Management Agreements Leave a Good Deal to Be Negotiated

Originally published in the Entertainment Law column in the New York Law Journal on June 2, 2017.

At some point during his career, an entertainment attorney may be asked to negotiate a management agreement on behalf of the manager or the artist, such as an actor or musical performer. These agreements are important because they not only cover how significant sums of revenue will be shared, but also establish the basis of what often turns out to be a very personal relationship.

There are different types of managers. Some are business managers who handle the financial and commercial affairs of the client. Others are personal managers who provide advice and guidance in creative matters, such as helping a rock band with its live act or reviewing projects under consideration by an actress. Some managers do both. This article will focus primarily on the contractual relationship between a personal manager and an artist.

As with most negotiations, compromises depend on the relative bargaining power of the parties. When the manager becomes involved with an artist who is at the beginning of her career, the manager is keenly aware that relatively more managerial time and effort will be required per dollar earned. This makes the manager less amenable to accepting a deal that deviates from the form agreement it customarily proffers. If the artist already has achieved a level of success that generates substantial revenues, then the leverage may shift in her direction.

Key Agreement Terms

The key provisions of the agreement are the particular services to be provided by the manager, including the industry sectors that both management and artist agree will be the focus; the territory; exclusivity; the revenues on which the manager’s compensation will be calculated; the duration of the manager’s services; and the duration of the manager’s compensation, which usually lasts beyond the term.

The management agreement customarily specifies a general list of services. They can include advice, guidance and counsel that the artist reasonably may require, acting as the artist’s exclusive negotiator, and being available at reasonable times and places to confer with artist in connection with her professional career. In New York, a manager does not seek employment for the artist unless doing so is “incidental” to the other services the manager renders, primarily because the law requires that one who seeks employment on behalf of an artist be licensed. For this reason, most management agreements state specifically (and sometimes in bold type) that the manager is not a booking agent and is not obligated to and shall not render any services or advice which would require the manager to be licensed as an employment agent. The manager often does agree to work with talent agencies, and the agreement may include the right of the manager to engage, discharge and direct agents who represent the artist for the purpose of securing contracts and engagements.

The agreement customarily will provide that the manager is the artist’s exclusive representative for particular purposes outlined in the agreement or, more broadly, for all matters usually and normally within the jurisdiction of a personal manager. Either way, because the provisions relating to services of the manager tend to be general, it is difficult for an artist to prove that the manager breached the agreement by failing to perform promised services. However, the failure of the manager to meet agreed goals might give the artist the right to terminate (e.g., if earnings fall short of specific benchmarks; see below).

Management agreements tend not to distinguish the industry sectors in which the manager will render services from those in which the manager won’t. Making this distinction, however, leads to a mutual understanding of the scope of the manager’s duties as well as the sources of revenue that the manager will commission.

From the artist’s perspective, the manager’s duties would be focused ideally on sectors of the entertainment industry in which the manager has special expertise, which usually are also the sectors for which the artist expects to be advised by a particular manager. For example, a manager who knows the intricacies of the music industry might not be the best choice to render advice respecting roles in live theater. Managers who know the live theater sector may not be ideal for film and television. An artist who anticipates writing a book may wish to exclude revenues from that source if the manager is not involved in the project and it doesn’t relate to the manager’s key areas of expertise. Most artists discover, however, that the manager expects to commission all areas of entertainment.

The same principles apply to territory. A management agreement with a worldwide territory only makes sense for the artist if the manager has the ability to provide—either directly or through associates—worldwide management.

Agreements frequently provide that the artist will not take certain actions on her own behalf, such as negotiating or executing an agreement, without the manager’s prior consent. The converse—that the manager won’t negotiate, accept, or execute an agreement without the artist’s explicit authorization—rarely appears in the first draft. In fact, the agreement may even include a power of attorney authorizing the manager to negotiate and execute agreements for the artist, in the artist’s name, and to approve use of the artist’s name, likeness and biography in advertising and promotion.

Traditionally, the term of the agreement is for a fixed period. Often the manager’s form agreement also will include successive options to extend the term for additional years. These options, however, can be made to depend on whether or not gross receipts have exceeded specified targets. Ideally from the artist’s perspective, even the initial period of the term should be subject to a cut-off if benchmarks aren’t achieved within a reasonable time. For example, a two-year initial term might be made terminable at the end of one year if the artist hasn’t earned a specified minimum amount. This approach, however, is not likely to apply to a new artist who needs time to grow.

In recent years, managers have presented agreements to recording artists in which the term of the relationship is not measured in years but rather in the number of albums that are produced. This neutralizes the variables that may affect the number of albums an artist can record in a given number of years. The artist may find this approach daunting, however, because of the difficulty in predicting at the outset of a management relationship the time necessary to create multiple albums.

Most frequently, the manager will be compensated by a percentage of the artist’s earnings. Unlike the commission charged by an agent, the percentage in New York that a manager may charge is not limited by statute. Managers generally charge between 15 and 20 percent of gross earnings, although they might accept a lower percentage for revenue earned in entertainment industry sectors in which the manager is less knowledgeable and effective.

The manager will seek not only compensation based on services performed by the artist during the term but also from revenues generated after the term under contracts made during the term. Sometimes the parties will agree to a maximum period of time beyond the term of the agreement during which the manager will continue to collect a percentage. Sometimes the manager’s entitlement will not extend to a modified agreement or a renewal term, but often it does. A manager may be asked to accept a reduced percentage, however, after the term during which the manager is obligated to provide services. This make sense not only because the manager is relieved of duty, but also because of the artist’s need to engage and pay a successor manager.

If a corporation is formed to furnish the services of an artist, the manager’s percentage will apply to the corporation’s gross (not the artist’s), and the manager might be granted shares of stock. If a manager commissions gross earnings, the artist bears his own expenses for travel, wardrobe, promotion costs and agency fees. But negotiation can result in an exclusion of some items from the agent’s commission, such as recording costs that the artist technically receives but are spent on third party recording cost obligations. Sometimes managers will agree to advance money to artists to fund expenses. Because the money usually has to be repaid whether or not the artist’s earnings are sufficient to cover it, no loan should be authorized without the artist’s prior approval.

The contract also will provide that the manager is not required to render exclusive services to the artist or to devote the manager’s entire time to the artist or her affairs. Expanding on this, the agreement customarily will say that the manager won’t be precluded from representing other persons whose talent is in competition with the artist’s. Before entering into a management agreement, the artist should learn how many other persons are also being represented by the same manager. It will have a bearing on how much time the manager has available to provide the services promised to the artist.

Ultimately, if things don’t work out between the parties, the artist always has the technical right to terminate a manager’s services, even if a contract purports to be irrevocable during the term and doesn’t include an escape provision. But this rarely is an effective solution because, in the absence of the manager’s breach, the artist will continue to owe the manager a commission to the extent their contract provides during the balance of the term and even after. A negotiated parting of the ways, if feasible, generally makes more sense.