Should a manager’s commission be taken before or after expenses have been paid?

Q – Martyn from Cardiff asks whether a manager’s commission should be before or after expenses have been paid.

A - Paying a manager his commission is always a thorny issue. A good manager can expand your career to it’s maximum potential and a bad one can rocket you to oblivion. Managers typically get 15% to 20% of your gross earnings, i.e. before expenses. Perhaps you could peg his commission rate at 15%, which can then escalate to 20% when you earn a certain amount. Alternatively he could be paid 20% up to a certain level and then 15% thereafter. The logic being that he gets a higher cut when your earning potential is modest and a lower one when you are successful and your earnings are substantially more.
A variation on this theme is that the manager gets a percentage of the gross but this is then capped out at say 50% of the net. In other words the manager never earns more than the artist gets.
Sharing in the net income, i.e. after expenses, is not unheard of and is a much better deal for the artist. When a manager agrees to a deal on the net income he may ask for a limit on the expenses. He rightly won’t want you hiring private jets and throwing lavish parties when on tour.
Always bear in mind that there are certain advances on which your management should not get any commission at all. These include recording costs, video costs, producers fees, tour support and costs of collection (if you have to sue someone to get paid). These will appear as advances on your royalty statements from the record company but you won’t actually receive anything, so it would be wholly unfair if your manager was to commission income that you never actually received.

Answers supplied by O.J. Kilkenny and Co. Chartered Accountants, specialists in the entertainment industry. Contact: [email protected] or call Alan Duffy (01) 661 1588.