CHAPTER 5
The artist management contract
When the artist and the manager are ready to shake hands and begin their business relationship, it means they have agreed in principle to a contract and are prepared to exchange promises. Artists agree to have their careers managed and by no one else, and the manager agrees to manage artists’ careers and exploit their talents for commercial gain. That is the short version. As in all business matters, agreements are formalized within a contract in order to have a record of what responsibilities each has pledged to the relationship. This chapter is not so much about law, but rather about reviewing key provisions of a contract between the artist and their manager and understanding the importance of those provisions in defining the relationship between the two. Although there are some artist–manager relationships that are not memorialized with a written contract, something as brief as a written management summary can provide at least a measure of understanding of the promises the artist and the manager are exchanging.
Before we consider contract elements, it is important to understand that in this setting the artist and the manager employ separate attorneys. There isn’t a case in which a single attorney can represent both parties to a contract without creating a conflict of interest. This is a business transaction involving negotiated provisions for two separate parties. By the nature of the transaction, it is required that each party has an attorney to represent his or her interests regarding the terms of the agreement. Each must have separate legal representation.
Artist management contracts approach the term, or length, of a contract in two common ways. The artist will often agree to a three-year management term and offer the manager the option to extend the contract an additional two to four years, provided that both agree to the extension. The manager who chooses not to extend the contract should give the artist adequate notice that they don’t wish to continue to manage the artist beyond the expiration of the current contract. In traditional business settings, a two-week notice is all that is expected when an employee decides to end employment; however, the complexities of managing the many facets of an artist’s career will require a considerably longer notice of intent not to extend the relationship.
An alternative to a management contract defined by time is one that is linked to a certain number of albums. For example, the artist might seek someone who will agree to manage their career for two album cycles with the option to extend for one or two more cycles. The top 200 albums listed from the Billboard 200 chart in September 2010 shows the average weeks on the chart to be nearly 24 (SoundScan, 2010). Considering the amount of time necessary to launch an album and ride the wave into a second album, it is reasonable to predict that a management agreement predicated on two album cycles could easily be for a time period of two years or longer if the artist is active on the sales chart. Album cycles differ among genres. For example, successful country albums tend to have a much longer cycle than successful hip-hop albums. Keep in mind that many commercial albums release a single from a new album six to twelve weeks before the full album is released, and an artist will require considerable assistance from a manager to plan the activities necessary to support the album through public appearances, performances, and other promotional activities.
The method that is used to determine the length of the contract will in part depend on the attorney giving the advice. Some attorneys prefer their contracts to include finite terms that indicate specific amounts of time like months or years; others are comfortable recommending the less specific time restrictions of album cycles to determine when contracts end. Which method is chosen has a lot to do with the experience of the manager and the maturity of the artist’s career.
From artists’ perspective, having a shorter term with an option to extend an agreement will provide a safety net allowing them to end a relationship with a manager that ultimately may not work out. On the other hand, the manager who takes on a new client with an undeveloped career may wish a longer contract in order to recoup anticipated losses and foregone income that inevitably comes with the decision to manage a budding artist.
THE MANAGER’S SERVICES TO THE ARTIST
This section of the artist manager’s contract is very much like any job description you will find. It mentions the specific things the manager is to do on behalf of the artist; these contracts often include a catch-all phrase similar to what everyone finds in a job description: “The manager will do whatever else is necessary to effectively advance the career of the artist.”
Specifically, the management contract lists those advisory duties of the manager, which include providing advice on:
• All phases of their career in the entertainment industry
• The appropriate music and show design for live performances
• Publicity, public relations, employment, and advertising
• Image and related matters
• Booking and talent agencies that work on behalf of the artist
• The selection of other key team members, such as attorneys, business managers, accountants, publicists, and webmasters
This section of the contract also requires that the manager do anything else that could reasonably be expected of an artist manager. Keeping this requirement relatively open-ended takes into account the rapid changes made by technology and evolving business model of the music business.
Another key component of this section of the artist’s contract is one that specifically says that the manager isn’t obligated “to seek, obtain, or procure any employment or engagements for the artist.” The reasoning behind the need for this section requires explanation. The artist’s booking agent has the responsibility to secure performance opportunities and contracts, although the manager often assists in developing the contacts necessary to get those deals done and provides final approval for performance agreements. California law is very specific about what an agent does. In order to be a booking agent who negotiates employment contracts involving California businesses (clubs, venues, etc.), an individual is required by law to be licensed according to the California Talent Agency Act, Labor Code section 1700.4. The state labor commissioner issues a license to those who book shows, and failure to be licensed is a crime. A similar law applies in the state of New York.
These and similar laws are designed to prevent managers of artists from being paid a double commission—one from the artist’s general earnings and an additional commission as the artist’s booking agent—which effectively creates a conflict of interest. For example, a manager who books a $10,000 show would get 10% of the booking, and because of that, would also get an additional 15% as a management commission. Some of the major music-related unions franchise and regulate major booking agencies and require this separation of duties. So the inclusion of a statement in the contract between the artist and manager that says it is not a responsibility of the manager to procure employment for the artist is intended to give the manager something to point to if he or she is accused of violating laws or regulations relating to booking performances.
As a practical matter, many agents will not book small venues because it isn’t worth their time to trade calls with club owners, negotiate and issue contracts, and collect a small amount of money for the time they need to invest to secure the booking. In these circumstances, the manager seeks a small local agency to handle bookings, or sets up a small subsidiary firm for the specific purpose of this kind of booking. Bookings at larger venues in most cities are available only through a well-connected agent.
A final point about the California Talent Agency Act is that the law specifically permits the manager of an artist that performs music to negotiate a recording contract on behalf of their client. This clears up any implication that a record contract is “procuring employment,” and it preserves one of the most important responsibilities of an aggressive and effective artist manager.
An artist usually agrees in the contract to have only one manager, and it is exclusively the manager whose signature is on the contract. On the other hand, most managers require that their services be on a nonexclusive basis, meaning that they can develop their own roster of clients beyond the artist who is the subject of the contract under consideration.
Any artist manager or management company should have a range of clients whose careers are in different stages of development. Many active recording careers end within a very few years and become primarily performance-based. So the savvy manager has new artists and midlevel artists who are developing successful careers to replace those whose careers have matured. And for this reason, a manager should be on a nonexclusive basis with new artists that they sign. An exception to this is a major act that requires full-time management by a single manager or management company.
Power of attorney is a document that gives someone the legal authority to sign documents and make contractual commitments on behalf of someone else. Most powers of attorney are very specific about which contractual agreements that the manager may sign for (obligate) the artist, and there may be limitations set that define the monetary amount within which a manager may obligate the artist. For the artist, the power of attorney may permit the manager to:
• Sign contracts for performances and appearances on television and in advertising and motion pictures
• Endorse checks, deposit money, and pay employees
• Hire and fire the artist’s team members
• Approve the use of the artist’s likeness or voice for advertising, merchandise, and ringtones
New artists may be reluctant to give a manager such broad authority, and many artists prefer to separate the business management function from the general management responsibilities.
THE MANAGER’S PAYMENT FOR SERVICES
Artist managers are most often paid by a commission that is based on the gross earnings of the artist. The amount of the commission paid by an artist to a manager is typically 15% but can be as high as 25% for new artists and as low as 10% for established artists. New artists do not have much earning power at the beginning of their careers, so managers are paid a higher commission rate in order to make their investment of time somewhat worthwhile. Even at the higher rate, managers of new artists will have little or no earnings at first. Managers often forego commissions to which they are entitled, but keep ledger entries anticipating a time in the future when artist earnings will be available to pay them. Managers of established artists may be comfortable earning 10% because the smaller percentage is applied against a much larger income stream and therefore can generate substantial commission payments for their services to the artist.
A variation of the straight commission on gross earnings is one in which the manager may be paid a commission based on net earnings of an artist (meaning the gross earnings of the artist after expenses). It can, however, become difficult to determine what those “net” earnings are, and the manager will want to have some control over expenses that are deducted from gross earnings. In another variation of commission payments, some groups may seek to cap the earnings of a manager because they may be paid more than any single member of a group without limits being placed on what the manager can earn from performances by the artist.
In this section of the contract, the artist and manager also determine which of the artist’s earnings are to be commissionable by the manager. For most new artists, all earnings are commissionable from the beginning. The most cited exclusion from earnings is publishing income resulting from songwriting, but the manager who becomes responsible for negotiating a publishing contract for the artist will generally be entitled to commissioned earnings from that agreement. Advances to the artist that are not included as part of the cost of creating the recording are immediately commissionable by the manager because they are viewed as prepaid royalties to the artist, but tour support money is not permitted by the record company to be commissioned by the manager. In the latter instance, the company feels that the advance is provided to offset the costs of touring rather than to provide an income stream to the artist.
Managers may agree to be part-time career directors for artists, and some manage by charging a monthly retainer to the artist. These arrangements can be less costly to the artist, but the additional “price” the artist pays is a part-time commitment to their career rather than a full-time involvement in their career success.
When discussing this section of the artist management contract, it is helpful for the new artist to understand how compensation flows to the manager and how payments to artist team members reduce their earnings. It can be a surprise to artists to learn how much is taken from their earnings unless they have been prepared by a candid discussion. We discuss more about this in later chapters, but here is an example: before other expenses are paid, a $10,000 booking requires a 10% payment to the agent and a 15% payment to the manager. The remaining $7,500 must pay the artist and all performance expenses. It may seem excessive to the new artist, so this becomes a genuine reality check for him or her. It is better to have the discussion at this point, rather than at a time when both are trying to build a relationship based on candor and mutual trust.
EARNINGS FOLLOWING THE CONTRACT PERIOD
Artist management contracts should, for the exclusive benefit of the manager, have what is termed alternatively a sunset clause or a blackout period. It can best be described as a severance package for the manager. Regardless of what this section is titled, it creates a time after the contract ends during which the manager will earn commission for work that is already planned and is under contract. For example, if a three-year management contract ends and is not renewed and the artist has forty show dates booked for the next year, the sunset clause allows commission to flow to the manager for earnings generated by those performances. These postcontract provisions may be structured to step the earning rate down to perhaps 10% for the first six months, 5% for the last six months, and ends after a year. The artist and the manager may also include special provisions on how royalties from songwriting, recording, and special licensing will be handled when the contract ends. These terms are negotiable between the artist and the manager at the time the contract is negotiated, and both the artist and the manager should take special care to foresee as many special circumstances that may affect postcontract earnings for the manager.
Another contract provision within the sunset clause that the manager will want is the circumstance in which the artist manager will benefit from deals he or she has initiated on behalf of the artist that are not under contract when the management contract ends. For example, if the manager has been developing a major sponsorship deal that is not completed until a year or two after the management contract ends, he or she will be able to claim a commission for any prior work in developing the deal.
The need for a sunset clause in the contract becomes especially important when the artist and the manager both agree to end the contract prior to its expected termination. When this happens, there is pressure on the artist to find someone to continue to manage their career, and having a workable sunset clause minimizes the impact of paying commissions to both the former and the new manager at the same time.
The sunset clause is also important in the event of the death of the artist because it builds in an income stream for the manager and gives the artist’s estate guidance on the wishes of the artist. When Elvis Presley died in 1977, his estate planned to end the relationship with manager, Tom Parker, in part because of the 50% commission he was taking from the artist’s earnings. However, the artist management sunset clause specified that Parker would continue to receive the commission even after the artist’s death. The estate sued Parker, and four years later his commissions ended. The two sides eventually settled out of court in 1982 (AP, 1982).
Many relationships are strained because of money issues, which is why contract sections dealing with expenses and compensation for services are very important. The artist and manager should be candid and very clear in the contract about how much money will be paid to the manager, under what circumstances, and when it will be paid.
A section of the contract describes in detail how the expenses of the artist manager are to be handled. Expenses are out-of-pocket expenditures made by the manager specifically on behalf of a particular artist. Expenses usually do not include office rent for the manager or other costs that are paid by a company that are considered the overhead needed to operate a business. For example, a manager who is required to fly from New York to London to meet with a group to discuss a European tour for the artist will seek reimbursement from the artist for all monies spent from the manager’s personal funds to cover the cost of this trip. Expenses for something like this could become considerable, so the artist may place within this section of the contract a limitation on the amount of expenses beyond which the approval of the artist is required before the expenditure is made.
An example of what happens when limits are not placed on expenses involves Sir Elton John and his former manager, John Reid. Following his world tour, Sir Elton sued his management company and others in 2000 for what he deemed excessive charges for their personal expenses during the tour. His settlement with Reid required the former manager to repay five million dollars in excessive expense claims that had already been paid to him (BBC, 2000).
The contract should include provisions for the artist and the manager to agree to insure each other’s lives if they wish. Because of the important nature of their business relationship, both may be viewed as having an insurable interest in each other’s lives and should have the expressed permission to purchase at their own expense a life insurance policy on each other.
A section of the contract includes a provision saying that the artist will not permit the manager to assign the responsibilities of the agreement to anyone who works in the management company or to anyone who might acquire the assets of the company. Sometimes referred to as a key man clause, this assures the artist that there will be continuity in their management, and that any changes within the management company that would deny the artist the services of their manager will be a cause to terminate the contract. This provision permits the manager to delegate authority to subordinates such as a tour manager but does not permit another manager to take responsibility for the artist’s career management.
Many small management firms allow themselves to be acquired by a larger company, and this section of the contract permits the transfer. What is not permitted by most management contracts is the right of the manager to assign, or sell, the management contract to another manager. As mentioned earlier, the relationship of artist and manager is unique and personal, and an artist will not permit that relationship to be sold.
No relationship is always perfect; there will be occasional disagreements. A section of the contract should give guidance on how the artist and manager will handle these times. Requiring arbitration is a way to remedy disputes that can limit legal costs and often keep disagreements from entering the public arena associated with court systems.
If the manager and artist want to modify the contract, they should put it in writing. The contract should include a section that requires any changes to the agreement to be made in writing. Changes in writing include the advice of the individual attorneys and minimize any misunderstanding of the consequences of the change.
If the artist is made up of a group of performers, special language is necessary to protect the rights of the manager in the event that a member quits or is replaced by the group. The manager should have the option to end the management relationship and cancel the contract within 30 days of any changes in personnel. The contract should also require the member who leaves the group to be managed by the manager in the event they decide to pursue a solo career. This section is intended to protect the manager from being legally obligated to manage an ineffective artist yet protect the investment made in developing the career of the member who left to pursue a solo career.
One of the realities of the American legal system is that people who are under 18 years old cannot be held responsible or liable for contracts they sign. Until recently, that meant that a minor artist—someone under age 18—could sign a management or recording contract and decide to end it. Terminating a contract would have no consequences to the minor, and the manager, publisher, concert promoter, or record label would have to absorb any losses that resulted.
California and Tennessee were the first to create laws designed to make companies less reluctant to enter into business arrangements with artists who are minors, and at the same time protect some of the earnings of the artists until they turn 18. Tennessee’s law is called the “Tennessee Protection of Minor Performers Act,” and comes from the Tennessee Code Annotated books under Title 50. The law permits a minor artist to contract with an individual or company and be bound to the agreement. The law, however, requires the contract to be approved by a judge, who will then regularly monitor the effects of the agreement on the career of the minor. In this way, a third party is involved to assure that the minor is protected, yet there is also a measure of protection for the manager or company. Tennessee law requires that contracts created under this law include a provision that holds a minimum of 15% of the earnings of the minor in a trust account until he or she turns 18. California’s law works similarly, but the trust withholding requirement is 25%.
New York has a law similar to the two mentioned, but it places a limit on the length of most contracts with minors to no more than three years from the date the contract was approved by a court (Berry, 2005).
A copy of a form that is used for contemporary artist manager contracts is included as Appendix B to this book. The form includes the key components of a management contract but should not be taken to represent the final contract that an artist and a manager should sign. What is shown in the appendix is the shell of many of the negotiating points that should be included, depending on the nature of the agreement the manager and the artist seek to memorialize with the contract.
The bottom line is that the artist and manager should employ entertainment lawyers to design their contract.
References
Associated Press. (1982). Presley Estate and Manager Reach Accord on Payments. New York Times Retrieved from http://www.nytimes.com/1982/11/17/us/presley-estate-and-manager-reach-accord-on-payments.html.
BBC. (2000, November 15). Retrieved from http://news.bbc.co.uk/2/hi/uk_news/1024745.stm.
Berry, L. (2005). http://www.berryentertainmentlaw.com/articles/contract_minors.pdf.
SoundScan. Retrieved September 20, 2010.