The recording contract series; (part 9) Recoupment

Just imagine the massive outcry that would take place if people working in a factory were told that the cost of the products they were producing would be deducted from their wages, which would in any event only be paid if the company in fact managed to sell enough products to cover their wages. The factory would be closed down in a riot. Yet, in essence, this is what the record companies do to their artists with a little thing called the recoupment clause.

As stated above, most contracts provide that advances paid to the artist are recoupable against royalties, i.e. the artist will not receive any royalties until such time as the aggregate value of the artist royalties on records sold, exceeds the advances paid to the artist (and other expenses paid) by the company. Think about this for a second – no royalty money for you until the record company has paid itself back from your royalties (not from its cut – from yours).

THE “LINDA RONSTADT” CLAUSE

To make matters worse, many contracts include a further recoupment clause saying that the advance is repayable even if the album is not released or does not sell enough to cover that amount. Interpreted as the “Linda Ronstadt Clause.” The effect of this clause is two-fold – first, the artist gets no royalties until he sells enough to pay back the advance; second, he will have to take money out of his own pocket to repay the advance.

This second clause is totally unacceptable and should never  be agreed to by any artist. (After all, it is the record company who should be taking the financial risk, not the artist, not so? If you allow this, the label is acting as nothing more than a bank that later forecloses on its loan. And the most expensive bank in the world, at that. It would literally be far cheaper to simply go to a large bank, get a personal loan and do it yourself).

And yet hundreds of artists have found themselves in this exact situation: selling records, not getting paid royalties, and suddenly finding that they owe the record company a substantial amount of money in back-advances and recoupment, simply for the privilege of selling (perhaps millions of copies of) records for the label. This clause is to be rounded off at the horn and attacked with all canons blazing. Don’t do it.

And yet, remarkably, both these clauses appear time and time again in contracts. The bottom line is that, unless worded otherwise, any advance or upfront money paid to a recording artist is owed back to the label, whether the recordings sell well or not. Many artists have suffered as a result of this, not the least of which was country rocker Linda Ronstadt. Capitol Records suspended Linda Ronstadt’s contract in the early 1970’s, but she continued to tour, partly to pay Capitol back for her 1960’s deal, which cost Capitol more than it had yielded.

There was a clause in her contract stating that if the label did not recoup its expenses from her cut of sales, then she would be required to pay the existing balance herself. How unfortunate ­– this just made Capitol a very expensive bank, and a very nasty one at that – one which foreclosed on her without a second thought. Ronstadt would have been far better off just financing the recordings herself. Her string of hits in the mid-1970’s allowed her to finally clear the debt, but this sword hung over her head for many years. There are countless other artists to whom this has happened, and it is happening in South Africa right now.

If you are forced to accept a recoupment clause, at least make it one which allows the record company to recover advances from your royalties, but not one that forces you to pay the advance back out of your own pocket if the album does not make it. That, provided the recoupment list is not too long, is the reasonable compromise.

OTHER RECOUPMENTS

Other than advances themselves, there are many other examples of expenditures that record companies might agree to pay, but only on a recoupable basis. (This doesn’t mean your record company has suddenly turned generous – they obviously feel these expenditures will be necessary or good for business and hey, if they’re recouping them back from your royalties later on anyway, why should they care?)

For example, on “costs exclusive” deals, labels will try to list everything they’ve spent on you as recoupable; including recording costs, video production costs, promotion, tour support, producer’s fees and so on. You should try to get this list to look as short as possible.