The Three Essentials of Management: The Importance of Money:

The first two parts of this series examined two of the three essentials of artist management: passion and connection.  We now arrive at the last essential management criteria: capital. Please recall that while this series of articles is written from the perspective of providing advice to the artist looking for a manager, the information is equally applicable to those interested in a career in artist management.  The goal of the series is to provide both the artist looking for a manager, and the individual interested in management with the needed perspective to increase their odds of success.

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How managers get paid

First, you need to understand a bit about how managers make their money. Typically a manager will receive a commission—usually 15 to 20 percent—of all of the income that you generate (the gross). This includes money from gigs, money paid to you from a record label as a personal advance against royalties (typically, not from money advanced by a label for you to record your record), money from merchandise, income from your music being used in movies or commercials, and any other source of income you generate as an artist. It is therefore in the best interest of the manager to leverage all of those connections I mentioned above to help you generate as much money as you can, which of course, generates more money for them. This is capitalism at its finest, and when it works, it works great for everybody. 

The problem is that young or unestablished artists typically take quite a while to generate any revenue. Also, these artists typically don’t have any money of their own, so the management is left to spend their own money in order to develop the band before any money comes in. Because of this, you will occasionally see management securing other pieces of the artists’ potential income as a kind of collateral against the money and time they are putting up. Sometimes, for example, management will acquire some part of the artist’s publishing—in other words, a piece of the equity in the copyrights of the songs.  This means that when these songs begin generating mechanical, synch, or performance royalties, the manager will be paid a percentage of the money. Managers do this because they often defer their commission while spending their own money. They have no guarantee that they will ever recover their investment. This practice has largely been frowned upon (by both artists and managers), and was seen only occasionally in the past. However, I’m seeing it happen more and more, and I believe it will become even more of a common practice in the future. 
As an artist, you must seriously debate whether parting with your publishing, in order to provide a sort of insurance to a manager, is the right thing to do. My opinion is that it is usually the wrong thing to do.  Whoever you assign any part of your publishing to must be able to do something with it. By this, I mean they must be able to “work” your publishing to generate awareness about you and money for you. If they cannot do this, do not assign any part of your publishing to them. Therefore, if a manager is requiring you to assign some portion of your publishing to them, you should only do this if you feel the manager is going to actively engage in working your songs. 
Of course, it may not be this simple for you, especially if you don’t have a lot of options. You may feel that the prospective manager can help your career in many ways, and that it would be foolish to miss the opportunity to have him or her represent you by clinging too tightly to your publishing. You may be right.  Your publishing is valuable. Part with it with caution, and only if you’re getting something of real tangible value in return. 

It's Money that Matters

Money is a significant factor in creating effective artist/manager relationships. The manager is spending money, hoping for a return on investment. Publishing is one way to hedge that bet. Of course, managers who have no money will not be able to offer you much for your publishing. 
Managers who have no money have a hard time being effective. There are always expenses involved in getting a band signed: recording costs, gas for the van, fan mailings, travel, guitar strings, and so on. It all adds up. Of course, management doesn’t have to pay for any or all of these things. But remember, they can’t make any money unless the band is making money, so they usually opt to pay for these things and others so that the band has a better chance of getting signed. 
Even after you get signed, management is often the fountain of money. For instance, an artist and manager may determine that they need an independent publicist because they feel the label’s publicist (if it has one) can’t do an effective job due to workload, the label’s priority scheme, or whatever. The label is not obligated to pay for this (though often they do), and so the band and management are left to decide whether or not the potential added exposure they would get from a publicist is worth the out-of-pocket expense. Many times, in a situation such as this one, the band itself is not generating enough income to pay for something like this, so the management foots the bill. Theoretically, management will be reimbursed for these costs once the band does start generating some money. If neither the band nor the management can afford to pay, it really is the band that suffers. 
Good managers understand that new and developing artists are much like startup businesses. The first couple of years (or records) typically are money losers. The hope is that after the painful initial period has ended, there will be a financial reward that will recoup all the early losses and then some. This is why managers will fund an artist’s career at the early stages—and, in fact, sometimes well into an artist's career.

Summary

In my opinion, it is better to have a manager who is passionate—and not a bozo—than one who is connected or financed but lacks passion, vision, or understanding of what your goals are as an artist. You will be working very closely with this person, and you need to be able to communicate easily and effectively together. Additionally, you need to trust that they will represent your artistic vision in a way that you are comfortable with. They will be your mouthpiece in many situations. Lastly, you need to really understand what your objectives are and choose a manager who will help you get there, and then set new objectives with you and help you achieve those. Good managers aren’t easy to find, so you must look long and hard and carefully. In many ways, the manager becomes another member of the band.