Paul B. Ungar, Esq.

Attorney At Law

 

 

 

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LEVERAGE - HOW TO USE IT OR LOSE IT

 

In my more than twenty years of experience as an entertainment lawyer and professional negotiator, I can't begin to count the number of times I've been asked by my clients "Will you be able to get XYZ from the other side for me?" - the XYZ could be anything - more money, more creative control or any of the other numerous issues that inevitably come up in negotiations.

 

My "stock" answer to my clients is usually the same - "I'm not sure, but I'll try my best to get XYZ for you" - and it's a 100% accurate and honest answer - but I'll let you in on a little secret - I can almost always tell from the very beginning how things are going to turn out - maybe not all the specifics - but definitely in general - and it's not because I'm psychic or I'm the greatest entertainment lawyer that there ever was (although, believe it not, that's been said to me by more than one client for whom I've doubled, tripled, quadrupled, etc. the "other side's" initial offer, got the deal done fast, etc.).

 

The reason I usually am right about the general outcome is because I know a lot about leverage - what it is and what is isn't - who's got it when, and who doesn't - how to use it for my client's advantage when they've got it - and, perhaps most difficult of all - how to make the best out of a situation where my client doesn't have much of it.

 

Assuming both sides in a negotiation each have competent representation (and that's often not necessarily the case - but for the purposes of this article, let's presume it is...), leverage is not about one side "tricking" the other side. First of all, in my opinion, negotiations are not a game to be "won" by one side versus the other. If one side could accomplish whatever their goal without the other side and doesn't really need them, why are they even talking - no less bargaining - with them? But if one side actually needs the other side because the other side has otherwise unavailable resources or talent, then compromises may have to be made to get the other side to participate.  Hopefully, the final result will be a "win-win" scenario - where each side makes reasonable concessions to the extent necessary to keep the other side happy and motivated so that together, the common goal can be reached.

 

But even if I am the world's greatest entertainment lawyer, the final result always - and I repeat always - depends primarily on the leverage positions of the parties.

 

One of the first ways for me to find out about leverage in a given situation is to ask my clients, "Are you willing to get up and walk away from the bargaining table if the other side refuses to make reasonable compromises or insists on unreasonable demands?" Of course, what's "reasonable" or "unreasonable" can vary tremendously and a big part of my job is to educate my clients about this for each different situation. But the key  question remains whether my client is willing to "draw a line in the sand" which he or she will not cross. In the beginning (remember this because, if you bear with me and keep reading, what happens later can be verrrrrry different...because of changes in GUESS WHAT), you may have to make compromises that you would rather not.  But, if you are willing to get up and walk away from a "bad deal", you "win" no matter what: either you make "livable" compromises within your personal boundaries and do something that you are reasonably willing to do, or you're not "forced" into doing something that you don't want to do. Either way, you "win".

 

On the other hand, if my client is so desperate  to do any deal no matter what - and particularly if the other side knows it - then my client has little or no leverage and no matter how good I am at what I do for a living, there's not much that I or anyone else can do....in the beginning....(again, remember, "in the beginning" isn't "later" - forgive me for being repetitive, but please keep reading....).

 

Since I represent the corporate side of the equation in certain cases (i.e., record labels, management companies, production companies, etc.) and the artistic side in other cases, I've seen not only how leverage works, but perhaps more importantly, how it is perceived by both companies and artists. For instance, the "stock" record company line to a band is "Well, you're pretty good and we're interested, but there's a lot of good bands out there, so you better sign this...and fast....", the not-so-subtle implication being "don't rock the boat" - i.e., don't mess around with their offer too much or for too long, or you'll blow it. What bands don't realize is the amount of leverage they have just because they're unique. Sure, there's a lot of talented people out there looking for the few deals that remain available these days, but if you're an artist remember: there's nobody that's like you, and they're talking to - and even making an offer to - YOU - so you've got something they need and don't have - YOUR TALENT.  Of course, if they're the only game in town and they know it - i.e., no one else has made you an offer - they can "put it to" the band by not making concessions. But if there's another company that's interested in you, that puts a whole different spin on things.  You'd be amazed at how freaked out some of my corporate clients get when they feel as if they might "lose" a band to a competitor - and, as a result, they make lots of concessions they don't normally make. Of course, it's not easy to get even one company to be interested, no less two or more at the same time.....but this is an example of...GUESS WHAT.

 

Another example - a manager client comes to me and asks that I prepare and negotiate a contract for an artist that they have been working with for awhile.  My client told me they've already spent $25,000 on the artist, have a record deal on the table for them and have already introduced them to the record label. Guess who has the leverage here? The manager? Maybe - if he has a strong enough relationship with the label so the band can't pull an "end run" around him.  But even if the manager has a "handshake" deal with the artist - under most state laws an oral contract that can't be completely performed in one year or less is not even a contract - so unless that's the deal - one year and that's it (which is hardly ever the case in management deals), the artist can "do" the manager because the manager is "behind the eightball". (Boy I'm full of cliches today, but hey, they work for me...uh oh...there goes another one!). Anyway, the manager's already spent the money, introduced the band to his label contacts, legally HAS NO CONTRACT with the band and can be potentially "zipped out" of the scene by the band.  It then falls to the nature of the manager's relationship with the label - and of course, with the band - to be able close ANY deal - no less a fair one - with the band. Indeed, some of my managers have learned to their chagrin that, even though they may be "big shots", the labels make money off the bands - not from managers - so if "push comes to shove", they'll usually go with the bands (although for legal reasons, the companies usually "officially" don't take sides since they could be sued for interfering with the contract between the manager and the band).

 

A dramatically different example of a similar scenario - but with very different results - occurs when (1) a manager spends a little time hanging out with the band a few times, shows the band what the manager is about and what he or she can potentially do for them, (2) does NOT introduce them to anybody at labels, etc.,  (3) does NOT spend any money on the band and (4) before doing anything substantial for the band, says to the band, "Sign here and then we'll get going".  Now who has the leverage? The manager is offering the band a glimpse - but only a glimpse - of the "magic kingdom", but doesn't let the band in - until they work out the deal first.  

 

Assuming in both of the above examples the parties are in fact able to work things out, guess which management contract is going to be more favorable to the band and which contract will favor the manager?  It ain't necessarily only about how "good" the respective lawyers are - mainly, it's the difference in leverage that results in the difference in the outcomes.

 

Please don't misinterpret these examples as my advocating messing around vs. not messing around.  Again, if people really need to work together, then they shouldn't mess around and jeopardize their situation - the other side's needs must be considered and factored in....and, as they say (more cliches...sorry): a bird in the hand is worth many MANY MANY in the bush - particularly today. But again: this is not a game, whether you're in a band or are the CEO of a record company, this is your professional life and it's serious. But you can easily see that there are things that you can do - or not do - which not only will help make my job easier- or harder - to help you accomplish your goals and which will ultimately highly influence - if not downright determine - the final result.

 

One last thing: Remember I said above ad nauseum:  "in the beginning...", " in the beginning..", "in the beginning"?  Have you ever heard about people renegotiating their deals? Have you ever wondered how that's possible?  Well, it's about...GUESS WHAT... in this case, the GUESS WHAT is because of a specific legal principle which I'll illustrate with two more examples:

 

Let's say I'm a builder and you hire me to build a $400,000 home for you and we sign a valid construction contract. Let's also say that after I started to build your house, the price of bricks goes so far up, I now realize I'm going to lose money on your deal and so I stop building your house. What do you do? You really don't want to sue me - it'll cost you a lot more money and could take years - you don't want that...you just want me to do what I contracted to do: build you a house for $400,000 so you can move in as soon as possible.  Well, you can go to court and seek the equitable remedy known as "specific performance" for my breach of this type of construction contract, i.e., you can go to court and get an order from a judge making me do what I promised to do.

 

Now, flip over to the world of entertainers where their contracts provide that they will furnish their personal services to the record company for the purpose of making records, etc.  These types of contracts are generically referred to as "personal service contracts". Here's the legal key: Judges don't grant specific performance orders for failure to perform personal services under personal service contracts - it's like slavery or forced labor - imagine a court order that says: "You must deliver a record full of hits just like your last one by next Tuesday, and if you don't, I'm going to grant an order making you do it".  First of all, how is a judge going to possibly enforce this and make it happen? It's not practical and just doesn't work and they don't do it. Although there are other possible remedies which may be available to the record company for this type of contract breach, more important than legal principles, the record company doesn't want to be hung up in litigation for the next 2 years on a case they know they can't really "win".  Their business is to sell records and keep whatever momentum you have going. So, let's say the "baby band" that signed the "standard" (usually) one-sided "baby band" record contract (usually in the favor of the record company... in the beginning... because of GUESS WHAT...) now all of a sudden has just sold 18 million albums and is making the record company lots of money. But the band is not - and never really was - happy with the original deal. Now, when the record company business affairs guy calls me to proudly announce that his company is wonderfully ecstatic to exercise their option for the next record under the original terms of the deal - and by the way, can he have the record today so they can start selling it tomorrow? - guess which client of mine has a sudden major league headache and has writer's block and can't do any more records for the foreseeable future? When I mention this to the biz affairs guy and then I say, "Gee, I got another phone call, so, Bye...", guess what happens next?  Since I'm not the only attorney in the world who knows the legal principles regarding the lack of specific performance as a remedy for the breach of personal service contracts, the biz affairs guy - who also knows about it - bigtime - calls me back - fast - and he asks me the following question:  "How much aspirin will it take to make your client's headache go away?"....and, my response then might be, "Oh, $5 Million worth"...and then (sometimes after major jumping up and down, screaming or other major histrionics, bemusement [e.g., "You've GOT to be kidding..."], etc.) - he usually says (more-or-less):  "Uh, OK". He may want something else for it, like more albums on the "back-end" of the deal.  My response is: So what? Every time they exercise another option, it means the band is doing well, so the band has even more of GUESS WHAT and, depending on the level of the band's success, I can usually get the band more of what they want - money, creative control, a label deal - almost WHATEVER. This is leverage at work.

 

And that's the way it goes in the real world of contract negotiations. So the moral of the story is: your behavior as well as the fruits of your efforts - taken in context of certain legal principles - directly increases or decreases your leverage - and your leverage - or lack of it - is what ultimately primarily determines the final outcome of any negotiation.

 

So, if you're a band signing your first deal, don't worry too much about what it says now about the amount of the recording fund for the third album as laid out in your original "baby band" contract. I tell my band clients that although I always try to do the best I can do for new artists "in the beginning...", if they hit a home run - make a hit record - I'll go back in and, among other things, start adding lots of zeros at the end of the figures originally in the contract.

 

If you're a record company or a production company, realize that a band that achieves success will most probably - or should I say definitely? - be renegotiating its contract with you. Since your risk will be lower than "in the beginning" and hopefully you'll be making even more money, you can now probably afford to give them more of what they want - in any event, no matter what - the reality is that probably the only way you can get another (hopefully more) profitable record out of them is to "do the dance" and "keep 'em happy".

 

Why does all this stuff work the way it works in the "real world" of contracts? Now you know....and repeat after me: L-E-V-E-R-A-G-E.... L-E-V-E-R-A-G-E.... L-E-V-E-R-A-G-E.... L-E-V-E-R-A-G-E....

 

For more information and - I promise - no more cliches, please feel free to contact me at paul@paulbungar.com

 

-        Paul B. Ungar, Esq.

 


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