In the second part of a set of articles exploring the different music business agreements, Justin M. Jacobson dives into the world of management agreements, the additional clauses associated with them and negotiation tactics surrounding these clauses.
[Editors Note:This is a guest blog written by Justin M. Jacobson, Esq. Justin is an entertainment and media attorney for The Jacobson Firm, P.C. in New York City. He also runs Label 55 and teaches music business at the Institute of Audio Research. Read the Part One of thistwo-part installment here.]
Another essential matter that needs to be ironed out is the “term” that the artist is signed to the manager. Typical language outlining theterm and optionsis below:
Term– The term of this agreement will be for an initial period of one (1) year commencing on the date hereof (the “First Contract Period”) plus the additional “Contract Periods” if any, which Term may be extended by Manager’s exercise of one or more of the options granted to Manager below.
Options– Artist hereby irrevocably grants to Manager three (3) separate consecutive options to extend the Term for a “Second”, “Third”, and “Fourth” Contract Period. Each such option consist of one (1) year each and will be exercised automatically by Manager at the end of the then current Term unless Manager gives Artist written notice to the contrary no later than thirty (30) days prior to the date that the then current Contract Period would otherwise expire.
A typical management agreement term can last for as little as 1 or 2 years. But, it can be for as long as 5 or 6 years, or even more. The terms of an agreement are traditionally structured with a minimum of one year followed by several options for additional years. Sometimes, the “term” is based on “album cycles” rather than specified calendar years. In this situation, the “term” starts with the commencement of recording the album and lasts until the end of the tour or associated promotional activities for that album. This time period could end up lasting longer than one calendar year. Similar to the language above, usually the options are automatically exercised by the manager. This provides the manager with the right to choose to terminate the agreement by providing notice to the artist.
If they do nothing, than the option is exercised and the agreement continues. Ultimately, this is a point that should be negotiated between the parties as the agreement could require mutual approval to exercise an option or it could include a set milestone that must be reached for an option to be exercised (i.e. artist must earn $10,000 during the one year term for the option to be exercised or obtain a recording/distribution agreement).
Other possible limitations on the term of the agreement could be that if the artist doesn’t earn a specified amount in a given time frame, then the artist is free to terminate the agreement. If this option is selected, a manager should ensure that any offers that the artist turns down as well as those that are accepted are included in this total amount. This protects the manager as an artist cannot simply turn down valid offers to reduce the income earned in order to get out of the contract. Conversely, an artist should insist that for an offer to count toward this minimum, it must be similar to those the artist had previously accepted. This prevents a manager from simply providing nominal or unsatisfactory offers in an attempt to continue extending the management arrangement.
Since a manager is entitled to receive compensation for any agreement entered into or substantially negotiated during the term of the agreement, a “sunset” clause can be included to reduce the amount that a manager is entitled to after the expiration of the term of the agreement.
Typical language for a“sunset” clauseis as follows:
Following the expiration or termination of the Term hereof, Artist agrees to pay Manager for a period of three (3) years a commission of fifteen percent (15%) from any contracts entered into during the Term and all renewals, extensions, additions, modifications, amendments, substitutions or supplements of all contracts, engagements and commitments entered into or substantially negotiated for during the Term hereof. Subsequent to the termination of this first three (3) year period, there shall be modifications downward of Manager’s commission percentage in the following manner: (i) a reduction to twelve (12%) percent for the second three (3) year period subsequent to termination, (ii) a reduction to ten (10%) percent for the third three (3) year period following termination, and (iii) Subsequent to the end of the third three (3) year period the Manager shall no longer be entitled to receive commission.
A “sunset” clause is used to reduce a manager’s commission in the years following expiration of the term of the management agreement. This clause reduces the percentage the artist owes to the manager over time and eventually extinguishes this obligation entirely. This is important for an artist who is leaving one manager and signing with another, as the new manager would typically want their standard commission rate (15-20%) and your prior manager would still be entitled to their percentage under the “sunset” clause (15-20%). This situation severely limits the amount an artist earns; and, therefore, it is prudent to ensure that the prior manager’s percentage reduces and eventually ends at a specified time.
Another method an artist can utilize to potentially terminate a management agreement early is the inclusion of a “Key Man” clause. This clause protects a musician’s relationship with a particular individual by stipulating that the personal manager (the “key man”) must represent the musician or else the musician may terminate the contract.
This applies if the “key man” is deceased, terminated or otherwise is no longer affiliated with the management company that the artist is currently signed to. The particular individual needs to be listed by name in the agreement for this clause to be operative. However, the inclusion of this type of language does not obligate the artist to leave the management company; it just provides the artist with the opportunity to do so if they choose.
A standard“key man” clausecould reads as follows:
During the Term, John Doe shall be primarily responsible for Manager’s activities under this Agreement. Notwithstanding the foregoing, it is understood and agreed that John Doe may delegate day-to-day responsibilities to other employees of Manager provided John Doe remains primarily responsible for the activities and services provided by Manager. Notwithstanding anything to the contrary contained herein, in the event that John Doe shall cease to be employed by Manager or shall cease to be primarily responsible for Manager’s activities hereunder (“Key- Man Event”), Artist shall have the right to terminate the Term of this agreement effective upon the date of Artist’s notice to Manager of such Key-Man Event.
Overall, a personal manager is an essential member of your music business team and one that can truly make or break your career. They can be a driving force behind your success or a stumbling block to your advancement; consequently, the negotiation of a written management agreement helps to ensure that an initial managerial arrangement doesn’t have a negative impact on an artist’s career going forward and that all parties fully understand what they sign and feel protected.
This article is not intended as legal advice, as an attorney specializing in the field should be consulted. Some of the clauses have been condensed and/or edited for content purposes, so none of these clauses should be used verbatim nor do they act as any form of legal advice or counseling.