Management Deals: The Basic Deal Points

You wonder about people who made [and lost] a fortune, and you always think they drank it up or stuck it up their nose. That’s not usually what brings on the decline. It’s usually the battle to keep your creative child alive while keeping your business shark alive. You have to develop cunning and shrewdness, and other things that are not well-suited to the arts.

–Joni Mitchell

Keeping one’s “creative child” side and “business shark” side alive at the same time is a hard job for anyone, whether a successful artist living in a pressure cooker type of environment, or a struggling new artist facing all of the frustrations of trying to get established in the music industry.

A solid manager can greatly help an artist to balance, in a healthy way, the artist’s creative needs with the artist’s business needs, not to mention the many other valuable services a good manager performs. Yet, the artist-manager relationship is fraught with many potential problems for an artist, since there are many ways in which an incompetent or dishonest manager can sabotage an artist’s career, intentionally or unintentionally.

When choosing a manager, an artist should evaluate the prospective manager’s knowledge of (and connections in) the music business, the manager’s personal compatibility with the artist, and the amount of time the prospective manager will be able to devote to the artist. It is also important to check out the prospective manager’s background.

After the artist and the prospective manager have decided that they want to have an artist-manager relationship, they (or their attorneys) should then discuss and negotiate the specific terms of their future relationship, such as how long their relationship is to last, what the manager’s compensation will be, and what the manager’s specific responsibilities will be.

The outcome of these negotiations will be greatly affected by the relative bargaining power of the artist and the manager. If, for example, an experienced and well-connected manager is negotiating a management contract with an unknown artist, the manager will obviously have much more leverage than the artist will. In fact, sometimes the artist is facing essentially a “take it or leave it” situation.

Once the most basic terms of the management deal are agreed upon, a detailed written management agreement will then be prepared by one of the parties’ attorneys. At that point, there will often then be some further negotiations between the parties concerning some of the detailed sections of the written management agreement. If so, then a revised version of the written management agreement will be prepared before the artist and manager actually sign the agreement.

Although it is not possible within the space constraints of an article like this to discuss all of the important aspects of management contracts, there are several aspects which are particularly important: (1) The future duration of the artist-manager relationship; (2) The manager’s compensation; and (3) If the “artist” is a band, then the possibility of personnel changes in the band.

1. Future Duration of the Artist-Manager Relationship. Management contracts generally have an initial term of one to two years, and often give the manager the option to renew the contract once a year for several more years after the initial one or two-year term expires.

In recent years, it has become more common to see the length of the contract (“the term”) defined not by a certain number of years, but instead by “album cycles.” In other words, the manager will remain the manager for as long as it takes to release a certain number of albums, rather than the contract being for a certain number of years.

Before an artist and manager enter into a management contract, they should carefully evaluate and discuss their expectations of each other. Their management contract should take into consideration their expectations and should contain provisions allowing an early termination of the management contract if the parties’ respective expectations are not met. Often, for example, management agreements provide that if a record deal is not obtained within a certain period of time, or if the artist does not earn a certain amount of income each year, the artist will have the right to terminate the management contract.

A manager’s compensation is typically based on a percentage commission of the artist’s earnings. Therefore a prospective manager will often push for a long-term management contract, so that the manager can participate in the artist’s income for as long as possible. The artist, on the other hand, may not want to get locked into a long-term relationship with a manager, particularly if the artist does not know how compatible the artist will be with the manager, or if the artist is not sure how much the manager will be able to contribute to the artist’s career.

2. Manager’s Compensation. Managers usually receive in the range of fifteen to twenty percent of the artist’s gross income. This manager’s commission is separate from, and in addition to, the commissions paid to booking agencies for booking shows.

Management contracts usually contain very complicated clauses pertaining to commissions. Some management contracts, for example, provide for one particular commission percentage for income from record sales, and a different percentage for other types of income. In addition, management contracts will sometimes provide for changes in the manager’s commission rate as the artist’s income increases.

Incidentally, there is one aspect of management contracts that comes as a surprise to many artists, which is that the artist’s financial obligations to the manager don’t necessarily end when the management contract expires. This is because many (if not most) management contracts provide than even after the contract expires, the manager will continue to receive income from deals which had been entered into during the term of the management contract. If, for example, the artist and the manager have signed a three-year management contract, and then sometime during that three years the artist signs a five-year recording contract with a record company, the manager will normally be entitled to receive a certain specified share of the future record royalties even after the three-year management contract has ended. (These are commonly referred to as “tail-out” or “sunset clause” commissions.)

By the same token, most management contracts also provide that the manager’s percentage share of such income will be reduced after the management contract ends, and/or that there will be an outside time limit after which the manager is no longer entitled to share in the artist’s income. For example, the artist and manager might agree, among other things, that the manager will receive a share of the artist’s income and royalties for only one or two years after the expiration of the management contract, even though the artist’s recording contract may be generating royalties for years after that.

3. Personnel Changes. If the “artist” is a band, the management contract should anticipate the likelihood of personnel changes in the band. For example, will the contract give the manager the right to manage the careers of any departing members after they leave the band? And will the addition of new members to the band require the approval of the manager, as some management contracts provide? These types of potential problems need to be covered thoroughly by the management contract.

CONCLUSION

Management contracts can be exceedingly complex, due in large part to the complexity of the music business itself. Yet a carefully drafted contract will substantially reduce the likelihood of future misunderstandings and disputes between the artist and manager.

 

Editors Note: The reader is cautioned to seek the advice of the reader’s own attorney concerning the applicability of the general principles discussed above to the reader’s own activities.

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