Management Agreements

MANAGEMENT AGREEMENTS: Another in our series of legal resources for creative people about.

  • What is a Management Agreement?
  • Does a manager need any formal qualifications?
  • What exactly does a manager do?
  • What is the difference between a manager and a booking agent?
  • How long does a Management Agreement last for?
  • Will a manager represent me throughout the world?
  • Can I have more than one manager?
  • Can the manager assign the Management Agreement to anyone else?
  • If our band has a manager and I leave the band, does the manager still manage me?
  • Can a manager be a company as opposed to a person?
  • How much does a manager get paid?
  • Are there any exceptions to what a manager takes commission on?
  • Do I have to pay the manager’s expenses?
  • Do I still have to pay the manager commission after the end of the Management Agreement?
  • Will a manager control all income I receive?
  • Will a manager look after my personal tax issues?

The information provided on this blog has been made possible by the  funding received by from the New Zealand Law Foundation.

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This Fact Sheet is not legal advice.  This information is intended to provide a general outline of the relevant legal issues and further professional advice should be sought before any action is taken in relation to the information contained in this Fact Sheet.
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What is a Management Agreement?

In the music industry a Management Agreement is a legally binding agreement entered into between an artist (or individual artists who may be performing together in a band) and a manager, where in return for promoting and managing the artist’s career, the manager receives a commission payment.

Does a manager need any formal qualifications?

No.  However Managers will generally be experienced and well connected individuals in terms of their particular sector of the music industry.

What exactly does a manager do?

A manager is usually appointed to act as an artist’s sole and exclusive business representative for an agreed period of time either throughout the world or just within a particular country or countries.  In particular, a manager will normally on behalf of the artist be involved in:

  • Trying to source appropriate publicity for and promotion of the artist;
  • Helping the artist to source and negotiate recording, publishing, merchandising, live performance and other commercial contracts;
  • Working with the artist to implement on an overall strategy for the advancement of the artist’s career; and
  • Handling any day to day issues that may arise in the artist’s business.

A Management Agreement should also include a clear obligation on the manger to represent the artist and provide the manager’s services as specified in the Management Agreement to the best of the manager’s ability. 

What is the difference between a manager and a booking agent?

A manager will usually have responsibility for most of an artist’s business affairs (or just those specific areas which have been otherwise agreed), and as suggested above often has quite a wide ranging authority to act on an artist’s behalf in negotiating contracts and securing deals.  In contrast, a booking agent is paid a fee to secure an artist gigs or live performances only.  They have no further involvement in an artist’s affairs, and are not generally permitted to enter into contracts on the artist’s behalf.

How long does a Management Agreement last for?

The term of the Management Agreement should be of sufficient length to permit the manager to receive a reasonable return on the time and effort they

have invested in helping to develop an artist’s career, but should not be so long as to unfairly prejudice an artist’s career interests.  Normally the Management Agreement will be for a fixed term – three years is a typical length.  Whether or not the manager is to have the benefit of being able to extend the term, by the exercise of one or more options, is a matter for negotiation between an artist and a manager in the course of concluding the Management Agreement.

Sometimes an initial shorter period of time as a trial period may be more practical to begin with.  This enables both the manager and the artist to see at the outset if the relationship is right for them, without being tied up for an unnecessarily long period of time should it no longer suit either party.

Will a manager represent me throughout the world?

A manager may either represent an artist throughout the world or just within a particular country or countries.  If an artist has managed to find a really well connected manager, who has contacts in many countries, the artist may prefer that the manager represents their worldwide interests.  Alternatively, the particular manager may only have industry contacts in a particular country, in which case it may be advisable for the artist to consider restricting the manager’s management of the artist’s interests to that particular territory only, leaving the artist free to engage another more suitable manager or managers in other parts of the world.  Alternatively an artist may have one primary manager who represents them throughout the world but require the primary manager to arrange the appointment of “territory managers” within specific countries to assist the main manager in performing their duties.

Can I have more than one manager?

Not usually.  The manager will typically want to be an artist’s exclusive manager to ensure they are appropriately rewarded for the work they do in one area of an artist’s career the benefits of which may flow through into other areas.  However as noted above an artist may have different arrangements with different mangers in different countries who provide some aspect of the artist’s total management service requirements.  However even in these situations it is common to have one primary manager who will at least to some degree have overall responsibility for coordinating the artist’s business efforts throughout the world. 

Can the manager assign the Management Agreement to anyone else?

Generally neither the artist nor the manager should be able to assign any of their rights under the Management Agreement to anyone else without the prior written consent of the other party.  However, there may be instances when it would be to an artist’s advantage to allow the assignment, for

example, where the manager has significant contacts in a particular country, and it makes more sense for that particular person or people to handle the artist’s affairs directly.

If our band has a manager and I leave the band, does the manager still manage me?

As a Management Agreement is an agreement for personal services then even if an artist is a member of a band in theory the manager’s rights to represent the artist relate to the artist personally and not just to the artist’s work within one band.  However in this regard the wording of the Management Agreement should be carefully considered.  Quite often a Management Agreement will clearly give the manager the option of choosing whether or not to continue to manage an individual artist that leaves a band which they manage.

Can a manager be a company as opposed to a person?

Most managers will probably structure their business as a limited liability company.  The company exists as a formal and legal entity in its own right, and is separate from its owner.  (For more information on legal and business structures please refer to our Fact Sheet ‘Business Structures’).  Because of this it is important that any relevant Management Agreement makes specific reference to the management company being responsible for ensuring the manager personally performs certain obligations under the Management agreement.  If this is not done then in theory the management company could have anyone perform their obligations under the Management Agreement rather than the manager that the artist specifically entered into the management agreement to obtain the services of initially.

How much does a manager get paid?

It is industry practice in New Zealand for managers to be paid 20% of the gross earnings (i.e. income before expenses are deducted) of the artist as a commission.  Particularly if an artist is just starting out, there may not be much income generated initially; in which case the manager may agree to defer taking his or her payment until the artist actually earns a reasonable level of income, or is able to make the payment.  

Are there any exceptions to what a manager takes commission on?

A manager’s commission is usually based on the gross income from all the artist’s commercial endeavors within the areas in the music or wider entertainment industries that the Management Agreement specifies.  However, there may be certain income that an artist considers is outside of the manager’s right to take commission on.  To be effective these exceptions

should be clearly specified within the Management Agreement.  They may include certain commercial ventures within the music or entertainment industries in respect of which the manager’s services are not provided.  An example of such may be if the artist in addition to their own musical work also provides guitar lessons or perhaps runs a design business specialising in album artwork or band merchandising design.

There are also certain other exclusions from income that the manager can take commission on that are generally accepted within the music industry.  For example a manager will not generally be entitled to take commission on recording or video production advances where the artist is not able to apply those funds in any way other than for the purpose the record label has made them available for.  Similarly due to the high costs of touring it is not uncommon to see Management Agreements provide that rather than taking commission off gross touring or public performance income a manager will take their commission off an adjusted gross figure that is in practice closer to the artist’s net income.  In other words this ‘adjusted gross’ figure allows for the deduction of booking agents commissions and some degree of touring expenses before the manager’s commission is calculated and paid.

Do I have to pay the manager’s expenses?

Where a Management Agreement provides that the manager is entitled to recover certain expenses, it should be ensured that a proviso is also included stating that such expenses must be fully supported by invoices or receipts as evidence of expenditure and also must have been directly incurred in relation to the artist.  Additionally, expenditure on certain matters such as the overheads incurred in maintaining the manager’s own business (e.g. rent, phone and internet connections) should be excluded altogether from being the responsibility of the artist.  An artist should also ensure that a “cap” is provided on the amount of expenses the manager can incur without the artist’s prior consent.

Do I still have to pay the manager commission after the end of the Management Agreement?

After the end of the Management Agreement the manager is usually still entitled to commission in respect of any engagements and contracts entered into during the term of the Management Agreement, however the rate payable typically reduces over a specified period of time.  For example, for the first year after the expiration of the Agreement, the manager may be entitled to 15% of any income earned, reducing to say 10% for the next year, and 5% thereafter, until a point is reached where no commission is payable at all.  This provision in a Management Agreement is commonly known as a “sunset clause”.

Will a manager control all income I receive?

Management Agreements will often provide for the manager to receive all the income earned by the artist in relation to the activities the manager is involved with.  The manager will then deduct their commission and expenses, before reimbursing the balance to the artist.  Monthly accounts together with quarterly and annual statements should also be provided, with all payments due to the artist specified to be made within a certain time period of receipt of cleared funds by the manager, i.e. 14 days.  In such cases it should also be ensured that the artist has an appropriate right to audit the books and accounts of the manger as they relate to the artist so as to ensure all amounts due to the artist are being properly accounted for and paid through.

However it is also common that although a manager may be responsible for collecting any income on behalf of the artist that they are in fact required to pass such income directly onto the artist’s nominated accountant who is responsible for keeping the accounts of the artist.  It is then the artist’s accountant who is responsible for paying out the manager’s commission and expenses as applicable.  This is in many ways a preferable arrangement as it ensures that the artist’s accounts are kept in a proper manner.  It also frees the manager up from being a bookkeeper so as to enable them to apply their services for that which they were initially intended, the ongoing development of the artist’s career.

Will a manager look after my personal tax issues?

The purpose of the manager’s engagement is to take care of the artist’s or  the band’s business affairs, not each individual member’s personal tax affairs.  Generally speaking it would be much more advisable for an artist to appoint an appropriately qualified accountant to handle their personal tax issues as the consequences for mismanagement of any such tax obligations can be significant both in terms of monetary penalties charged by the IRD as well as in terms of potential criminal liability.

 

Written by entertainment lawyer David McLaughlin.

Photo by Headway on Unsplash