Three Things to Look for In Your Management Contract
If you’re an artist on the cusp of taking your career to the next level, you will likely need a team of professionals to help you cross that threshold. When you should hire a manager will vary greatly depending on your current workload, how much work you want to do yourself, your experience in the industry, and a variety of other factors. The purpose of this article is not to determine when you should hire a manager, but rather list some of the most important issues you must consider when reviewing a management contract. Many artist-manager relationships function without a written contract. While this may work for some artists and managers, having a thorough written agreement detailing the exact terms of the relationship will always create a more transparent and predictable relationship which benefits both parties. When reviewing a management agreement, keep your eyes out for the following three things:
Few management agreements include a set manager salary, which makes it essential for an artist to know precisely how the agreement determines what the manager is being paid. In most of these agreements, a manager’s compensation is based on a percentage of the artist’s income. Income percentages cannot be truly understood without an understanding of Gross Income vs. Net Income. Simply put, Gross Income is all the income made in a year before deductions and taxes. Net income is the amount an artist makes in a year after deductions and taxes are removed from the total income. Every management contract should deal in Gross Income. Gross Income is much simpler to calculate and more difficult to manipulate. While the basic definition is relatively straightforward, be warned that many management contracts explicitly state the sources of income included in Gross Income and specifically define the relevant deductible expenses, and as such, the calculations often differ on a contract-by-contract basis. You’ll need to dive into the fine print of each individual contract to see exactly how Gross Income is being defined. Does Gross Income include record label advances? What about recording costs covered by the label? Or business ventures in adjacent entertainment spaces? What about non-entertainment spaces? It will be impossible for the artist or the manager to truly calculate how much they can expect to make on their percentage of income without knowing how Gross income will be calculated in the first place. Defining this concept clearly and understanding its nuance is a must.
Young artists and managers can expect about 15-18% of gross earnings to be allocated to the manager as commission for their services. This is industry standard. Commissions in the range of 19-22% gross earnings are reserved for veteran music managers who know the ins and outs of the industry. While commissions higher than 22% exist, they are rare and only warranted by exceptional managers. A new artist should be extremely wary of a management agreement placed in front of them providing the manager with a commission higher than 20%. This is an obvious red flag and artists must delve deeper into the terms of the contract to look for other non-traditional language.
Artists and managers must be considerate when determining the length of time for which a management contract will last. Sure, the contract might say two years, but several factors may extend that period. Management contracts tend to be riddled with options - additional terms that managers or artists can choose to invoke to extend the length of the agreement. Options are typically put in place to address the possibility that an artist meets a certain income threshold or professional achievement (i.e., signing with a major record label), but an option can exist for any number of reasons. However, courts are unlikely to enforce agreements with a term of years in the double digits.. Most courts hesitate to keep individuals trapped in long-term deals without considerable evidence and strange circumstances. Still - a two-year management contract can quickly grow into a three-, four-, or five-year relationship, depending on the included options. Artists need to carefully assess how long they are willing to tie themselves to this type of professional relationship.
Artist and managers must also keep their eyes out for a “sunset clause.” If this type of provision is included in your agreement, the manager will continue to receive portions of their commission even after the artist-manager relationship ends. Managers typically ask for these provisions to lock down future income and protect against the possibility that the artist will replace them with a high-profile manager after signing a major label deal or some other major success. Artists must consider the additional value a new manager will create in comparison to the percentage of income they will owe to their previous manager under a sunset clause. Artists will be stuck paying for 1.5 managers if there is a sunset clause in their current agreement. Depending on the circumstances, it may be better to stick with the original manager. In addition, it is important to remember to keep management agreements current. A managerial relationship that continues beyond the term of the contract may unintentionally extend the length of the contract. Keep contract expiration dates in mind and be sure to begin renegotiating terms before the contract is due to expire.
Artists should also consider the limits of the actions a manager can take on their behalf. Typically, these limitations will be numbered and clearly outlined in the contract. Still - many of these provisions can be vague and may grant the manager broad financial and directional power. Artists hire managers to make their life easier. To this end, the manager should not have to call the artist four times a day to get permission to take actions on the artist’s behalf. An artist will need to grant their manager some authority to act autonomously so they can effectively manage the artist’s affairs. However, an artist should reflect on what they value the most and what control they’d like to reserve for themselves before signing a management agreement. Perhaps an artist wants to have absolute control over the publicity they do or the advertisements in which they appear. Or maybe an artist wants to sign personally for all live appearances. These artists may be able to carve out these limitations on the manager’s authority, but many management contracts bestow the manager with broad power to undertake these tasks on the artist’s behalf.
Particularly green artists may also want to consider a manager’s exclusivity. These artists are likely at a point where they are not yet able to support themselves solely from their art. Finding a manager that believes in the artist and wants to devote their time to nurture the artist’s career at this stage can prove to be more beneficial than a manager juggling the careers of many clients. Some managers work exclusively with one artist, while others manage a few or even create artist management companies dedicated to managing a more substantial roster of talent. An artist should consider the fact that if they sign with a manager with multiple clients, the artist may find themselves fighting for attention. Asking for exclusivity may ensure the manager will be focused on the success of the artist, but it can be a tough sell depending on the artist’s current track-record and their prior relationship with the manager. Both parties should consider their short and long-term goals as well as the value and leverage they bring to the relationship before signing a document that locks them into an exclusive deal.
When considering any long-term contract, management deal or otherwise, it is a good idea to consult with a lawyer. Experienced entertainment lawyers can use a keen and knowledgeable eye to spot terms that break from the industry norm and offer advice on the contract’s often confusing and complicated details. If you are close to signing a management contract but have reservations or questions about the contract’s language or if you want your own agreement drafted to memorialize your management-artist relationship, seek legal assistance. Lawyers for the Creative Arts is a pro-bono organization that works to aid Illinois artists and arts organizations by connecting them with experienced attorneys. Fill out an application to work with LCA today!
Thomas Kliebhan is an Executive Board member and the Social Media Chair of the Lawyers for the Creative Arts’ Associate Board. He practices entertainment law at Swanson, Martin, and Bell and lives in Chicago, Illinois.