Before You Sign
With A Manager: part 2
If you read and applied the lessons found in Part 1 of this article, you will have filtered out potential managers whose entire plan was to mail your press kit to record labels, or worse yet, collect thousands of dollars in "expenses" from you in exchange for nothing but a vague promise to get you "signed" someday.
With some persistence, you will eventually find a potential manager with a vision for your band, a comprehensive business plan, and the time, resources, objectivity and connections to make your music career happen. Then, and only then, are you ready for Stage 2, the management contract.
A management contract is a complex legal document that will lay the foundation for a very important long-term business relationship. This relationship has huge implications for your music career-or the lack thereof. So, this is not the time to sign something you have not fully read and understood, nor is it the time to try to cut corners by negotiating legal provisions without an attorney. Since you'll be asked to sign the exact same document as every other member of your band, this is also not a particularly good time to hang out and let your lead singer deal with things. Get a copy of the contract in your hands and read it-your career is on the line.
If you're like 95% of people looking at a management contract, the first thing that will jump out at you is the manager's compensation, which is usually expressed in terms of a percentage of your income. So, let's start there.
1. Show Me the Money.
Most artist managers get between 15%-25% of the artist's gross earnings, with 15%-20% being the norm. However, the financial analysis cannot stop there. It is critical that "gross income" is carefully defined in your contract, and that you understand exactly what it means.
Management contracts often define "Gross Income" as revenue derived from "all of Artist's affairs in the Entertainment Industry," or something along those lines. Somewhere else in the contract, you will probably find the definition of "Entertainment Industry," which often roughly translates in plain English to "everything even remotely related to your music career, whether you think it is or not."
First, consider the scope of the work your manager will do for you, and whether certain revenue streams or aspects of your career should not be commissionable. For example, I once represented a heavy metal drummer who planned on illustrating a children's book. His soon-to-be manager had no contacts in the book publishing industry, and he didn't know the first thing about children's books. To avoid misunderstandings and maybe even a lawsuit someday, we specifically carved out revenue from the children's book (and a few other items) from the definition of gross income. Your attorney can provide more guidance in this area, but give some thought as to whether any of your income sources should not be commissionable.
Second, and perhaps more importantly, certain expenses and disbursements are customarily not included in the definition of gross income, and thus are not commissionable. These include, but are not limited to, monies earmarked for recording costs, video production, tour support and production, opening acts, sound and light packages, and maybe even talent agency fees. Your attorney should make sure these industry standard carve-outs are in the contract, and frankly, they usually are. If they are not, however, this is a red flag-either the contract was drafted poorly, or your potential manager may have some tricks up his or her sleeve. Either way, Red Alert!
One other note, if you are a relatively unknown local band, you might also want to include a provision whereby the manager gets no commission on small sums up to a certain amount (i.e., $ 75). That way, you can play the small gigs, and spend the money on guitar strings, flyers, web hosting or whatever.
2. You Bought What?
Related to the compensation clause, one thing that can dramatically impact your financial picture is the "expenses clause." Basically, this is where you contractually agree to pay the expenses your manager incurs on your behalf, which is typically listed as a total dollar amount per month, and/or a maximum amount per expense, that cannot be incurred without your prior consent. You cannot eliminate this clause completely without making it virtually impossible for your manager to work for you, but there are two things you can do to ensure you don't get surprised with a bill for your manager's plane ticket to France to attend MIDEM.
First, make sure you can afford to spend the maximum expense amount listed each month, or get it changed immediately. Cap the expenses the manager can incur at a realistic amount, and require your prior approval for anything over a certain dollar amount. If you start making more money down the road, and your manager needs to travel constantly or incur significant expenses on your behalf, you can always increase the amount of allowable expenses with a simple contract amendment.
Second, make sure the contract specifically states the manager's general office overhead is not a reimbursable expense, and that expenses incurred in connection with the manager's services to other artists are prorated appropriately.
3. Power to the People
Another key section to look out for is the "power-of-attorney" provision. Note the word "power." This clause gives your manager the power to negotiate, sign and approve all types of contracts and financial arrangements on your behalf, including checks. Do not take this lightly. Your manager will probably want a broad power-of-attorney provision so he or she can work for you without having to hunt you down every time something needs to get signed to play a gig. Fine. But, without some sort of limitations on these powers, your manager could, for example, sign a bad record deal that effectively sinks your career before the ink on the signature line is dry.
The question to ask here is, what exactly does your manager need to handle your day-to-day business affairs effectively? Generally, I put a dollar amount and/or a duration limit on the agreements the manager can sign. For example, the manager can sign agreements for engagements of no longer than five days in duration, and/or for transactions under a certain dollar amount (i.e., $5,000).
There are many other ways to limit the manager's power of attorney, but the bottom line is that you don't want to get blindsided by a major contract or purchase made on your behalf with no chance for prior discussion. Due to the potential damage to an artist's image, I also insist that the manager cannot sign product endorsements on my client's behalf.
4. How Long is this Deal?
Most management agreements have a fixed duration (i.e., term) of three to five years. Like a record deal, this can be expressed as option periods, where the initial contract term is two years, for example, and the manager then has two or three additional one year "options" he or she can pick up. Your initial reaction will probably be to consider asking for a term of three months or so, in case things don't work out or you find something better along the way.
Suffice it to say, few managers will agree to short term, since it will take at least a year to put a solid business plan in place and get money rolling in. However, a short contract term or an unlimited termination right may also not be in your best interest. Think about it. If you can terminate the contract for any reason whatsoever, or the term ends in three months, your manager will have little incentive or time to get your career off the ground.
One solution is to insert performance plateaus into the contract that allow you to get out of the agreement if they are not met. For example, after the second year, if you are not making $ 75,000 a year from your musical endeavors (or don't have a record deal yet), you can terminate the management contract. This doesn't mean you have to terminate the contract if the plateaus are not met, but you get the option. You can, of course, also begin the term with a short trial period that allows you to terminate the contract for any reason, but if you took the steps outlined in Part 1 of this article, you probably already know what you're getting into, and this may not be as important.
5. The Day After
You probably know that a manager's compensation often does not end with the contract term. Along those lines, you may see language whereby the manager gets paid on earnings generated after the term as a result of "contracts entered into or substantially negotiated during the term." Having no contractual limitations on "post-term commissions" is not good, as it could result in your manager taking a percentage of your income for the next fifteen years, without even being remotely involved in your music career.
One way to deal with this issue is called a "sunset clause." There are 101 variations, but the basic concept is that after the term ends, the manager's percentage of your gross earnings decreases every few months until it eventually falls to zero. Thus, your manager has an incentive to work hard to the very end of the term, and you don't end up making their house payments for the next decade or two.
There are many additional ways to deal with post-term commissions, including limiting the manager's commission to records recorded and released during the term, and/or musical compositions created and initially commercially exploited during the term. The point is to make sure that you know exactly what happens when the term is over. This is not something you want to learn after the fact.
6. It Never Rains in Southern California
You should know that in California, only a licensed talent agent can legally procure employment for you (CA Labor Code § 1700 et seq.). In fact, some management contracts will make it clear in ALL-CAPS or bold type that your manager will not book your shows, and you are required to retain a licensed talent agent. This controversial area of the law is another article all by itself, and the mere mention of it can antagonize an entire restaurant full of lawyers into a loud argument (I actually saw this happen once). You should know that the only exception under the California Talent Agencies Act is that your (unlicensed) manager can try to get you a record deal. Period. Managers beware, those who act as an unlicensed talent agent (even booking one show), almost always lose in court in California when it comes to the enforcement of the contract against the artist, and the manager can get hit with severe financial penalties as well.
7. Negotiation Strategy
Now that you've read the contract and have a basic understanding of some key financial terms, turn it over to your attorney for a comprehensive review. Please understand, it is almost never a good idea for artists to negotiate their own contracts. This is not about your negotiation capabilities or knowledge of the law, but the fact that contract negotiations can be long, intense, stressful and sometimes even contentious. At the end of the day, you and your manager (or record label) need to be on the best of terms, since you will be business partners working for your mutual financial success. The last thing you need is a knock down drag-out fight with your record label or manager over a contract provision. Without an underlying good relationship, your contract is not worth the paper it is written on. Read that sentence twice.
I suggest you play the role of "happy artist," give your attorney as much input as possible, and then let the negotiations go. When the deal is done, have your lawyer go through it with you again so you know exactly what you are signing and that all of your concerns have been addressed. Then, rock-n-roll.
8. Conclusion
I hope this article has been helpful to you. This is YOUR career, and educating yourself about the business and staying on top of the contracts will only help you succeed in one of the toughest industries on the planet. Music.
Lee Rudnicki is a music attorney in Los Angeles and the founder of the artist management firm Broken Ocean Entertainment which designs comprehensive business and marketing plans for musicians in all genres throughout the USA. Contact Lee at drumlaw80@hotmail.com and visit his website: http://www.drumlaw80.com