Signing a Management Contract
Published in PM June 2008
Music Business : Management
Keeping up with the changes taking place in the modern music industry is almost a full-time occupation, and certainly one that requires good contacts and strategic planning. If you're wondering how on earth to begin negotiating your way to musical prominence, perhaps it's time to consider the pros and cons of signing up with a manager.
Pods, players, boxes, CDs, DVDs, memory sticks, mobile phones, uploads, downloads, sideloads, free content, paid for, bundled, subscribed, rented, socially networked — however you look at it, the music business is mutating rapidly, with now more ways to take your music to market than there are artists. In this bright digital future, the good news is that artists will be able to maintain a greater degree of autonomy and control over their careers, as well as a potentially larger share of the profits than was possible in the old world order. Thanks to technology and shifting business models, the creator is back in the driving seat, but must now be willing to take the wheel.
Without major label backing for your latest musical offering, you'll still need professional guidance in turning a passion into a professional career. Don't believe the hype; a few hundred plays and a handful of deranged MySpace 'friends' does not a career maketh. The support of a well-connected and informed manager can steer you through the music business maze, save you precious time and disappointment, help you conclude the right deals and free you up to concentrate on the minor matter of making music.
Before joining forces with a manager, it helps for you to reflect on what you want from your music career. Are you looking to become the next global superstar or do you simply need a little help booking gigs at your local pub? Perhaps you think you need a record deal in order to be successful, but label deals are far harder to come by in today's climate, and in most cases record company advances won't underwrite a life of rock excess! These days, new and more established artists are opting for a more DIY route to success, aided by a supportive management team and the reach of the World Wide Web. Outside of the traditional record deal route, artists and bands can still make a healthy living engaging in a variety of activities, including playing live, selling merchandise, offering tracks from online stores and their own web site, distributing their own CD, pitching music for commercials and film — and all this without ever having to sell shiny bits of plastic for Mr Sony!
The role of a manager
Managers fulfil a number of overlapping roles: part business advisor, nanny, psychiatrist, fan and visionary. Your manager should possess integrity, an excellent contacts book, and be able to design an appropriate strategy to map your route to success.
There are basically two types of manager of significance to the career of the artist: the personal manager, who handles all day-to-day negotiations and dealings on behalf of the act, and the business manager, who provides accounting and other financial services to more established acts. You're unlikely to need a dedicated business manager at the start of your career, but you should probably seek the advice of a music industry accountant to help you structure your tax and other business arrangements (for example, company formation).
Finding a good manager is by no means an easy task, and should you make the wrong choice, you can find yourself drifting and ultimately be deprived of the best years of your music career. It's essential, therefore, that you vet any proposed manager thoroughly, and establish whether there is indeed a good personal and professional fit before signing any management contract.
Quite often, it's the manager who discovers the artist. You may be approached at a gig or contacted via your web site, but don't be flattered into allowing the first manager who comes your way to assume responsibility for your career. Do your homework. Word of mouth is probably the best form of recommendation. Ask the person in question whom they've managed before and where in the industry they have contacts. Lack of previous management experience needn't be a problem — everyone has to start somewhere — provided there is obvious enthusiasm and an understanding of how the music business operates. Where your first manager expects a long-term contract to be signed, this should be avoided until after you've had a chance to see how things pan out during an initial trial period. Moreover, your manager should only get paid when you get paid, so don't agree to pay any upfront fee or settle on terms that you simply can't afford.
If you don't have confidence that the manager will be able to secure the appropriate deals for your music — be it in live work, publishing, distribution, recording or merchandise — don't sign a management contract! And remember, until you're generating sufficient income to justify hiring a manager, you probably won't need one at all. Before there's proper money on the table, it's best to book your own gigs and promote yourself to your fans. In demonstrating commitment to your own career, and by establishing a fan base and a database, you're more likely to attract interest from a manager higher up the food chain who will be able to get you to the next level in your career.
If you do succeed in finding a reputable manager who shares your artistic vision, they will still need sufficient time to dedicate to you. A successful manager is one who represents artists who already take up most of their time, or who works for a management company looking after a roster of other clients. Unless they're 'between bands' or looking for a fresh challenge, you need to ascertain how much time they can realistically devote to you. If the manager takes you on simply to earn their cut of recording or publishing advances then discards you soon after, this will be detrimental to your long-term career prospects.
As the music industry becomes more legally and commercially complex, and as more income is earned through digital channels, it pays to find someone who will not only champion your cause, but who has the right mix of commercial, legal and creative acumen. There's no shortage of 'qualified' managers in the music business. Many are former record label executives, lawyers, accountants, or have held management positions in other areas of the industry (for example, booking agents, PR and promoters). These sorts of people understand how the pieces of the music industry fit together, and are able to offer artists the strategic advice they need to get ahead and get paid in the modern marketplace. As record labels continue to cut costs and reduce their rosters, managers are having to widen their skill set, adding artist development to a growing list of duties. This might involve, for instance, pairing artists with producers, financing recordings and sometimes releasing early singles, all with the aim of doing the early groundwork that was once carried out by the record labels.
Before you enter any contract, including a management contract, make sure you seek the advice of an experienced music business lawyer to go over the proposed terms. At the start of your career, your bargaining power is not at its peak, so you may need to take a pragmatic approach to the deals that come your way. Sign them if they move you a step up the ladder, but make sure there are no nasty long-term side effects. A good lawyer will be able to offer impartial advice — provided, of course, he or she doesn't also act for your manager! Potential conflicts of interest do arise in the music business, but can be greatly mitigated by appointing separate legal advisors to represent the artist and manager where there's a dispute.
In more general terms, the manager is said to owe a 'fiduciary duty' to the artist, reflecting a relationship of mutual trust whereby the manager holds money on account for the artist. By law, it's the manager's duty to act in the best interests of his client, even though this may be compromised where the manager represents a band and one member of the group wishes to leave or sue the others. Robbie Williams encountered just such a problem with his then manager, Nigel Martin-Smith, on leaving Take That.
Management contracts are ostensibly personal service agreements and advisory in nature. However, where either side breaches the contract or the band want out, the courts won't compel the artist or band to stay with their manager. Instead, a claim for monetary compensation (damages) should be pursued. Being an artist manager in the traditional sense therefore offers little in the way of job security. Many artist managers have given their blood, sweat and tears to put the artist on the road to stardom, only to find themselves unceremoniously jettisoned not long after.
The problem lies in the fact that it is the artist who hires the manager, not the other way round, so generally they will have the upper hand. And should the manager wish to sue the artist in court for breach of contract or for any unpaid commission, the costs of doing so will have to be borne by the manager personally, with no guarantee of later recovery. Hence, the vagaries of annexing one's fate to the musical temperament has spurred many a manager into seeking alternative arrangements to the traditional management agreement.
Some managers have responded by forming partnership or joint-venture deals with their artists, allowing the manager a share of the artist's recording and publishing copyrights. Shared copyright ownership entitles the manager to future income streams, even where the artist and manager end up going their separate ways. Provided the manager doesn't have commission earnings as well as taking a share of the recording and publishing profits, such agreements are legal, but the parties are strongly advised to take independent legal advice before signing on the dotted line.
Other managers take on artist development duties in a bid to secure a more lucrative record deal further down the line — the speculate to accumulate model. As record label investment in the development of new acts declines, there's an increased willingness on the part of record companies to outsource the development work to trusted third parties, and in so doing reduce exposure to financial risk at the early stages of a career. Music publishers are also stepping into the artist development space, with a number of them partnering with artists, providing studio time and investing money into early promotion. Thus, where managers invest their own money in developing the artist, a share of copyright ownership and of all future profits may indeed be a fair request. Again, take legal advice if this is something you're involved in.
Other entrepreneurially minded individuals view artist management as somewhat akin to the world of property development. The artist is a commodity, around which a branded portfolio of music-related 'properties' are built. In recent years, Simon Cowell of X Factor fame has built an empire consisting of a number of such properties, spanning TV shows (a major ad revenue spinner), record sales, live tours and mobile content, making stars of its infamous judging panel and selling glossy magazine stories and broken dreams in the process. Cowell has also replicated this multi-format success across the pond, with the equally saccharine American Idol format. As executive, manager and puppet-master, Simon Cowell pays the wages of his production crew, takes ownership and control of his properties, passes 'Go' collecting £40m on the way, and in so doing assures further hopefuls are lured into the talent show circus, keeping his pension pot nicely topped up! Love him or loathe him, there's no disputing that Cowell, in refusing to leave his fate in the hands of one erratic artist, has reinvented the job spec of the modern manager for the multimedia age.
When you do decide to team up with a manager, be careful not to sign your life away. Bands and artists will often take great pains to avoid paying for lawyers at the start of their career, believing that they can't afford it. Unfortunately, this is a short-sighted response. If you can afford to invest thousands of pounds in guitars, drums and studio time, a few hundred pounds for legal fees is possibly the best money you can spend and will ensure that you are more protected should things go wrong.
Signing a contract
The purpose of the management contract is to set out the understanding of the parties in legal terms. However, if there's a lack of trust in the first place, no amount of clever wording or tight drafting can compensate for this — the relationship will hit the rocks sooner or later. Artists often presume that what's in their manager's best interests will necessarily be in theirs, when in fact there are numerous pitfalls to be avoided in the contract.
Managers understandably seek to earn the highest possible commission on the widest revenue streams and for the longest amount of time, sometimes many years after the contract has ended. Artists, on the other hand, usually strive to pay as little as possible for as short a time as possible. It's important to make sure that the manager is only paid for work he or she has actually been involved in procuring.
A management fee of between 15 to 20% of the income on certain specified activities is the norm. The parties will need to decide, for instance, whether all tour income, tour support payments from a record label, revenue from recording and publishing, book and film deals and so on will all be commissionable, or at the same rate. Commission is generally paid on net income (ie. retained profit after the deduction of agreed expenses), rather than on gross income. This is of particular relevance to tour earnings, which tend to be eroded by the high initiation cost of staging a live show.
As mentioned, many managers these days organise for artists to go into a recording studio to make demos, possibly even to record their debut album. For this reason, the management agreement needs to specify how copyright and other intellectual property rights (like artwork and photographs) will be owned. Record labels have historically taken ownership of the copyright in master recordings of artists, but as more managers take on the creative development role, so a need for greater clarity in management contracts concerning copyright ownership is required.
There's also the thorny issue of whether the manager should receive any further income after the management agreement comes to an end. It's common to find a 'sunset clause' in management contracts, allowing the manager post-term commission on the artist's income. But this must always be paid at a reduced rate and for a maximum period of around five to ten years, otherwise the artist may find themselves left with no money to pay a new manager! The objective should be a fair balance between the interests of all the parties. For the manager, there's no guarantee that the agreement will be extended, or even where the manager has helped the artist to achieve success, they may be fired as soon as the money starts rolling in.
In a rather lopsided affair, the manager is usually appointed as the artist's sole and exclusive representative for an agreed set of activities — by reference to a territory, usually 'the world'. However, even though the manager will agree to use his or her best endeavours to develop the artist's career, they are still free to manage other artists or engage in other activities, but the artist cannot appoint two managers (unless for separately agreed territories). This can impact the level of time and commitment the manager can devote to your cause, with the problem further exacerbated where the manager is an employee of a management company handling a busy roster of other artists. It's therefore important in these circumstances to ensure an acceptable level of personal involvement by way of a 'key man' clause.
The duration or term of a management contract stipulates how long the contract will last. Typically, this is by reference to an initial period, during which the manager must meet certain income targets or other defined goals (for example, to secure a publishing deal or live work). If the aims of the initial period are satisfied, further options can extend the contract for a number of years, possibly for three to five in total.
Another bone of contention relates to expenses incurred by the parties: which expenses should be absorbed as day-to-day overheads of the manager's business and which can fairly be charged against the artist's income? Travel, hotels, per diem expenses and so on — all must be accounted for, with spending over a certain agreed threshold subject to the prior approval of the artist. Likewise, commission on record royalties should only be paid after the deduction of recording costs. On live work, the manager should only be paid after deducting reasonable tour costs, including booking agent commission, transportation, PA system and tour manager salary.
In any management contract there should always be well-drafted accounting provisions, whereby the manager will provide regular statements detailing all income received on the artist's behalf. It's also wise to insist on separate bank accounts, with income from record sales, publishing, touring and merchandise paid into an account solely controlled by the artist and their accountant. The manager can then be paid from this account. Additionally, the parties should retain a right of audit against the other, in case of any underpayment or an erroneous mixing of funds!
Of course, in engaging a manager to set up deals on your behalf, you are relying on the judgement and integrity of that individual — otherwise why hire them? But in spite of the legal duty on the manager to act in good faith, artists should make sure that substantial contractual agreements concluded by the manager for the benefit of the artist are still subject to final approval by the artist.
During the honeymoon period in any relationship, things are rosy and no one wants to discuss these sorts of embarrassing issues. So your lawyer is the best person to negotiate on the finer details of your management contract, and it pays to get the agreement in place early. Once you break up, it's too late, and you risk getting taken to the cleaners where the paperwork isn't in order — just ask Paul McCartney!
The road ahead
Managers no longer need to beat down the door of the nearest major record label to sign their act and bag their commission. As mentioned, there's a world of new and exciting business opportunities available to any forward-thinking manager or DIY-minded artist. Why settle for a small advance, a large recoupable debt, no royalty income and the loss of copyright ownership when a selection of individually tailored agreements can restore power and creative control to your artist? Routes to market now come in the shape of download deals — for example, via iTunes, ringtone deals, independent physical distribution for CDs, live performance, selling your records at gigs, merchandising, giving away music for free, synchronisation deals for film and TV, sponsorship, selling direct to fans from your web site — all with the added advantage that they needn't tie the artist to an exclusive multi-year arrangement.
In the current music business climate, retaining a substantial share of a small pie is often better than keeping a small piece of a larger pie. Still, managers must tread carefully and avoid signing away more rights than they need to, especially since the value of digital rights in the future is unquantifiable at present.
The best policy is for managers to go out there, build a solid team, forge the right domestic and international partnerships to service their clients and, above all, make sure there's a well-drafted contract in place.
Richard Salmon is an Entertainment Lawyer, and lectures in media and IP law at London Metropolitan University. 0
Published in PM June 2008
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