Understanding Contracts Part 1: How much is too much?

Has your talent been recognised, and you’ve been offered representation? Or have you received an offer to have your album/movie/book produced and/or distributed? Have you wondered whether the price/percentage they’re asking is fair for their services?

In the first of an occasional series about contracts, duly noted® team member Julian Boote explores this question.

“Woa! Have you seen this clause?”

My business associate sat bolt upright. We were beavering away in our office; he’d been fiddling away at some admin, probably doing some follow-up on our efforts canvassing for business (i.e. trying to get another feature script optioned/into production) that we did as part of our daily chores. I had been given the task of perusing an agent’s contract we’d just been sent from Los Angeles.

It was early 2001, the third millennium AD had dawned, and we felt a new page had turned for us in our film careers. Our first feature, The Killing Zone, had been released in the UK, and we’d landed a sales agent handling worldwide distribution sales for it. A few months before we’d also fallen in with a Canadian production company with a good track record and loads of film industry contacts. They’d read the script we hoped would be our next feature – a teen action adventure – and were blown away by it. So much so, in the autumn of 2000 they’d introduced us to the representative of an LA-based talent agency. The rep saw TKZ, learned about how we’d achieved so much with such a small budget, then read the new script. They liked it too. So much so, they wanted to represent us.

So there we were at the start of ‘01, thinking we’d hit pay dirt. An agent. A Hollywood agent, no less. Representation, and all the opportunities for networking and employment that went with it. A film career. A future! Result! Like Mel Gibson says in Lethal Weapon, “We do this right, shaving ads and shit. Money, girls…” Yes, we were feeling pretty chipper.

And then this!

“What? What is it?” my associate asked. Though he’d looked at the agreement, truth to tell, I had the better head for wading through the verbal mires of contracts, so the review of legal documentation was normally left to me. And while no hot-shot IP equivalent of Perry Mason by any stretch of the imagination, having to deal with a number of contracts for our company’s film had made me passably contract savvy. I was no means perfect at nasty-clause spotting, but I wasn’t bad.

And just what had I spotted? I told my associate – a clause; an innocent-looking few lines of text sure enough, neatly aligned with the other paragraphs within the contract. Nonetheless, it was a fiendishly crafted language trap; saying this agency wanted a piece of everything we earned.

Sounds innocent enough. But it wasn’t how much of a cut they wanted that was startling; fifteen percent was pretty much the average for an agent.

It was what that cut applied to that had me wide-eyed and jaw-to-the-floor shocked.

Let me say again what you just read that might have passed you by; “this agency wanted a piece of everything we earned.”

See the magic word?

Everything.

I’m not talking a cut of any gig they’d get us – that’s normal, I expected it. No, this clause stated no matter what we earned, from whatever source – even if they’d had no part in our earning it – the agent wanted some of it. I’d heard of that requirement elsewhere so even that didn’t set my pulse pounding, though I didn’t like it. No, it was how much further the clause went with this requirement; if we bought or were given shares from another company, they’d get a percentage of the dividend. If I created a company entirely unrelated to the media, they’d still be tapping me on the shoulder for their share of my salary. Any and all income we received, they felt they had a right to a cut.

It got worse.

By everything, the clause included fees we were due for work done prior to our association with them. That meant any further revenue for us from TKZ, they wanted a cut. And if that weren’t enough, as if to add insult to injury, within this contract I’d now decided had been drafted by the very spawn of Satan, were the words “in perpetuity”. That meant even if we terminated our association with the agency sometime in the future, they’d be still entitled to a piece – not just relating to any residual fees for work up to the point our association ended, but for any work we got after.

Never think there isn’t a damn good reason for the saying, “The devil is in the detail”. He was there that day; smiling and saluting nonchalantly from between the lines of this particular clause, as if to say, “Hey… You got me”.

Now I expected agents to want a piece of the action. What I didn’t expect was quite that much action. What next? I wondered. If I won the lottery, would they want to be there, their hand on the photo op cardboard publicity cheque too? Would they be sifting through my wallet for my nectar card points? It wasn’t there in writing, but I bet if a relative died, they’d be standing at the graveside with me, rubbing their hands in glee at the thought of what I’d been left in the will.

It was a startling discovery to make in an otherwise familiar-looking document; rather like Michael Madsen finding a black mamba in a case full of cash during his million dollar samurai sword exchange with Darryl Hannah in Kill Bill Vol 2.

So what’s the lesson here? Well, aside from never accepting suitcases from one-eyed blonde bombshell assassins, the lesson – or lessons, as there are more – are the following:

Firstly, don’t drop your guard and read the contract!! You’ll be finding this point again in further articles I write about contracts – it’s that important. No matter how good the deal, no matter how exciting, brush those stars away from your eyes and make sure you understand what you’re agreeing to.

Next, do your research and know what the standard fee/percentage is. When dealing with anyone who wants a cut; whether they’re agents, publishers, record labels, film distributors, merchandisers, whoever; there will likely be an industry standard rate or fee. It may not be formalised in standard terms and conditions, such as you might find in, say, the American Film Market Association standard agreements. It may be a loose, informal, roundabout figure, that’s just taken as read within the industry. But however that figure’s been arrived at, if there is a value that is an accepted norm within your chosen industry, you should make it an A1 priority to know what that figure is. Once you have that knowledge, it will allow you to make a more educated assessment of the fee/percentage you are being asked to accept – and whether you should agree to it or not. If the percentage asked is higher, find out why. What more is being offered you to demand the higher rate?

Finally, look out for any “strings attached” to the fee/percentage. As in our case, the party who drafted the contract will want fee arrangements geared as much in their favour as possible. So be sure to look carefully, not just at their rate, but to what sales/circumstances that rate applies. But don’t consider all “strings” as bad. According to your chosen industry, such strings may be standard practice, and quite favourable. For example, there can be options within agreements to re-negotiate the fee/percentage at a later date, based upon revenue earned, or simply to drop the percentage by degrees if your income reaches certain levels – because you’re earning more, they can afford to take a pay cut, as the lower fee will in all likelihood still be better than it was when you were earning less. This is why doing your research into standard industry rates and practice is important.

Ultimately it’s up to you to decide whether the fee asked is acceptable to you.

Of course, agreeing an acceptable fee/percentage is not the only thing you should watch out for in contracts. It’s not just about being Goldilocks and finding the deal with the agent fee that’s neither too much, or too little (is there such a thing…?) but “just right”. The percentage they want is just one mine in a whole minefield you’ll need to navigate to agree one contract. But if you do your homework, you can navigate it.

So, having said all this, returning to our situation, what did we do? We expressed concern over the agent’s agreement, pointing out our dissatisfaction with it, especially the clause. We simply couldn’t accept it. That’s why we eventually turned it down, because we felt it demanded too much of us.

And it turned out we did the right thing.

The agency went belly-up a little over a year later, under rather suspicious circumstances.

So much for our “representation”…

Julian’s Tips:

· Speak to your peers in your industry. Learn from them what percentage they agreed. Did it turn out good or bad for them?

· Research your industry for data about standard charges and rates. Discover if there are any “strings” usually attached, and which to avoid. Forewarned is forearmed.

· The fee/percentage in the agreement does not have to be the figure you finally agree to. Your rep/publisher/label/ distributor should justify why they’re charging that rate. Have in mind what you consider a reasonable fee and be ready and willing to negotiate for it.

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This article by the author is intended only as an introduction to contracts. It should not be treated as a definitive guide, nor should it be considered to cover every area of concern, nor should it be regarded as legal advice, or the opinions of duly noted® Ltd.

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