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December/January 2014

by David McLaughlin

The Lawful Truth: Management Agreements – Part One

by David McLaughlin

The Lawful Truth: Management Agreements – Part One

With ongoing changes in the music industry managers are playing a greater role than ever before in directing the careers of the artists they represent. Against this backdrop it’’s also never been more important to make sure the terms on which a manager and an artist agree to work together are properly recorded in a Management Agreement.

Management agreements should be differentiated from informal arrangements you may have with someone who from time to time helps out such as by sitting on the door at your gigs to take the cover charge, or maybe occasionally helping you keep your social media pages updated. Although there is no doubt that the help these people lend is very valuable and most artists could not get by without this kind of support, it needs to be made very clear that these people are not managers.

An artist manager is someone who effectively handles the business side of your career. They should be either directly or alongside your booking agent working to get you gigs. They should also be helping you to build your profile, whether this means trying to secure you better airplay for your music or videos, trying to source recording or publishing opportunities or even just trying to work out ways you can make more money out of how you currently run your music career. Ideally a manager should let you primarily concentrate on the reason you got into doing what you do in the first place, your music!

Assuming you’ve found someone who you think has the necessary skills and temperament to manage you, what should be included in your management agreement with them? One of the first things you want to consider is how long the management agreement should run for. What is a reasonable term will vary from situation to situation but somewhere around three years may be a good starting point for negotiation between the parties.

It is not uncommon to see option periods specified in a management agreement which allow for the parties to agree on extending the term of the agreement for another set period of time, perhaps a year for each option. Whose right it is to exercise the option is also a very important consideration. Ideally it should be by mutual agreement.

Another issue to consider in relation to the term of the agreement is whether you want some kind of initial trial period. The manager may be after this kind of arrangement so that he or she can be sure that you are the kind of artist they are happy to commit their time and effort to working for. As the management relationship is a very personal one, if there are personality clashes or vastly different views on how your career should be progressed, it is good to have the option early on of allowing the parties to walk away.

Probably one of the most important issues in a management agreement is the manager’’s remuneration. In New Zealand and generally throughout the world it is fairly standard practice that the manager will take 20% of the gross earnings of an artist. So just to be clear this is 20% of everything the artist makes (including APRA income and royalties from record sales – but subject to a few key exclusions). As this is a fairly significant chunk of any artist’s income it only serves to further highlight just how important it is that you make sure you have a management agreement in place to clearly specify the precise terms on which this money is paid and also any subtleties as to how the agreed percentage is in fact calculated.

It should also be pointed out here that gross means that the manager will take their cut of the money you earn before any related expenses are deducted. I’’m sure you can see that this could easily put you in a position whereby you may be required to pay the manager their cut when you haven’’t in fact made any money yourself, or even worse, after all the expenses are deducted, you’’ve lost money! This is an issue that needs to be very carefully handled as otherwise a struggling artist or band is very quickly going to lose faith in their manager.

First and foremost, a manager should be remunerated for the work they do. However, a manager should also be aware of the need to balance this with the practicalities of the situation. One solution to this may be that the manager agrees to put off receiving the money due to them until the artist is able to pay. Alternatively, the manager may agree to only take their percentage when the artist actually does make money. How this is handled very much depends on situation in question, but the manager also needs to be very careful that they don’’t find themselves putting in a lot of ongoing work and not receiving any payment.

In the next issue of NZ Musician magazine we’ll continue discussion of the important issues in Management Agreements and will start by considering some of the subtitles and exclusions that generally apply in calculating a manager’’s commission.

David McLaughlin (david@mclaughlinlaw.co.nz) is the principal of and Kamelia Purwo (kamelia@mclaughlinlaw.co.nz) is a solicitor at McLaughlin Law (www.mclaughlinlaw.co.nz).

Disclaimer: This article is intended to provide a general outline of the law on the subject matter. Further professional advice should besought before any action is taken in relation to the matters described in the article.