A little over a year ago, I wrote about a rash of lawsuits brought by managers against former talent clients. If 2010 was, as I suggested, the year of managers suing their ex-clients for unpaid commissions, then 2011 appears to be year of agents suing their ex-clients for the exact same thing. This time, though, the agents are in the driver’s seat.
Last week, one of the biggest agencies in the world, United Talent Agency, sued Adam Herz, a writer and producer on American Pie 3, for at least $700,000 in unpaid commissions. A few days later, a story broke about Paula Abdul firing UTA and refusing to pay UTA commissions on her income from X-Factor. UTA seems ready to fire off another lawsuit against Paula. So, what gives? Why is UTA all of a sudden getting stiffed (or, to quote the terrible pun making its way around the Internet, “Stifler’d”)?
Unlike the gray area of manager contracts, the world of talent agent contracts is highly regulated in California. In fact, the California Labor Code has an entire section dedicated to the licensing of talent agents and the conduct of their business. As befits a state whose glitterati make up perhaps its most important interest group, California’s Talent Agencies Act delves into the most detailed aspects of the relationships between agencies and their clients, with provisions that specifically address agency record keeping, insurance and bonding, fee limitations, and even the form contracts used by California talent agencies (the state Labor Commissioner must approve them). Because of the extensive regulatory structure around agencies — which includes the use of the California Labor Commissioner as the initial dispute resolution for disputes between agents and their clients — agent/talent disputes rarely make it into open court (where the rest of us can salivate over their juicy industry insider details).
However, agents and talent have always had a love-hate relationship. Agents, of course, are responsible for lining up work for talent, and if they land a good gig, everything is great. But an agent’s right to compensation isn’t just based on the deals the agent makes with employers — it’s based first on the deal the agent makes with the client. Agency contracts almost invariably entitle agents to take their commissions (usually 10%) on all — and I mean all — income derived from any contracts entered into during the agency relationship. Many agency contracts go even further, including so-called “sunset provisions” which entitle the agents to their commission (or a portion of their commission) for amendments, renewals, or extensions of contracts they handled that are entered into within a certain period of time after the end of the agency relationship.
So if an agent negotiates a contract that comes with rights to future employment and/or payments (as is common for writers and producers, who are often entitled to “first negotiation” rights to render services on sequels/prequels/remakes of their projects, and to so-called “passive” payments if they don’t), the agent still takes his 10% — even if, by that time, some other agent is actually there to put the “negotiation” in “first negotiation.” (And this is, in essence, what UTA alleges happened with Herz — that UTA negotiated a deal for Herz to write and produce American Pie 3 that included rights to payments on American Pie 4, for which UTA now wants its cut.)
Or if a celebrity is such a hot property that employers search her out and beg her to do the project, the agent still takes his 10% — even if the agent did nothing more than congratulate his client for being so great. (And this, in turn, appears to be why Paula Abdul doesn’t want to pay UTA — she claims her big X-Factor deal was a result of her preexisting relationship with Simon Cowell, rather than the efforts of her agents [who reportedly left the heavy lifting on negotiations to her manager and lawyer in any event].)
In other words, most agents (at least the smart ones) draft their contracts with their clients so that there’s a very real possibility they will get paid 10% for sitting still. Clients would call it money for nothing. Agents would say it’s fair compensation for all the speculative work agents do for their clients that may or may not ever result in a buck. Whoever’s right, I’d just warn clients: those courtside Lakers tickets your agent “gave” you didn’t come for free. And to quote Mark Knopfler (who probably never imagined he was describing agents when he sang these words): “Lemme tell ya, them guys ain’t dumb.”
Unsurprisingly, clients aren’t always fans of this arrangement, which is why disputes like the ones now swirling around Herz and Abdul do crop up. Clients with the clout to attract projects without much help (and the savvy to take advantage of that clout) often negotiate agency deals with lower commission rates and/or more narrowly-defined commissioning rights (or, as Bill Murray famously decided, just go without an agent altogether — after all, Bill Murray can afford his own courtside seats, thank you very much).
But nothing in the Labor Code precludes a talent agency from continuing to take commissions on work it had a role in obtaining for its clients even after the agency has been fired. In fact, these provisions are so common, the Labor Commissioner has undoubtedly approved them dozens of times in numerous form contracts. Which means that, when all is said and done, UTA is probably going to get its 10% from Herz (and, if it chooses to press the matter, Abdul), even though the agency itself admits it did virtually nothing to bring in those dollars.
As Knopfler would put it: “Now that ain’t working, that’s the way you do it.”