The Manager's Remuneration
On rare occasions, and usually only if he or she is well established the artist may engage a manager on the basis that the manager will be paid an agreed fee or salary. However, in the vast majority of cases, the manager will be paid by way of commission. This recognises that the music business is a volatile one and that success is by no means guaranteed. The manager runs the risk of working hard but failing to achieve success with the artist, in which event the manager earns little or nothing. Conversely, if success is achieved the manager may be rewarded handsomely. The obvious benefit from the artist’s point of view is that the manager will not have to be paid unless there is some money to pay with. Of course, the artist usually only has one career and thus one chance of success; if the manager represents other artists the manager will have more than once chance of achieving success.
3.2 Commission Rates
Commission rates have crept up over the years. There are sound reasons for this. Historically, the manager was nicknamed “Mr 10%”. By the 1970′s the most usual rate of commission was 15%. Nowadays, managers invariably charge 20%. Sometimes a manager will charge 25% although this is rarely thought to be justifiable. An enhanced rate of this kind might arguably be reasonable in the case of a powerful and successful manager putting together a “manufactured” band and/or if the manager is prepared to work exclusively for the artist involved. The principal reason why rates have increased is that, whilst originally a lesser rate of perhaps 10% or 15% might have applied, the remaining terms of the typical management contract were more onerous from the artist’s perspective. For example, the manager might have expected to receive his commission on the gross income arising from any contracts entered into during the currency of the management contract. The management contract might have run for five years but, for example, if towards the end of the five years the artist were to enter into a long term recording agreement the manager would nevertheless expect his commission on all earnings under that agreement (even though a large part of those earnings may be attributable to recordings made after the expiration of the management contract). Nowadays, a manager would not usually expect to receive commission on recordings made or songs written after the expiration of the management contract (even though the manager may have negotiated the terms of the recording and publishing deals which govern those subsequent recordings and songs). Moreover, most managers now accept that commission will be calculated on the gross income only after deduction of certain expenses. Also, the manager will often have to accept that following the end of the management contract there will at some point be a reduction or even a cut off in the commission entitlement. For these reasons, the rate of commission has increased to what is now generally 20%.
The rate of commission may be affected by what is agreed with regard to the extent of the manager’s involvement. A manager may wish to limit his involvement to the business side of things and may not wish to be available day and night to deal with creative issues and personal crises. If the manager is prepared to accept that he or she is offering something less than a full management service he or she may be prepared to accept a lesser rate of commission. A business manager will usually charge 5%. This will sometimes mean that the artist pays 25% in total but more often the general manager will accept 15%. On this basis, the artist may be better off because whilst he will still be paying 20% (15% to the general manager and 5% to the business manager) there may be a saving in accountancy fees. In some cases, however, the business management services will be provided by the business management consultancy arm of an accountancy practice and whilst that consultancy will charge 5%, nevertheless an associated accountancy practice may still charge separately for bookkeeping and other accountancy services.
3.3 Variable Rates
Sometimes, different rates of commission apply for different types of income. For example, an artist may argue that since the manager has little or no involvement in the songwriting process (as opposed to recording and touring activities) commission should be paid in relation to publishing income at a lesser rate. This is perhaps a spurious argument and it is rarely accepted by managers. After all, it is in part the manager’s work which helps create the circumstances in which the value of the artist’s publishing rights may be enhanced.
3.4 Commissionable Income
Generally, the manager will be entitled to his commission calculated at the agreed percentage rate upon all of the artist’s earnings from those activities which fall within the scope of the agreement to the extent that those activities are undertaken during the term of the management contract. A manager would rarely expect to receive commission upon income attributable to work done by the artist (i.e. recordings made and songs written) after the expiry of the management contract. However, the manager would usually expect to receive commission on income received during the term of the management contract from work undertaken by the artist prior to commencement of the management arrangements. This prevents, for example, a manager taking on a new band and being excluded from commission from the earnings attributable to the band’s first album simply because the songs were written and perhaps the recordings made prior to the manager’s involvement. If the artist is already established and there is a stream of income from past activities then the artist may wish to exclude all or part of that income for commission purposes. The manager may object to this on the basis that it will be the work done during the currency of the management contract which reactivates any back catalogue and gives rise to any current earnings from that back catalogue. Usually, the artist would concede this point although he or she may be reluctant to do so if already paying commission on that income to an exmanager.
3.5 Calculation of Commission
The old principle that the manager’s commission is calculated by reference to the artist’s gross earnings has been eroded in a number of respects.
3.5.1 Recording Income
The manager will usually be paid commission on the amount of recording income actually received by the artist, i.e. all advances and any royalties which are actually paid. To the extent that royalties accrue but are not paid to the artist because they are used for recoupment purposes those royalties are not commissionable. If the record company pays an advance which is inclusive of recording costs then the recording costs element is noncommissionable. Most recording contracts now provide for costs inclusive advances and this gives rise to some difficulty. If a record company pays £200,000 inclusive of recording costs how does the manager calculate his commission when the recording costs are not yet known? The record company might pay say £50,000 initially and then pay the remaining £150,000 following completion of recording after first deducting any recording costs (which the record company usually pays on the artist’s behalf). The manager would take commission on the initial £50,000 and would usually accept that commission on the balance is only payable once the album has been recorded and the actual recording costs ascertained. If the £200,000 is paid “up front” the manager should either defer the calculation and payment of commission or reach agreement with the artist for an “on account” payment. Sometimes, if the manager fears profligacy in the studio, the manager may insist upon a “cap” for recording costs (for the purposes only of calculating the commission).
3.5.2 Publishing Income
The manager will expect to be paid commission calculated by reference to the gross income paid to the artist. There are few complications involved with publishing income as there are so few expenses. Some artists try to exclude from commission any performance income received by the writer direct from the PRS. The PRS accounts direct to the writer for the writer’s six twelfths share of any performance income and accounts separately to the publisher for the remaining six twelfths “publisher’s share”. The PRS rules are designed to protect the writer against over enthusiastic publishers but this has led to a belief on the part of some artists that they have an inalienable right to the “writer’s share” of performance income. Having received this direct into his or her bank account the idea that the artist then has to pay a percentage of this by way of management commission is morally repugnant to him or her. There is little justification for this argument and, logically, there is no reason why the writer’s share of performance income should not be commissionable in the same way as any other form of income. Most managers insist that they should be allowed to commission this income stream.
3.5.3 Touring Income
The major area of controversy in relation to the calculation of commission relates to earnings from live concert performances. Some managers still insist upon charging the agreed rate of commission upon the gross earnings from any tour but the majority of managers now accept that this is unfair. A concert performance (certainly a lengthy tour of concert performances) might generate substantial gross income but, of course, the costs of touring are so high that the net profits actually earned by the artist might be very small when expressed as a percentage of the gross. During the early stages of an artist’s career touring activities may generate little or no profit but the artist is likely to continue with his or her efforts (perhaps with the record company underwriting any loss by way of “tour support”) as a means of promotion. If a tour grosses say £1,000,000 and the expenses total say £800,000 leaving £200,000 profit then the artist is likely to be unimpressed with the suggestion that the entirety of that £200,000 (being 20% of the gross) should be paid over to his or her manager.
An increasing number of managers accept that commission should be calculated upon net touring income, i.e. only on any profits remaining after deduction of all expenses. A prudent manager will at the very least impose some element of control over those expenses so that if the artist is profligate (by insisting upon taking suites at five star hotels and travelling everywhere by chauffeured limousine with a large entourage) this does not impact unfairly upon the management commission.
Many managers still believe that it is inappropriate for them to charge commission only upon net earnings. They take the view that the manager is heavily involved in the artist’s touring activities (often having to gear up the management operation in order to cope with the level of work involved) and that the manager therefore needs to be assured of some income from this. An obvious and standard compromise is that commission is calculated upon the gross income after deduction of certain specified expenses but not all expenses. Another approach is for the commission to be calculated upon the net profits after deduction of all expenses but so that a fee of some kind is paid to the manager to defray or help defray any additional overhead expenses (with that fee then being treated as one of the expenses to be taken into account in determining the profits).
Managers sometimes make comparisons between the amount of work which has to be undertaken by the manager in relation to a particular tour and the amount of work required on the part of the booking agent. The manager may argue that it is unfair for the artist to accept that the booking agent should be paid a fee (usually 10% or 15%) calculated upon the gross income (the booking agent will always insist that this method of calculation applies) whilst the manager is expected to rely upon a share of the net profits. This argument does not take account of the fact that the booking agent does not earn from other sources (in particular from the additional record sales and merchandising income which a promotional tour is designed to achieve).
Sometimes the manager will not only mastermind the touring arrangements but will also provide day to day tour management services. If the manager or a member of his staff acts as tour manager (thus avoiding the expense of engaging a specialist) the manager may argue that he should be paid separately for those services. Alternatively, the manager may argue that the degree of involvement on the manager’s part supports the assertion that the manager should be paid by reference to the gross income. Similarly, if the manager has sufficient experience to do so he or she may dispense with the booking agent and book the dates him or herself. Again, this might justify a greater financial involvement.
A reasonable compromise is that the manager should receive 10% of the gross or 20% of the net (whichever is the greater) on the basis that if 10% of the gross is payable and this gives rise to cash flow difficulties on the part of the artist then the commission entitlement is deferred so that this is only payable out of future commissionable income.
3.6 Post Term Commission
3.6.1 Post Term Activities
Generally a manager is not entitled to any commission in relation to income attributable to activities undertaken after the expiration of the management contract. Some managers do not entirely accept this principle and make a persuasive case to the effect that they should earn commission (if perhaps at a reduced rate) on, say, the next album to be recorded after the end of the deal (although perhaps only if the manager negotiated the record deal under which that album is to be recorded).
3.6.2 Future Commission
Often, a manager will accept that he or she will have no entitlement in relation to activities undertaken after the end of the management contract but, in return, he or she does expect to receive full commission on all income arising from those activities undertaken during the currency of the management contract irrespective of when that income is received. For example, if a management contract runs for five years and during that period three albums are recorded then the manager would expect full commission upon the relevant earnings from those three albums whenever those earnings arise (even to the extent that the albums in question still generate income in perhaps 20, 40 or 60 years time).
3.6.3 Post Term Reductions
The artist will often argue that there should be a reduction in commission at some point, i.e. perhaps commission should continue to be payable at the full rate (of perhaps 20%) for five years after the end of the management contract but this should then reduce to 10% in relation to income received over the next five years and that the entitlement then ceases altogether. The artist will advance two arguments in support of an arrangement of this kind. Firstly, there is the fact that (assuming the artist continues with his or her career) the artist will need to find a new manager and that manager will no doubt insist upon receiving commission (even if perhaps at a reduced rate) during the currency of the new management contract on earnings received from the exploitation of the artist’s back catalogue. Secondly, in some part, any future income from the exploitation of the artist’s past work will be generated by the artist’s continuing efforts to maintain his or her profile and the direct promotion of the earlier material through concert performances and the like. The issue is controversial and many managers do not accept that their financial interest in a particular body of work should reduce with the passage of time. In many cases the point may be largely academic because if full commission continues to be paid for say five years after the end of the management contract this may catch the vast majority of the total income which is generated from the body of work in question. Again, however, the question of whether or not cut off provisions should apply rather depends upon the circumstances of each case. A manager who provides a complete service and manages the artist to the exclusion of all others is more likely to object to provisions of this kind. A post term commission entitlement is often referred to as a “pension” and in keeping with this concept there is some merit in the argument that the longer a manager is involved in the artist’s career, the greater the protection he or she should have. One (very simplistic) way of dealing with the issue is to make the period during which the post term commission entitlement applies equal with the duration of the management agreement so that if the manager is in place for 3 years then he or she should continue for a further 3 years to benefit from the income which is generated from the work which was done during the initial 3 years but that, likewise, if the manager is involved for 10 years, he or she should continue to enjoy the income generated from what was done during that 10 year period for a further 10 years.