12/22/2020
Not dead yet: The sunset clause in personal representative agreements.
At the core of any “personal representative” agreement in the entertainment and sports industries is the entitlement of the representative (such as a manager or agent) to a commission calculated on the revenues or income generated by the individual being represented (who we’ll call the “talent”). For example, many manager agreements will provide that the manager is entitled to a commission ranging from 10-25% of the talent’s income from any source in the entertainment industries. A key question in drafting and negotiating such agreements is: For how long is the representative entitled to receive their commission? Properly answering that question is more complicated than might first be appreciated.
The simplest answer to the question is also the rarest to see in actual agreements, what we’ll call the “minimalist” approach: the representative’s commission entitlement expires along with the term of the agreement. In the case of a manager agreement, if the term of the agreement is two years, then the manager is entitled to their 20% for those two years and that’s the end of that. An equally simple, and more common (though also more problematic), answer is what we’ll refer to as the “maximalist” approach: the representative’s post-term commission entitlement extends essentially “forever,” even if the term of the agreement has expired or been terminated and the representative is no longer representing the individual – in other words, the commission is owed on contracts entered into (or revenue streams first generated) for so long as the contract or revenue stream in question is paid, even if that extends for many years, even decades, after the representative agreement is otherwise no longer operative. For example, imagine a band had entered into a management agreement in 1975, and then entered into a record contract with a major label in 1977, and then terminated the manager’s services in 1980 – under a “maximalist” approach, if the records released under the 1977 contract are still generating royalties in 2020, then the manager would still be getting a commission on those royalties even though the manager hadn’t actively represented the band for 40 years.
The rationale behind the representative being entitled to their commission beyond the end of the term of the agreement is a fairly simple one: the contract or revenue stream in question would not have been entered into or obtained without the efforts of the representative, and so the ongoing commission entitlement is a reward for the “investment” (of time, money, effort, etc.) by the representative. (As a drafting point, note that some representative agreements don’t place the ongoing entitlement to the commission where you might expect: ideally, it should be in the section which deals with the fee/commission payable to the representative or, failing that, in the section setting out the term of the agreement; but sometimes it is buried in an entirely separate provision, sometimes nestled among more conventional “boiler plate” provisions which can make it easy to overlook.)
The countervailing rationale from the perspective of the talent goes something like this: first, the effect/influence of the representative on the revenue in question diminishes over time, such that, at some point, the generation of revenue is at least as much the product of the efforts of the talent themselves and their new representatives (i.e., if the band mentioned above is still selling records in 2020, that’s probably because the band has been hard at work for the last four decades creating new material, touring, and otherwise maintaining their public profile, leading to a public appetite for their back catalogue); and, second, the talent is probably paying double commission on the revenue in question because their current representatives are commissioning the same revenue – so the band in our example is paying a commission on those record royalties both to their first manager and their current manager.
Most often, the way in which these conflicting sets of interests get handled is by means of a “sunset clause” – the contract will provide that the commission entitlement only lasts for a finite period of time (e.g., five years), and, often, that the amount of the commission declines over that period (e.g., 20% in year one, 15% in year two, 10% in year three, 5% in year four, 2.5% in year five, and 0% thereafter). (Get it? The commission is sinking over time, below the horizon, until the bright light of the commission entitlement eclipses into darkness, kind of like a… sunset.)
From the perspective of the talent, any personal representative contract that contains a post-term commission entitlement should contain a sunset provision. Another mechanism that talent can use to protect their interests in connection with post-term commission entitlements include carving out of a “new” personal representative agreement any revenues that are subject to a commission from a previous representative – what we might call an “anti-double dipping” provision. (This has the benefit of being logically coherent: if the old manager is entitled to a commission because it was their efforts that led to the commissioned contract being entered into, then the new manager is not entitled to a commission on that same revenue because their efforts played no part in the contract being entered into.) Additionally, a post-term commission entitlement can be tied to a “key person” clause that stipulates that it is only the individual representative who is entitled to the ongoing commission, and that they cannot assign that entitlement to any third party, and that, if they are employed by a company, their departure from that company voids the company’s entitlement.
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