by Harmanjot Kaur
Before you sign
- I'm going to discuss management agreements. Contracts in which a manager agrees to perform certain services, in return for a percentage of an artist's income. The management agreement describes the manager's tasks, explains how the manager will be paid, and establishes how long the manager will work. Before entering into a management agreement, here are a few things an artist should keep in mind. The management contract is an exclusive arrangement. That is, the artist can't hire two managers at the same time. The exception to this rule would be if the artist has a career in another entertainment field in which the music manager has no expertise. For example, acting or writing. Even though an artist can't hire more than one manager, the management agreement usually allows the manager to manage many artists. Beware, however, that in some cases, managing many clients may lead to a conflict of interest. When a manager uses one act as leverage to get a better deal for another. If you're an artist signing with a management company, not an individual manager, the management agreement may permit the management company to choose any of its team as your manager. So, to avoid this, an artist who wants to preserve a relationship with an individual manager at the company should request a key person provision. That provision states that in the event that the key person leaves the management company or is not directly involved in the artist day to day activities, the artist can end the management contract. Some artists sign management deals that also include production or music publishing agreements. Tread carefully with these agreements, they require an enormous amount of trust, because the artist is picking a manager, a producer and a music publisher, all in one shot. This is one of those situations in which an attorney's advice is essential. As with all contracts, you'll benefit by doing some research before making a deal. An artist signing with a manager should have some idea of the manager's track record, connections, and demeanor before signing. As always, there may be situations where no deal is better than a bad deal that binds the artist for several years. To alleviate such concerns, some managers agree to trial periods before executing a longer agreement. Finally, if you don't want to end up like Bruce Springsteen, prevented from recording an album because of a dispute with the manager over an oral agreement, get the management agreement in writing. If you can't get it in writing, save any documentation of the deal, emails and notes and separately write down the key terms. For example, commissions deductions and services. Next, I'll talk about what the manager does for the musician.
What will your manager do for you?
- Most management agreements lead off with the section entitled Manager Obligations, Manager Services or something similar that describes the task the manager will perform for the artist. Typical manager tasks include advising the artist on the various ways to exploit the music or musical performances, hiring people to do things for the artist, for example, hiring an accountant, roadie or sound person and soliciting, negotiating and closing business deals, for example, with record companies or sponsors. If there are additional services that the manager will perform, those should be listed too, for example, managing the artist's social media, handling non-music entertainment services, maintaining the artist's website or administering music publishing. It is not uncommon in the early stages of an artist's career for the manager to take on the role of business manager, handling accounting and finances, or road manager, supervising touring. If that's the case, these duties should also be included in the agreement. In order for the manager to perform these services, particularly to make deals for the artist, the manager usually wants a power of attorney. That is the legal authority to act on the artist's behalf. There are two types of power of attorney. One is the special or limited power of attorney for specific purposes, such as, endorsing checks or booking gigs. The other is a general, very broad power of attorney. A manager may want a general power of attorney but it's usually in an artist's best interest to grant them a limited power of attorney and to list the specific signing rights. The manager and the artist can also negotiate which, if any, contracts need approval by the artist. For example, the manager needs the artist's approval for touring agreements. Next, I'll discuss how the manager is paid.
Paying the manager
- The Management Agreement provides for the managers payment, known as a commission. This is expressed as a percentage of revenue after deductions, usually 10 to 15 percent, and occasionally as high as 20 percent. Management agreements usually state that the commission will be taken from the artist's gross income. The use of the term "gross income" is misleading because it implies income before any deductions, while the management commission is almost always calculated after deductions are made. Keep in mind that the more that is deducted before the manager calculates the commission, the more money the artist keeps. In other words, it's not necessarily the size of the commission, whether it's 10 percent or 15 percent that matters. It's possible, for example, that a 10 percent commission with no deductions may sometime result in smaller payments to an artist than a 15 percent commission with many deductions. So, what should be deducted before the manager gets a commission? Or put another way, what is commissionable income? Generally, an artist tries to deduct, or exclude, income used to pay third parties. For example, money advanced to the artist to cover recording or video production costs. After all, this money is just passing through the artist's hands to pay someone else. By the way, the part of the record advance that remains after all recording costs are paid is almost always included in the managers commission. An artist may also want to deduct the cost of manufacturing hard merchandise such as CDs and electronics, and producing soft merchandise such as t-shirts, clothing, and accessories. Artists should also seek to deduct tour support, or payments to opening acts or session musicians. An artist may also want to exclude income from other non-music sources, such as a book deal. Management agreements provide for reimbursement to the manager for all reasonable business expenses. At the same time, the artist usually wants a heads-up on these costs. One want to track expenses is to include a provision requiring the manager to get the artist's written approval of any expense over a certain sum, say any single expense over 500 dollars, or if cumulative monthly expenses exceed say, 1000 dollars. If the manager incurs an expense on behalf of two clients, for example travels to South by Southwest, and does business on behalf of two artists, those expenses should be prorated based on the percentage of time spent on each client. The agreement should also state that expenses should be paid only from an artist's income. That is, the artist is not personally liable for these expenses. The agreement should also establish paydays for the manager, perhaps once a month, instead of having the manager deduct a portion from each incoming payment. And if possible, the management agreement should also provide that both the artist and manager should have the right to audit each other's books. Next, I'll discuss a form of management payment that is made after the manager and musician have split up.
Post-term commissions
- Artists are often surprised to learn that a manager can get commission payments after they have stopped working for the artist, known as post-term commissions or sunset payments. Managers believe they are entitled to these payments because they negotiated the original deals that continue to earn income. Some managers believe these payments should go on forever. Something an artist should never agree to. Many managers insist on a post-term commission on all albums recorded as a result of a record deal that was negotiated by the manager no matter when the albums are created. In other words, if the manager negotiated a three-album deal, the manager will get a cut of the income from all three albums even if the management agreement ended after only one album was recorded and the other two albums were recorded a year or more after the manager left. As you can see, these types of deals can be quite expensive for an artist. If an artist is paying a 20% post-term commission on an album to an ex-manager and a 20% commission to a new manager for the same album, then 40% of the artist's income for that album is being paid out before the artist gets paid. For that reason, it's in an artist's best interest to limit post-term commissions to albums released during the term. That way, the manager gets paid only for recordings that are distributed while the manager is actually performing services. Whatever sums are included in post-term commissions, whether from new or old recordings, it's in an artist's best interest to seek a decreasing percentage after termination. For example, if the manager's commission was 20%, it could decrease to 10% for one year after termination. After that, that manager receives no more income. There are other post-term commission compromises. Sometimes, the time period for post-term commissions is tied to the length of time before termination. If the manager worked for the artist for five years, the post-term commission could be for five years or some similar calculation. Not everyone is in the position to negotiate these terms, but if it's possible, an artist will benefit from any limits on post-term commissions. Next, I'll discuss the good, the bad and the ugly of manager termination.
Terminating a manager
- Sometimes, management relationships end badly. For example, The Jefferson Airplane engaged in a bitter 21 year battle with their former manager during which they were blocked from receiving record royalties. A management contract can help avoid some of these problems, define each party's rights, and establishing rules for resolving disputes. Let's look at some of the contract provisions related to management artist breakups. The simplest way to end a management agreement is to let the time run out. The length of the agreement, that is, how long the manager has a job, is established in the term provision. It is usually in the artist's best interest to keep the initial term as short as possible, perhaps one or two years. Managers usually prefer a longer initial term, at least three years, because it often takes that long for the artist to gain traction. Keep in mind that we're only discussing the initial term. The parties are always free to renew the agreement for subsequent terms. Renewals can be voluntary, both parties agree to renew, or they can be mandatory, for example, the contract automatically renews if a goal is achieved. The term can be defined in many ways. It can be a fixed term agreement for a specific number of years. It can be a short initial term, for example, one year to test out the waters before renewing for a longer term. It can establish an earnings goal that has to be reached before renewal occurs. It can establish a signing goal, for example, the manager must negotiate a record contract within a certain period of time in order for the agreement to continue. What about firing a manager before the term ends? Like all agreements, a management contract can be terminated if one of the parties commits a material breach. For example, if the manager embezzles funds. But if an artist wants to end the management deal during the term, and doesn't have a legal reason for doing so, then the manager may argue that there are two or three additional years of future records, concerts, and other possible artist income that will be denied to the manager. In other words, the more time that is left on the agreement, the more damages that the fired manager can claim. Disputes over firing a manager are resolved in many ways, but usually they involve some kind of cash payout, and/or additional payment. For example, the manager might get a lump sum fee, for example 10,000 dollars and an increased post term commission. If a group has signed a management deal, and the group breaks up or some members leave, the management arrangement may not always end. Often, a management agreement includes a leaving member provision. That gives the manager the right to manage all or some of the members who leave or disband. I talk more about leaving member provisions in the chapter on record contracts, but in general, these provisions disfavor artists. Two contract provisions that also affect management termination are attorney fee provisions, a clause that requires the losing side in a legal dispute to pay the winning side's attorneys fees, and dispute resolution provisions that require mediation, arbitration, or both. We discuss both of these in a separate video on boilerplate provisions.
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