculation.

Commissionable earnings

The contract should define the extent of the artist’s income which is subject to commission. This will usually cover all revenue earned by an artist through any activity associated with the entertainment industry, but it’s important to define this carefully as it will often cover far more than just music related income. Typically commissionable income will extend to an acting career in TV, film or theatre and also include income generated from writing books. The justification for a broad definition is that the manager should be compensated for any additional career opportunities which arise as a result of his hard work in growing the artist’s profile. However, you must consider whether the artist manager has any expertise and influence in these areas or whether it would be more beneficial to hire a separate manager or agent to represent you in these additional aspects of your career.

Sometimes people chance their luck and take things a bit too far. Here’s an extract from the actual artist management contract of a very successful South African band which should have seen lots of red pen through it:

“Live performances, radio, television and internet performances and/or broadcasts, theatrical performances, acting, film and video performances, cabaret performances, compering, photographic sessions, modeling, styling, design, coaching or giving lessons or classes in acting, dance, yoga, pilates, and/or martial arts and, without detracting from the generality hereof, any other performances of the Artiste including vaudeville, revue, circus, private parties, dances, tours and ballrooms.”

And as if this wasn’t bad enough, it went on to include a catch all provision:

“Any other business or enterprises of any kind in which the Artiste’s reputation may be put to advantageous use in any way, now known or hereinafter devised.”

And for the cherry on the cake, it went even further and included:

“activities of whatsoever nature which may or may not be directly involved in the entertainment industry.”

What this means is that the band’s manager was entitled to charge commission on ANY and ALL income of the band members, regardless of whether or not it had anything to do with the entertainment industry. A manager with integrity wouldn’t enforce such a provision, but then why have it in the contract in the first place and expose yourself to the risk of abuse?

Sunset clauses

It takes time to build an artist’s career and it may be years before that artist breaks and becomes a success, by which point the management contract may be close to expiry and not be renewed. A manager will want to continue receiving a share of the artist’s income after the expiry of the Term in return for his investment and contribution to building the artist’s career. For example he may have concluded certain lucrative deals during the Term where the financial benefits will only be reaped further down the line. On the flip side, the artist will probably have a new manager by this point so won’t want to be paying a double commission.

To solve this problem most management contracts include what is known as a “Sunset clause” which provides that the manager will continue to earn commission after the expiry of the Term on a gradually decreasing scale for a particular period of time. The specifics of these clauses vary considerably from one agreement to another and are often the subject of much negotiation.

Power of Attorney

An artist management contract will often contain a provision which seeks to grant the artist manager a power of attorney. The purpose of this is to allow the manager to sign documents and contract on behalf of the artist, as if he or she were personally signing the document. Most honest and credible managers will insist that the artist signs any important documentation personally but there may be certain circumstances where it is useful that the manager has the authority to sign on the artist’s behalf. For example for certain short term public appearances and usually after consultation with the artist where he is informed of the terms and has given a verbal acceptance.

The bottom line is that you should be very careful when dealing with power of attorney clauses as their effect can be very far reaching and the potential for abuse is obvious. If you do feel it is necessary to include one in your contract it should be carefully worded and tailored to specific parameters and not simply accepted outright.

These are simply a few of the clauses which you’ll find in a typical artist management agreement, but please note that the above commentary is meant to provide a general overview only and not be seen as formal legal advice. There are many other clauses which are equally as important but for reasons of space and time we haven’t covered them e.g. key-man provision, audit rights, expenses and the obligations of the parties. As with all contracts, the precise wording is crucially important and the inclusion or exclusion or a few words in a paragraph can have a significant effect on its meaning and implications, so always seek expert legal advice to draft and advise you on an artist management agreement.

Contact us for further details.