This editorial on modern artist management deals and when they go wrong was written by Loeb & Loeb’s Megan Pekar. Pekar was recently featured on our 30 Under 30 list. She knows what she’s talking about! This is worth you time.
No one likes to talk about the end of a relationship before the relationship has even started. You want to focus all of you energy on what’s bringing you together and what your future looks like as a team – but what you don’t want to forget to think about is what happens when it ends.
An artist’s relationship with their manager is extremely personal, and the success of such relationship relies a lot on chemistry, trust, connection, and execution. However, at the end of the day, if two people do not want to work together, no one (including a court) can force them to work together, and believe it or not, there is case law supporting that. In fact, it has become somewhat customary in the industry for management deals to be done on a handshake or through one-page term sheets in place of fully negotiated agreements so that it can be easily unraveled.
While this sort of casual arrangement may be okay when things are going well, it can quickly become problematic, if the details of the “divorce” are not laid out.
Management agreements can fall apart for many reasons – the parties no longer see eye-to-eye on the artist’s career path, the artist wants to make a creative or business change, or there’s a question of the value being provided by the manager. If the manager is entitled to perpetual commissions that last long after the relationship between the parties ends, this can sour a relationship as well. This is why a well-drafted sunset clause can make a huge difference.
Sunset clauses allow a manager to continue to commission certain types of income (if not all income) at a diminishing or lower rate for a period of time following the end of the relationship –sometimes in perpetuity. These often apply to works that are created during the term or subject to an agreement entered into during the term or contracts that were negotiated (or substantially negotiated) during the term. In some cases, this can result in a windfall (and often as an absurd result) for the ex-manager years in the future. This is particularly true when it comes to the types of asset sales that are happening with more and more frequency. For example (and this does happen), if an artist becomes highly successful, parts ways with management and then years down the road sells his/her artist royalties related to masters that were recorded during the term for a large purchase price, the ex-manager who has had nothing to do with the artist in years can still wind up making hundreds of thousands of dollars in commissions on a sale. This is why it is important to pay attention to not only the length of sunset clauses, but also the definition of income, which can both lend itself to an absurd result like above.
In order to keep things as clean as possible, if the relationship deteriorates to the point of termination, it is best to negotiate a full release and settlement agreement rather than just an early settlement agreement. That way, the expectations and obligations of the party are limited to the final settlement payment and not clouded by vague language that the party can argue over for years to come.
