Management Contract Analysis

Whilst reading this material it would be to your advantage to have the sample contract open at the same time. Try to follow the principles being outlined with the way they are used in the sample; judge for yourself their fairness and appriopriateness.

Introduction

As with all contracts, there are many areas within management agreements where the unsuspecting signer can be putting their consent to something which they wouldnít if they understood what it meant. There are several places where advice can be sought on contracts of all kinds, but I hope some can be satisfactorily covered in this analysis.

First of all there needs to be some definitions made so that certain aspects of the contract, and music industry contracts in general to an extent, can be assessed.


REMEMBER: DON'T SIGN OWT UNLESS YOU KNOW WHAT IT MEANS!!

Implied in any management agreement are three things;

  1. the essence of mutual trust and confidence between manager and artiste;
  2. the managerís obligation to use his/her best endeavours to further the career of the artiste;
  3. the doing of all things by both parties in relation to each other in good faith.

A management agreement may be terminable if it is proved that any of these vital aspects has been so substantially broken or disregarded as to constitute a fundamental breach of contract.

Definition: Breach of Contract.
An actual failure by a party to perform his or her obligations under that contract or an indication of his or her intention not to do so.

Definition: Fundamental breach
A breach of a major term of the contract.

1. Mutual trust and confidence are not part of the legal aspects of the management contract. The artiste depends on the manager to make him or her a success, using skill, experience and contacts to do so. If the artiste believes that the manager is no longer capable of fulfilling these obligations, or is no longer willing to do so, s/he is concerned that their career and earning prospects will suffer. Management is a personal relationship, and cannot work if the parties are antagonistic.

2. Best endeavours depends on circumstances. Whenever the artiste is not satisfied with progress, the question is whether the manager is still doing her/his best for the artiste. A manager who loses interest in the artiste will not continue to act enthusiastically or with mush diligence. The measure of best endeavours is a personal judgement, so a dissatisfied artiste should take careful notes on what proposals the manager makes, or what activities s/he initiates, to demonstrate (if necessary) to an impartial judge that the manager has failed to promote the artiste in the manner which reasonably be expected. The artiste must also be receptive to management ideas and projects, if these are consistently ignored or refused then there will come a time when the manager will give up trying.

3. Good faith is a subjective test in the course of acting within the spirit of an agreement. The use of bad faith is, for example, where one party to the agreement deliberately;

  1. does something prejudicial to the interests of the other party, or does not disclose a conflict of interest;
  2. fails in his or her duty of care resulting in a loss to the other party;
  3. does a deal less advantageous than could have been done, in return for retaining an undisclosed benefit.

Important points of interest.

1. Contracts of employment.

"Subject to and upon the terms and conditions herein contained the Artiste hereby appoints the Manager as his/her manager and representative."

A management agreement is a contract of employment for services, so who is to be the employer. In most cases the artiste appoints the manager, and so is the employer.

2. Prior agreements.

Example:

  1. "Subject as disclosed in the First Schedule hereto the Artiste warrants that s/he is not a party to any written or oral agreement or commitment current or contingent (including those which have any options yet to be exercised) which relate to or which may detract from any of the rights granted to the Manager under this Agreement and that the Artiste is fully entitled to enter into this Agreement and this his/her doing so is not a breach of any third party rights.
  2. The Artiste undertakes to indemnify the Manager from any damage cost loss or liability incurred by him as a direct result of a breach by the Artiste of the Warranty set out in (a) above."

An artiste may have a prior existing management agreement with some time still to run, although (for example) it may be dormant because either s/he has left the group to which the management agreement related, or because the manager has temporarily ceased to operate. The artiste cannot grant the same rights at the same time to two separate managers, so any further agreement s/he signs during that period can only become effective immediately upon the termination of the prior agreement.

All prior agreements of whatever nature relating to the artiste should be investigated to confirm that they are not currently valid, including checking upon the existence of options.

3. Exclusivity of territory

Example:

"The Manager shall be the sole and exclusive manager of the Artiste within [ ] (hereinafter called the Territory) I respect of the following activities of the Artiste within the entertainment industry"

To have any value to the manager, a management agreement must be a sole and exclusive appointment. It should cover the whole of the music and entertainment industry within which the manager is capable of undertaking his/her obligations, and throughout so many countries as the manager can cover effectively.

4. Termination

"Either party shall be entitled to terminate this Agreement by giving written notice to the other party in the event of the other party:

  1. remaining in material breach of any obligations hereunder for more than 21 days after the receipt of a written notice specifying the breach and its remedy;
  2. becoming bankrupt or (being a company) being wound up otherwise than for amalgamation or reconstruction;
  3. threatening to permanently cease trading;
  4. compounding generally with his creditors."

The agreement must have a means of identifying when it is to expire or terminate. If there is no expiry date, i.e., it just goes on indefinitely, the law implies the right of either party to terminate it at any time by giving reasonable notice. If the agreement is to extend for a minimum period then it must say so. Whatever the proposed expiry date, either party should be entitled to terminate the management agreement upon the happening of certain events. Apart from breaches of contract, these should relate to the capacity or ability of the other party to fulfil their obligations, and should also take account of their ability to do so. A manager is unlikely to terminate his or her agreement with the artiste unless, for example, s/he has a conflict of interest, or in his/her opinion the artiste is an endless investment and expense with no potential future, despite all the managerís efforts.

5. Joint and several

Example:

"....(herein jointly and severally called the Artistes)".

The artistes who comprise a group will normally execute the same management agreement, "jointly and severally". The "joint" refers to all of the members collectively, and the "several" refers to them individually. Any liability incurred by the group under the management agreement "jointly and severally" will make each of the members individually responsible to the manager fro the whole of the liability. The claim would be made against them all, but if some can pay and some cannot, those who can will have to subsidise those who can't.

This wording represents acceptance of responsibility by each member of the group for the consequences of the defaults of the others. This helps the manager should litigation arise as a result of damage or loss caused to him/her through breach of contract by any one or more group members.

Another effect of "joint and several" is that, although it is the group which is signing the management agreement, they are also committed to the manager as individual artistes. Therefore, having individually granted to the manager exclusive management rights, an artiste is not free of the management agreement after leaving the group, unless it contains a clause specifically to that effect.

6. Manager's commission

Example:

In consideration of the proper fulfilment of the obligations of the Manager and subject as set out below s/he shall be entitled to receive a commission of (20%) of the gross earnings of the Artiste received in respect of or arising from all of the activities of the Artiste as set out in clause [ ] provided that:

  1. "Gross earnings means money or moneys worth received by the Artiste or on his/her behalf in the UK directly or indirectly from any such activity but excluding genuine gifts or presentation to him/her which is not in lieu of or in consideration of foregoing any proper fee. "Received" means whenever received including after the termination of this Agreement in respect of any event contracted during the period hereof and being performed before or after such termination.
  2. Commission will not be paid on any sums paid by third parties as support for tours or towards promotional video expenses or any other support or subsidy towards any business expenses which would otherwise have been incurred by the Artiste.
  3. In respect of live appearances at concerts or upon tours the commission will be paid on the net profits thereof where "net profit" shall mean the difference between gross fees received and the total costs incurred reasonable attributable to the staging of the event after deducting third party support.
  4. After the termination of this Agreement in respect of recording and publishing income the commission will be due on accountings for the [two] half yearly accounting periods of the record company or the Publisher (as the case may be) in connection with records made or released during the period of this Agreement."

 

Precisely what the commission is due on, particularly after termination, must be agreed. The risk is that there may be a double commission on some income when the new manager is remunerated. This must be avoided, as it would be uneconomical, and could lead to serious cashflow difficulties. Therefore a new management agreement would have to take that into account.

The key word is "gross" for the earnings upon which management commission is charged, with the exception of tour income. The managerís commission should not be affected by the artisteís own personal or business expenses, which are beyond the control of the manager.

There should be no commission on record royalties if they arise through a lease-tape or production company owned by the manager.

Managers should not take commission from the performance income of the artisteís compositions, which is received by him/her direct through PRS. If the manager sets up a deal for the artiste with a publisher, s/he should come to some arrangement with the publisher on performance income, provided that does not adversely affect the royalty rate offered to the composer.

7. Period of agreement

Example:

"Subject to [termination clause] this Agreement shall commence [on the date hereof] [with effect from the...] and will continue for the period of [three] years and the Artiste hereby grants the Manager the option to extend the period for a further [one] year upon giving the Artiste written notice no later than [sixty] days prior to the expiry of the initial period provided that at that time the Manager is not in breach of any of its obligations hereunder."

The period of the management agreement may be an initial short period so the artiste can see how things get on, with a longer secondary period once satisfied. The manager may demand the security of a substantial period of time from the outset for his/her investment in , and contribution to, the artisteís future. A disadvantage to the artiste of a yearly basis renewable by the manager is that s/he is insecure and cannot plan for the future with any long term confidence. S/he will only know for certain that s/he can appoint another manager when the renewal option has not been exercised by the present manager. It is always open to either party to approach the other to see whether the contract can be ended by mutual consent, but that is rare.

Renewal options in management agreements invariably favour the manager. As the artiste employs the manager, it is the employee who has the option to renew his/her own terms of employment, while the employer will have limited rights of dismissal of his employee. The options should not enable the manager to renew the agreement indefinitely, and should only be exerciseable if the manager at that time is not inbreach of any obligations. There may be other conditions for renewal, such as if the manager has procured a recording contract for the artiste, or if the minimum earnings for the artiste have been acheived.

Using the knowledge gained from studying this information critically assess the sample contract for its fairness towards both the artiste and the manager.