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December 21, 2013

Music Industry Tips about Percentage and Commission Agreements

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The Daily Star

---- — Mike asked my advice about the offer from the lawyer. I reminded Mike that I am not a lawyer and that I would simply share thoughts from my experience as a music business teacher.

The agreement sent to Mike is a short version of many management contracts or attorney contingency participation deals and is attractive because it does not require any money to be paid until revenue has been produced. I suggested, however, that Mike consider some potential results of the agreement that might need additional thought.

1. Learn about the lawyer who has offered to work with you. Does he have any record of success in promoting the careers of other musicians?

2. Define the limitations or boundaries of the “net revenues” on which the 5 percent commission will be paid. Would net revenues include a recording fund paid as an advance by a record company?

3. The definition of “business opportunity” in the agreement is very general and could include almost any entertainment-related income Mike might earn after signing the agreement. Five percent of “net revenues” would be payable to the lawyer, even if he had not been directly involved in obtaining those revenues.

4. Even if Mike chose to end the business relationship with this lawyer, the language of this agreement requires Mike to continue to pay a 5 percent fee from the revenue of all deals or business opportunities initiated while Mike and the attorney had a business relationship. If, for example, Mike signed a 4-album record deal and had only recorded one album at the time he ended his business relationship with the attorney, Mike would owe the attorney 5 percent from sales of all four albums, even if the albums took an additional six years to record.

5. Consider requesting a “sunset clause” as part of the agreement. This stipulation would organize planned reductions of the 5 percent commission. As an example, the first year after the business relationship had ended, the attorney would continue to receive his full 5 percent commission. The send year, he would agree to receive only 3 percent. In the third year after the agreement, the attorney would receive only 1 percent, and starting in the fourth year, the attorney would no longer receive a commission. The “sun” would “set” on that 5 percent.