Negotiating Key Deal Points In An Artist Management Contract
This article will address some of the key terms or “deal points” in artist personal management contracts. Whether you are the artist or the manager, your ability to negotiate these terms in your favor will depend (as it always does) on your relative bargaining power. If you are a superstar artist contemplating a change in managers you will be able to get almost anything you want, and at that level it is not uncommon for the artist and manager to have no contract at all, but simply a verbal agreement that the manager gets a 10% commission and the artist can terminate the relationship at any time. But for the vast majority of artists and managers, we deal in the world of contracts and negotiation leverage. If you are an up-and-coming artist that has caught the attention of an “a-list” manager, you are not likely to be able to negotiate any major changes in the management contract. The manager knows their status and feels you should consider yourself lucky to work with them, and you should. Or not - here is my caveat on relative differences in career level between artists and managers: if you are a little fish in a big managers pond you are more likely to get overlooked in favor of their more high-profile clients and less likely to get the hands-on attention you need; conversely, if you have a mid-level or “newbie” manager, they may have the ability to give you all kinds of time and attention, but will lack the experience, connections and clout of an established, respected and well-known manager. Sometimes it is best for an artist to find a manager that is near the same level, career-wise, and hopefully the careers of both rise together. Also, understand that no matter how good your entertainment attorney is, there is only so much they can do if your relative bargaining power is low in relation to the other party.
The key terms that everyone focuses on in management contracts include the length of the agreement, the manager’s commission, post-term commissions, and to a lesser degree exclusivity and the scope of the services provided. Let’s take a closer look:
Length of the agreement: The length of a management agreement is generally referred to as “the term” or “the term of the agreement.” The term determines how long the manager and artist are committed to work with each other. The manager will want a longer term to hang on to the artist, at a set commission, for as long as they can. The artist will want a shorter term so they can get out of the relationship early if it isn’t working, or to be able to negotiate a more favorable commission sooner if they become very successful. There is justification for both positions. A manager taking on a relatively new artist faces a tremendous amount of work to “break” the artist at a time in the artist’s career when they are earning very little money, and therefore the manager is earning very little in commissions. Obviously, the manager wants to be rewarded for their efforts and doesn’t want to be bounced out the door in favor of a more established manager when they come sniffing around as soon as the artist’s career starts to take off. Similarly, an artist working with a new or mid-level manager is not going to want to commit to a lengthy term until the manager proves that they can be effective for the artist.
Crafting the term of the agreement is limited only by the creativity of the attorneys. Typically, there is an initial term of one to three years, with a number of “option periods” to extend the term of the contract. For example, the term may be an initial period of two years, with three one-year options. Whether the options are exercisable by only by the manager, or by mutual agreement, is often negotiated. Also, it is not uncommon to create financial or other benchmarks that have to be met in order for the option periods to be triggered. Conditions allowing for early termination, such as bankruptcy of the manager, are also often included.
Commissions: A manager’s commission is typically fifteen to twenty percent. It is extremely rare (and usually ill-advised) for a manager’s commission to exceed twenty percent. It is also extremely rare for a manager’s commission to be as low as ten percent, although as noted above, superstars can command lower commission rates. This is often counter-intuitive to newer managers and artists who assume that the more successful the artist becomes the higher the manager’s commission should be. The opposite is true. A manager can justify a higher commission from a new artist because there is very little money coming in to commission, but the manager is doing just as much or more work than required of an established artist. When an artist is successful, then even at a lower commission rate, in absolute dollars the manager is doing quite well relative to the hours they have to put in. Commissions can be structured on a sliding scale where the percentages decrease either at certain financial benchmarks or after a certain amount of time. For an artist, structured commissions become more important the longer the term of the contract. Another factor in considering the commission rate is the other members of the artist’s team that are being paid on a percentage basis. In addition to personal manager a moderately successful artist may have a business manager (typically 5%), a booking agent (typically 10% of tour guarantees), and occasionally an attorney working on a percentage-of-gross retainer (typically 5%). These percentages can add up to a substantial portion of the artist’s gross income.
Post-Term Commissions: Post-term commissions are typically referred to as a “sunset clause.” These are commissions paid to the manager after they are no longer managing the artist. The key considerations are the length of the sunset period, the sunset commission rate, and the revenues to which it applies. For the artist, ideally there is no sunset clause. The manager will want the longest sunset they can get away with, applicable to the most revenue sources possible, at the highest rate. Typically, a sunset clause lasts one to five years, and the sunset commission drops in each year. For example, a management contract having an in-term commission at twenty percent may have a sunset clause that pays fifteen percent in the first post-term year, ten percent in the second year, five percent in the third year, and then stops. A sunset clause can apply to only revenue sources established during the term, or also any renewals or extension of agreements establishing those revenue sources, or also include new revenue sources established during the sunset period. In negotiating the sunset clause, it is important to consider that presumably the artist will have a new manager, and therefore between the two managers will be paying considerable management commissions during the sunset period.
Scope of Services/ Exclusivity: Virtually all personal management agreements are exclusive, meaning that only the manager can manage the artist’s career and the artist cannot look to anyone else to provide any of the same services as the manager. The scope of the services is usually broadly defined to encompass anything the artist does in the “entertainment industry,” throughout the world. However, the artist should consider whether the manager is equipped to manage all aspects of the artists career. If the artist is multi-talented and in addition to being a singer-songwriter performing musician is also an accomplished actor, but the manager’s expertise and connections are only in music, then the artist should consider a “carve-out” to allow them to have another manager specifically for their film and television career.
A comment on “boilerplate” clauses: “Boilerplate” clauses are standard contract terms that are found in most contracts. They address boring, mundane legalities such as the parties warranting that they have the legal capacity to enter into the contract, that if any part of the contract is found unenforceable the remainder of the contract will remain in force, and equally exciting stuff. Most parties to the contract, and surprisingly often even their attorneys, gloss over these terms, barely reading them. They focus only on the key terms discussed above. This is a huge mistake. In reality, there is no such thing as “boilerplate.” These terms can be some of the most important in the contract. Terms that establish the governing law for the contract, jurisdiction and venue for any disputes, prevailing party attorney fees, alternative dispute resolution, limitation of actions, assignability of the contract, and indemnification of the parties, among others, can have tremendous consequences if there is ever a dispute or litigation over the contract.