Artist management agreements series; (part 4) The rate of commission

It is usual for managers to be remunerated on a commission basis, calculated either on the artist’s gross earnings or his net earnings. Some managers, however, are paid a fixed salary, either with or without a commission entitlement. If the manager is given a salary and commission, it may well be that the salary should be seen as an advance, recoupable against commission (sound familiar? This is a case of the tables turning, at last). If so, the contract must clearly state this. Many managers do take advances in the real sense, and these should clearly be recoupable.

Managers will always try to negotiate for a salary, a commission and no recoupment. (Now don’t take this personally – it shows he is a good negotiator). But artists should try to aim, at least, for a simple commission with no frills. In my opinion, this will keep the manager active and motivated, at least as far as turnover is concerned.

In most cases, however, the manager will try to get the artist to give consideration to his living requirements and therefore to provide for some form of guaranteed remuneration (even if it is just an advance). The argument given for this is, amongst other things, the time it takes to break a new act. In making this decision, the artist will have to consider whether the manager has other sources of income, and whether he represents other acts.

The rate of commission ranges from as little as 5% (for superstar artists with new managers) to as much as 25% or 30% for unknowns signing to established managers. The usual range, however, is 15% to 20%. For a new artist, a fair and reasonable rate for both parties is considered to be 20% (perhaps reducing on a sliding scale as the artist’s earnings increase). In fairness, though, artists will have to remember that time is money, there is an element of risk for managers working on a commission basis, and they must therefore be sufficiently motivated.

Remember also, that the manager will take 20% of all earnings, including advances paid by record companies and producers. So let’s say the record company advances you R100 000, R20 000 of that will immediately go to the manager, and the record company will probably still recoup the full R100 000 from you later. So just when you thought that you were R100 000 up, you are, in fact, R20 000 down on that little deal. (Isn’t it amazing how things are never as rosy as they seem in the music business?) This is why it is very important to get the manager to agree to exclude recoupable earnings in the contract.

It would be possible (although still surprisingly unusual) to have a sliding scale of rates of commission. For example, 20% on the first R1 million of annual commissionable earnings reducing to say 15% from R1 million to R2 million of commissionable earnings, and 12.5% thereafter. This model will balance the artist’s liability to the manager in Rand terms, but may affect the manager’s motivation in increasing the artist’s earnings over the threshold. Generally, it is unlikely that the manager will agree to this and a commission that is net of expenses, so you will in all likelihood have to choose either one of these two models.

The manager may also argue the complete opposite – that if he gets the artist to R1 million in earnings, his percentage should go up rather than down, and when he gets him to R2 million, it should go up again. This might be very motivational to the manager, but the artist needs to be cautious and not easily agree to this model if the artist is undoubtedly headed on the pathway to success, with or without that particular manager. If not, so be it, but rather try to first negotiate a flat percentage throughout.

Alternatively, there might be different rates of commission for different activities. For example, the rate of commission on recording income might be 20% but the rate of commission on songwriting income might be 15% (given the reduced involvement of the manager in the songwriting process). Non-music related activities such as sponsorship income and product endorsements might also attract an even lower rate or commission.

These types of arrangements are becoming slightly more common, but you will need to consider them carefully before agreeing – remember that your mission is to properly motivate your manager in all the various aspects of your career, and for the correct length of time. When in doubt, keep it simple at a standard flat-rate percentage.

Advice and mutual consultation

It is very important that the artist and manager are generally in agreement regarding the direction in which the artist’s career is headed. It is also important that most decisions are mutually agreed upon. But there is no doubt that the manager’s most important contribution will be in terms of the advice he gives the artist on a daily basis. While it is not usual to see this aspect of the manager’s role being formalised in South African management contracts, since this might be too vague, I believe that it can be tailored to fit the South African contractual form. Clauses like this are used quite often in Europe, and might, in the South African context, look something like this:

“The Artist is engaged in the area of music entertainment, in particular as a performing artist, producer, composer and songwriter (hereinafter referred to as “the career”). The Manager is engaged as a result of his experience, standing and knowledge of the industry in which the career is to be built. The parties agree that the management activity stated in this agreement shall serve at all times to further and nurture the Artist’s career, to consolidate and enhance it in areas of opportunity for Artist. Pursuant to the provisions contained herein, Artist hereby appoints Manager to provide support and advice in respect of the career, and his artistic activities in general, according to this agreement and Manager undertakes to assume responsibility for such support and advice. The parties agree that all decisions relating to the Artist’s career shall be made with mutual consent, and, where the parties cannot reach such mutual consent, that the Artist’s decision shall be final.”