A management agreement governs the relationship between an artist and their manager, and sets out their respective obligations. Whilst a management relationship often starts out on an informal basis, it’s always advisable to formalise the arrangement by way of a written contract to ensure that the artist and their manager understand what’s expected of each other.
An artist should always have a specialist music lawyer review their contract before signing, however, it’s important that both the artist and the manager themselves have an understanding of the key terms of a management agreement so they can ask each other the important questions when agreeing how the relationship will work.
Exclusivity
The majority of music management relationships are exclusive. This means that the artist is not allowed to be managed by any other manager (including the artist managing his own affairs) within a certain territory (usually the world). There’s good reason for this, a manager needs to be able to manage the artist’s career without the possibility of scheduling clashes developing or another manager trying to pull the artist in a different direction.
Generally, there are two exceptions to a management agreement being exclusive. The first is where the artist has, or believes he will have, another career (for example, as an actor) which requires a specialist manager. It’s reasonable in these circumstances for an artist to say that he should be allowed to appoint another manager to advance his career in those areas.
Management
The second exception is based on the geographical territories the exclusivity clause covers. An artist might want to appoint another manager with knowledge of a particular territory. However, a manager might be wary about agreeing to this for the reasons outlined above. A standard compromise is to agree that the manager will appoint a sub-manager who reports to the main manager. This way, the manager ensures that he is in charge of the key decisions and ultimate direction of the artist.
Term
The term is the duration of the agreement and the period of time the manager will exclusively manage the artist.
The term of a management agreement can be openended, for a fixed term or linked to targets (for example, gross income) on to a number of projects or album cycles. Commonly, management agreements are for fixed terms. In the UK, it’s generally accepted that management agreements for a fixed term should have an initial period of between 3-5 years. This is because whilst under an exclusive management agreement an artist is unable to be managed by anyone else, if the manager turns out to be no good, the artist will be stuck in a contract unable to pursue his career properly and stuck paying commission to the manager. Imagine if a manger signed up an artist on a 10 year contract and they fell out in year 2.
After the initial period of a fixed term agreement, the term usually moves to a rolling basis, often terminable on 3 months’ written notice.
Commission
Managers are paid by way of commission on the artist’s earnings. Rarely, you may see a manager who is paid on a fee basis but this tends to be reserved as an option for the superstars who can afford to pay their manager a fee and are in a strong bargaining position to avoid paying the manager on a commission basis. The commission clause will set out what earnings the manager will commission, the rate of commission and for how long the manager will earn commission. Unsurprisingly, this clause is often the most heavily negotiated.
The industry norm is that a manager earns 20% of the artist’s earnings within the entertainment industry. This is then broken down into “live” performance earnings and “non-live” earnings, each calculated slightly differently. In the UK, the artist’s non-live earnings are usually calculated as 20% of “gross” money received. Essentially, this means all money the artist receives subject to a negotiated list of deductions. On the other hand, live earnings are calculated “net”, meaning all of the money received in relation to a live performance, less certain expenses and deductions.
Another bone of contention is the period of time which the manager will continue to earn commission after the term has finished, the “post-term commission period”. As a rule, a manager should not be able to commission on the artist’s activities undertaken after the term has ended. However, a manager is entitled to continue to earn commission on those activities he was entitled to commission during the term.
The post-term commission period of often referred to as the “sun-set period”. This is because once the management agreement ends, the commission reduces over a period of time. For example, the manager may continue to earn commission at the full rate for a period of 5 years after which, the rate will reduce by 50% for a period of 5 years before ceasing completely. This reflects the fact that a manager’s entitlement to commission those activities he was involved in during the term should not cease just because the management agreement ends but equally, as he plays no further part in generating revenue he should not earn commission indefinitely.
Expenses and accounting
The expenses clause sets out how the manager may incur expenses on behalf of the artist. A manager will need to incur expenses in order to manage the artist’s career effectively and these expenses will be deducted from the artist’s earnings within the entertainment industry. However, the artist needs to have some control over these expenses otherwise, for example, he could get hit with a bill for the manager’s first class flights to LA and 5-star hotel costs. A well-drafted expenses provision will ensure that the manager may only incur expenses which relate directly to the artist (not to the manager’s general overheads), set out spending limits and when a manager will need the artist’s approval before he can incur an expense. If a manager doesn’t follow those provisions, he cannot recover the expense. This way, the artist is safe in the knowledge that the manager cannot go on a spending spree and the manager will be happy that he can do his job effectively.
Control of an artist’s finances is clearly of fundamental importance. It is customary for an artist to appoint an accountant with music industry experience to manage his finances. The accountant will then pay the manager’s commission and expenses with the artist’s authority. Artists are advised to avoid any proposed arrangement where the manager receives and deals with the artist’s finances.
Final thought
Fundamentally, the relationship between artist and manager must be built on mutual trust and confidence; a management agreement cannot make up for an absence of this. However, by putting a formal written agreement in place it helps both parties think about the important issues. It’s in this sense that a well-drafted management agreement serves to keep the artist and manager working together successfully – both ask the tough questions early on, come to an agreement and lower the risk of future conflict. As a consequence, a written management agreement is a key tool to aid the artist and manager relationship.
Pete Bott - Senior Associate, Sound Advice
