Artist management agreements series; (part 5) the commissionable earnings

As a starting point, the general principle is that all of the artist’s earnings from the activities described in the contract will bear commission (commissionable earnings) for the manager. But the manager’s entitlement might be conditional on the manager actually having negotiated the specific agreement with the relevant third party. (In other words, deals done by others, in particular the artist himself, will not earn commissions for the manager). This is to be recommended in today’s world of social networking, where the artist is just as likely as the manager, to meet the right person at the right time, and do a deal.

In any event, it is vitally important to determine whether the manager will be paid by reference to the artist’s gross or net earnings. The difference in these two terms is best illustrated by looking at touring income. From a local concert tour, a band might earn around R500 000 from ticket sales and merchandising. But the costs of staging that tour (road management, sound, lighting, travel, etc.) might come to around R300 000.

The gross, therefore, is R500 000, but the net is only R200 000. If the manager’s commission was payable on the gross, then (at 20%) he would be entitled to R100 000, which comes to exactly half of the band’s net. Such an arrangement would firstly be very unfair to the artist, and secondly would not incentivise the manager to keep costs down.

For these reasons, it has become an established practice for certain deductions to be made from the artist’s earnings before calculating the manager’s commission against the commissionable earnings. Examples of these “deductible expenses” are (or should be):

1. Recording costs

2. Video costs

3. Tour support costs

4. Producer advances and royalties

5. Any recoupable earnings (please take special note of this one – you must not pay commissions on earnings or advances that will later be recouped from you by the record company or publisher)

6. Bad debts

7. Sound, lighting and other concert expenses

As stated above, however, you will probably not get the manager to agree to a net commission as well as the sliding scale recommended previously. So you can expect to have to choose between these two models.

Duration of commission

This is a very thorny one that has created much litigation. It was, at one time, accepted industry practice for managers to be entitled to their commission in perpetuity. This meant that, for example, a manager who managed a band during the years of say, 2000 to 2004, would still remain entitled to his commission on record sales from albums recorded during that time in 2013.

The theory was that he “made” the artist during his time as manager, therefore he had the right to continue earning from the artist’s career ad infinitum. In addition, if the manager negotiated, say, a seven album recording contract with Universal in 2000 and, during his time as manager from 2000 to 2004, the band released, say, only two albums, he would nevertheless remain entitled to commission not just on those two albums but on the other five albums as well, presuming the band later went on to record them for Universal after his management contract expired. The important case of Joan Armatrading v Mike Stone in 1984 highlighted the potentially disastrous consequences of such an arrangement.

The manager might argue that he will be the one to “break” the band, therefore he should be entitled to future income from albums recorded under any subsequent recording contract (even those negotiated not by him, but by his successor). The rationale behind this is that success and fame are cumulative, and any future manager will be trading on reputation created by the current manager, therefore he should have a claim. This kind of “passive income” approach should be avoided and resisted, because it will undoubtedly lead to dissatisfaction for the artist and his new manager later on.

It is also necessary to look at the types of income generated (and again, how long they will attract commissions). Other than actual recording, there might be other ancillary sources of income such as public performances, book-writing, other acts, touring, songwriting, product endorsements, TV and radio presenting and merchandising. While the manager will want his full 20% on all these sources of income, he may or may not be deserving of this, due to a lack of expertise in any given area. So you have to research and predict the manager’s abilities at the time of signing the contract and decide where he should be included. Remember, no commission, no motivation, and then you might have to do it yourself...

“Continuing commissions” are a highly sensitive and difficult area of management agreements, and these clauses tend to be the most time-consuming and complex of the negotiation process. These clauses relating to this issue require very careful drafting.