Let’s face it – the music industry is one of the hardest to break into. Each year, thousands of musicians, songwriters, singers, bands, and recording artists make the decision to try to take their passion and talent beyond a hobby and turn music into a career. One of the pivotal relationships that can help you get there is a relationship with an artist management company.
If you’re looking for some guidance on negotiating a management agreement with a manager, then stop for a moment and congratulate yourself. This is a sign that you are probably already are or are on the verge of becoming a successful music artist, band, or group. Congratulations! Signing with a manager is often the first step to being signed by an independent or major record label, which can launch a successful music career for all types of music professionals, including singers, songwriters, bands, groups, and others.
As you think about all the possibilities that may lie in your future, you may have immediate concerns about what your agreement with the management company or manager should look like, what the standards are for the music industry, and if there’s anything you can do to protect yourself from being exploited.
Obviously, the music industry can be ruthless, and there are often way too many stories about artist-signing agreements that were very unfavorable, leading to circumstances in which they were taken advantage of by those they trusted or thought they could trust. These are circumstances that any artist would want to avoid.
If you are negotiating to sign or have already received a draft management agreement with a recording artist music manager or management company, and need to know what to negotiate, check out our guide below. Obviously, there’s no way to address each and every provision that may be in your agreement, and if you need help, we recommend that you reach out to us to get help specific to your situation.
#1 – What is the Manager Going to Be Doing?
One of the most unusual shortcomings in an artist management agreement is often the complete lack of any statement of what the manager is actually doing or supposed to be doing for the artist. Often times, this is intentional. The manager will provide the artist with an agreement that says nothing about what exactly the manager is going to be or supposed to be doing. This is a negotiating term that you will want to have spelled out with greater specificity. The manager should be counseling and advising the artist in all matters relating to the artist’s entertainment career, assisting the artist with engaging producers, engineers, mixers, writers, directors, choreographers, vocal coaches, video directors, producers, and other creative and technical personnel.
When we give legal advice and help negotiate artist-management agreements for recording artists and musicians, we often typically insert provisions requiring that the manager deal with the artist fairly and in good faith. This can be important because managers often manage several artists, bands, groups, and other music professionals, and there can be times when the manager is presented with a conflict of interest and does not always act in the best interest of the artist.
#2 – The Term
Another major point of your artist-management agreement is going to be the term of the relationship (the contract duration). You’ll probably notice that the management agreement you’ve been presented with has a term that is either incomprehensible or seems to last an eternity.
In the world of an emerging artist, one or two years is often a lifetime. If you are being presented with a management agreement that is based on album cycles, often two or more album cycles, you may be committing to signing with the manager for four to six years or longer. This is way too long of a term to be signing with any one management company. Again, the vague, ambiguous, and often difficult-to-understand term provisions in an artist-management agreement are often intentional. This is done to allow the management company to lock in as many years as they want with you if you are successful in the music industry. If you are not, the management company will usually simply drop you off their roster, pursuant to a one-way termination paragraph that allows the management company to terminate the relationship at any time for any reason. Note: These termination provisions are often not mutual, which means you cannot get out of the agreement until the term is concluded, but the management company can leave at any time. If this doesn’t sound fair, it’s because it’s not!
When we revise artist management agreements on behalf of artists, bands, and groups, we typically negotiate down the term of the agreement so that it is fairer and does not lock the artist into signing with a manager for an extremely long period of time or a term that provides the artist with no way to cancel or get out of the agreement if things with the manager do not go well.
#3 – Signing Authority
It is very common in management agreements for the manager or management company to have the authority to sign agreements on the artist’s behalf. Often, this is done without the artist knowing about it or approving the agreement. If the engagement or opportunity is one that the artist or band does not particularly want, then this can create friction between the artist/talent and the management company.
So this is definitely one area of the contract that needs revision. If your artist-management agreement has these kinds of terms, the language needs to be changed so that the manager is not able to bind the artist into agreements without the artist knowledge or approval, preferably in writing. The manager may argue that it is not always possible to get the artist’s green light on minor matters, so a middle position tends to be one in which the artist gets a certain amount of time to respond, like five or seven days, and if the artist says nothing or does not respond, then the manager can agree to the terms being presented to the artist on the artist’s behalf.
When we are negotiating these kinds of agreements on the behalf of artists, musicians, and singer/songwriters, we usually take out this language entirely and change it so that the management company cannot agree to contracts on the artist’s behalf unless getting the artist’s written consent. Management companies and managers do not always like these types of artist-favorable provisions, but that’s the point – protecting the artist.
#4 – Manager’s Percentage Commission
By far, the most disputed paragraph in artist management agreements tends to be the amount of commission that the manager receives for representing the artist’s entertainment activities.
The most common question we hear from artists, musicians, and bands in the music industry is as follows: What is the standard commission that should be paid to the manager for the manager’s or management company’s services? The truth is, however, it depends on a variety of circumstances, which we will explain in further detail below.
Over the past 15 years, the music industry has changed dramatically, and these days, management companies sometimes do more than just “manage” artists’ professional careers. They get involved with branding, developing the artist, and taking on the roles of agents in securing opportunities, endorsements, sponsorships, commercial tie-ins, and other exploits, in addition to simply managing the artist’s musical pursuits. As a result, managers and management companies now generally ask for more of the artist’s income. If the manager is going to be involved in the actual production of the music, i.e., interfacing with the studio, recording, mixing, mastering, engineering, etc., then expect them to want an even larger percentage. These can range from 25 to 50 percent if the manager is being aggressive. If the manager is running their own record label and is putting down their own money to help promote the artist, for example, by hiring producers, singers, studio musicians, and arranging for the production and release of the single/EP/LP/album, then the manager may want an even greater percentage – sometimes as high as 75 percent or more.
Are these percentages fair or not? It is hard to say because it largely depends on the reputation of the manager. If the manager is well-connected and known in the music industry, they will probably be able to command terms that are not very favorable to the artist. On the other hand, you may be negotiating with a manager who overvalues their own worth. In our experience, managers, like many other types of company-side professionals in the LA music industry, dramatically overvalue and overstate the nature and value of their “connections and relationships.” So tread carefully!
Considering the other side of the spectrum, though, for a manager who is really only sticking to management and is not getting involved with furthering other elements of the artist’s entertainment career, generally the standard is 10 to 20 percent of the artist’s gross income.
This brings us to the next point, which is, what is ‘gross income?’ Gross income is a term that refers to all income (money) of any kind or nature that your music career earns. The opposite of gross income is ‘net’ income, which is all gross income minus all expenses. For example, if you make $100,000 a year in music income and your expenses are $25,000, your gross income would be $100,000, and your net income would be $75,000.
Should a manager be able to get a percentage of ALL of the money your music career earns? Not exactly – but let us explain why. First, you are not going to be able to keep all of the money you earn. For example, a portion of your income is going to go towards paying a variety of individuals and entities who you will need during the music creation, promotion, and distribution process. This may include songwriters, composers, studio musicians, vocalists, back-up singers, producers, mixers, engineers, sound production people, etc.
All of these people will usually have agreements in place with the manager or with you or with a label that allow them to earn income through royalties/residuals based on how well your music work does. All of these expenses should be backed out of what the manager is entitled to as these are not exactly “keepable” income.
The same is true for tour logistics, tour support, travel, per-diems, and all tour and performance-related costs. Touring is expensive, but it also generates a lot of income, and a lot of that income ends up in the hands of the people and entities who made the tour possible. These expenses are also paid out of your gross income and should be backed out of what the manager should be entitled to skim off the top.
Finally, don’t forget taxes! In Los Angeles, taxes are assessed on a county level on a “gross-income” basis – not net. This is the opposite of how it works for the payment of state and federal taxes, which are done on an adjusted net-income basis, i.e., you are taxed based on your income minus expenses, not all income. It is done the reverse way if you work in Los Angeles, so you are going to be paying taxes on your total gross income to the city of LA. This is another type of expenditure that should be backed out of the income your manager should be able to use when calculating commissions.
The above are a few examples that we explored in depth. There are others, and when we review and revise these agreements for music clients, we always modify the definition of how the manager’s commissions are calculated so that it is not including specific items. These commonly include:
- publishing income paid to third parties
- actual third-party recording costs
- recoupable deficit tour support payments
- fees, advances, royalties, and other payments made to third parties
- sound and light rental costs
- cost of goods and costs incurred in connection with the manufacture of merchandise
- loans or amounts paid to artist’s loan-out company to reimburse for payroll taxes, guild, or union pension and welfare payments
- all other monies that are tangential to the artist’s entertainment activities.
Why is it appropriate for these items to be excluded from gross income? Because these items are often not income realized by the artist. These amounts may have been taken as income, but they are going to be expenses incurred by the artist. It would be unfair for the artist to pay commission on amounts the artist actually isn’t retaining. The artist should take great care to pay attention to the way course income is defined in the management agreement. Many times the term is not even defined. This would be a mistake.
#5 – Post-Term Commissions
Management agreements often also contain post-term commissions. Post-term commissions consist of residual payments owed to the manager after the term of the management agreement is over. What is the reason these are in place? From the management company’s perspective, assisting emerging artists develop their brand, style, sound, tone, and introducing them to entertainment industry professionals early in their career can have a positive effect over the course of the artist’s life. Management companies believe that they should be compensated for all the work that is done on the front end of the artist’s career that may benefit the artist in the years to come.
From the artist perspective however, it seems somewhat unfair to be paying someone for work that they are no longer providing. When advising clients, I often use the example of a plumber: If you need a plumber to help you install plumbing in a house you are building, should the plumber be paid for their work for getting the job done, or should they get that as well as a percentage of your mortgage for the next 30 years or however many years you live at the house? Unfortunately, management companies believe that the latter is the most appropriate way for their compensation because of a belief that early work done for an emerging artist will benefit that artist during the artist’s entire entertainment career.
So there is often a push and pull between artist and manager over the amount of post-term commissions that should be paid to the management company. The middle ground that we try to strike for one representing the artist consists of two mechanisms. First of all, there should be a termination provision that does not allow the manager to recoup post-term commissions, if the manager has breached its fiduciary duties to the artist, or as is often the case, not really done very much for the artist. On the other hand, if the agreement ends up being terminated for the artist’s convenience, then the management company should be compensated for the work that they did on the front end of the artist’s career. Typically, this takes the form of sunset provisions where residual commissions are paid, which step down over a period of years. Getting an entertainment lawyer to help you with these provisions can strike the right balance between compensating the manager for the manager’s investment of time into the artist but while remaining fair to the artist at all times.
#6 – Manager’s Expenses
In every management agreement we’ve ever seen, the manager and management company reserves the right to be repaid its reimbursable expenses from the artist’s gross income. The problem, again, is what counts as a reimbursable expense?
Management agreements can vary in what they believe they may be reimbursed for. Obviously, out-of-pocket expenses, such as travel, hotel, and other expenses incurred at the artists request for the artist’s behalf, are generally reimbursable. However, an artist should not be responsible for any portion of the manager’s overhead expenses, which might include rents, leases, utilities, salaries, wages, or other similar items. Artists should ensure that the manager is not charging the artist for the manager’s own legal expenses or attorneys’ fees. If the manager is being reimbursed for travel and accommodation costs, the artist should ensure that the manager is not being given the opportunity to build first-class accommodations at the artist’s expense.
Further, when we are hired to serve as legal counsel to an artist for a music-management agreement or negotiate artist-management agreements, we typically include provisions restricting the manager’s ability to incur out-of-pocket expenses with vendors who the manager has a relationship of any kind. What we have seen time and time again is that managers typically tend to have friends or family members perform related services, such as travel bookings, tour logistics, studios, production services, and other services that an artist typically needs. The problem that arises in these situations is that the related entity that has a relationship with the manager often does not present billing terms and rates that are competitive and are often WAY higher than market value. However, because the related entity has a relationship with the manager, the related entity’s services are used for the artist in the manager’s roster. This would generally be considered self-dealing and a breach of fiduciary duty of the manager to the artist. The problem is that the artist often never learns of the relationship between the service provider and the manager.
In some instances, the service provider may even issue kickbacks to the manager for using the service provider’s services, which allows the manager to double-dip. An artist negotiating a management agreement should be wary of all these common practices in the entertainment industry.
We typically add in provisions preventing a manager from using a service provider with whom the manager has a familial relationship or any relationship of any degree in excess of 5 percent, meaning the manager owns more than 5 percent of that business, without at least disclosing the same to the artist. This allows the artist to at least have a clue as to what’s going on between the manager and the service provider. The artist can then solicit competing quotes from third parties with whom the artist manager has no relationship to determine whether the fees being charged by the service provider are actually fair.
#7 – Statements and Documentation for Expenses
Nearly every artist management agreement we’ve ever seen often contains very poor documentation and statement provisions. By these terms, we are referring to the documentation the management company must provide to the artist explaining what charges are being assessed against the artist’s account, what income has been received, and what the artist’s current income consists of. Often, this is intentional.
Management companies generally dislike accounting to artists and providing statements of what expenses they’ve incurred and what such expenses were for. Can you imagine bringing up a bill and sending it to someone else to pay but never telling them what was actually purchased? However, this happens all the time when it comes to managers and management companies. This is one of the best reasons for getting an entertainment attorney or music attorney involved in representing you. Artists need to adjust documentation statements, provisions, and management agreements to ensure that all the backup documentation for expenses being incurred by the management company or manager is being provided to the artist so that the artist understands what is being deducted from their income and why.
As an artist, you will be working very hard to make music and earn money making music. You should not allow commission-based personnel, such as managers, to eat into your gross income, at least without knowing why and what for.
#8 – Accounting and Audit Rights
Management agreements also usually require the money earned by the artist or music group to be paid to the manager. Generally, the way it works is like this: The music group/band/artist earns income; the checks are paid to the manager or management company, and then the manager deducts all expenses, takes their fees out, and then pays the remaining amount to the artist, assuming there are not others who need to be paid, too, such as agents, business managers, or other commission-based professionals assisting the artist. Management agreements that involve the manager handling the artist’s money often contain very poor accounting and audit-right provisions. Accounting audit rights allow an artist to ask the manager to provide a monthly, quarterly, bi-annual, or yearly statement of all the income that has been collected by the manager or otherwise handled on the artist’s behalf so that the artist can tell how much money has come in from what revenue streams. Not all management-company agreements contemplate the manager to handle the artist money for the artist, and sometimes, these tasks are delegated to an accountant or business manager. However, when the manager does contemplate handling the artist’s money, the artist must be sure to include provisions allowing the artist the reasonable right to inspect the manager’s books and records with advance notice on a regular basis.
#9 – Indemnification
Typically, management agreements also contain another problematic provision that is very anti-artist – the indemnification provision. Indemnification provision shifts the risk of liability. In common law, every person that does wrong is responsible for their own wrongdoing. An indemnification provision changes that rule so that a lesser-leveraged party takes responsibility for a better-leveraged party in the event that anything goes wrong. This is very unfavorable to the lesser-leveraged party. Why do indemnification agreements exist? Because people learn different bargaining positions. So a common intention of the provision will require the artist to indemnify, meaning pay for the costs, expenses, attorneys’ fees, and all other expenses of every kind or nature, to the manager, if a legal claim is brought against the manager relating to the artist. The problem with this model is that it is backwards – if the manager’s undertaking all the duties on the artist’s behalf, then the manager should be the one indemnifying the artist if the manager takes an action or omission that ends up resulting in a legal claim. But the reverse is often what is present in artist management agreements. It makes no sense. When we’re negotiating management agreements on behalf of artists, we either eliminate indemnity provisions to go back to the default or adjust the provision so that no innocent parties are indemnifying the other party for the perpetrating parties’ own wrongful acts or omissions.
#10 – Intellectual Property
One of the top legal issues for musicians and recording artists is always intellectual property. As the saying goes, he who owns the rights to the music in the compositions has what matters. In some management agreements we have seen, sometimes managers overreach when it comes to intellectual property. The music itself, the recordings, the masters, and the composition rights to the music of the band, group, or recording artist have no business being under the ownership of the manager. The most the manager needs is a license to use the artist’s name, bio, image, and likeness, or other intellectual property in the music and songs, to do the manager’s job. If your management agreement contains any provision in any way that transfers ownership of the intellectual property in the musical compositions to the manager, this is a huge red flag. You must get an entertainment attorney or music-law lawyer to assist you with fixing and revising the intellectual property provisions so that you own all of your compositions, the music, and the sound recording. Each of these are separate rights – the words, the music, and the sound recording. Make sure your agreement addresses all three.
#11- Key Man
Finally, one of the terms that we also recommend for artists is to ensure that their artist-management agreements contain a key-man provision. A key-man provision ensures that the artist is paired with a representative of the management company that they actually like working with and work well with. Typically, what happens is that an artist is approached by a manager/management company that they really get along well with. But what happens if that individual leaves the company, starts their own company, or otherwise becomes uninvolved in the artist’s day-to-day affairs? Is the artist really stuck with the management company and working with the new manager or new person assigned to their management without having any rights over who he can work with? This is the very purpose of the key-man provision. A key-man provision allows the artist to have some say over who is going to be managing the artist, band, or group on a day-to-day basis for the life of the management term. We typically try to give the artists some right to terminate the agreement if a certain number of replacements are made, and there is not a good relationship between those replacement individuals and the artist.
Getting Revisions and Legal Help
Obviously, making revisions to an artist-management agreement should be done by a trained music attorney with experience in the industry. We do not recommend that you try to make these changes or review the language in your management agreement to identify legal problems on your own. Why? Here’s an example: Does the following sentence seem unusual to you or problematic or a one that could alter your rights?
“The entertainment activities arising out of this agreement shall be considered one accounting unit.”
Seems innocent enough, right? This is the problem with music industry contracts. Very innocent-sounding sentences can have dramatic legal effects. The sentence above is what is called a cross-collateralization provision. It is one of the most devastating provisions for artists, groups, and bands. It allows the party on the other side to cross-collateralize all revenue streams relating to the artist’s income. Because different exploits earn income differently (for example, merchandise and touring is far more profitable than selling recorded music), record labels and other professionals involved with the entertainment industry can recoup money faster, necessarily paying the artist less if all revenue streams are counted against each other. This means that expenses or recording costs can be recouped from merchandise income and expenses on video production can be recouped using total income. Historically, major revenue streams were separated but with the influx of 360 agreements and the merging of revenue streams, cross-collateralization allows record labels to recoup their expenses and minimize the amount of income actually earned by the artist by deeming all revenue streams as one accounting unit. Without an attorney to help you identify and revise problematic legal language like this, your revenue streams as a musician could be dramatically different.
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Flat-Fee Quotes for Management Agreement Reviews
Axis Legal Counsel often does reviews and revisions of artist-management agreements on a flat-fee basis. We are usually able to review, revise, and provide artists with explanatory information about the need for the changes for a flat fee. If you would like to get a flat-fee quote for your management agreement, fill out the form below, upload your agreement, and you will receive a quote within 24 hours.
AXIS Legal Counsel represents numerous types of entertainment clients across the country in entertainment negotiations, opportunities, deals, and disputes. Whether it is agents, managers, talent, musicians, artists, visual artists, producers, filmmakers, directors, photographers, actors/actresses, models, writers, authors, filmmakers, composers, television, singers, songwriters, publishers, or technical talent, AXIS Legal Counsel offers strong representation to all those within the entertainment industry. Rabeh M. A. Soofi, managing attorney of AXIS is ranked as one of the “Top Women Lawyers of Southern California” by SuperLawyers Rising Stars, and is a Los Angeles entertainment lawyer representing entertainment clients with numerous types of legal matters. AXIS handles entertainment matters as well as entertainment litigation, including music royalties claims. For information on retaining AXIS Legal Counsel for legal advice on any entertainment matter, contact [email protected] or call (213) 403-0130 for a confidential consultation about your legal issue, or visit our Entertainment Portal for more information. AXIS is a Los Angeles entertainment law firm representing clients with numerous types of entertainment matters and disputes.
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