A Simple Guide to Rejecting a Bad Artist Agreement

By Gamal Hennessy

This is a modified excerpt from a book I’m working on called Independent Comic Book Publishing. It’s designed to walk you through the basics of rejecting a contract. The post is geared towards comic book creators, but the information is also applicable to independent entertainers and small business owners of all types.  While this can’t be used as legal advice, I hope you’ll find it helpful.

Getting a contract signed for your independent comic book can be a complex process.

• First, you need to understand what a contract is and what elements go into an agreement (See A Simple Guide to Understanding Creative Contracts).

• Then, you have to figure out if the particular deal you’re working on requires an artist collaboration agreement (See A Simple Guide to Artist Collaboration Agreements), or a work for hire agreement (See A Simple Guide to Work for Hire Agreements).

• Finally, you have to agree on the terms of the specific contract with each creator (See A Simple Guide to Contract Negotiation).

Even if you do everything professionally and negotiate in good faith, you may fail to reach an agreement with your potential business partner. As Jean-Luc Picard once said on Star Trek “It is possible to commit no mistakes and still lose. That is not weakness. That is life.” If and when this occurs, you need to make a graceful exit. This post offers some tips on how to walk away with your reputation and your dignity intact.

Rejecting a bad contract makes good business sense, especially if your options are better than the deal on the table and there is no room or interest in further negotiations (See A Simple Guide to Contract Negotiation). But there is a right way and a wrong way to turn down a deal. Both sides can maintain their professional relationship and keep the lines of potential communication open if you follow these five steps:

1. Articulate your intentions: It does you no good to start working on a deal and then never respond to them if you decide you can’t sign it. You are better off notifying the other side that you appreciate their interest, but you can’t move forward with the terms they propose.

2. Blame your lawyer: In most instances, the person you’re dealing with will ask what the problem is with the contract. This is the perfect time to throw your lawyer under the bus. People hate lawyers more than zombies, spam, and zombie spam, so hiding behind us can’t make our reputation any worse. It can give both of you a convenient scapegoat so you can walk away from the deal without any negative feelings between you.

3. Try one last attempt at negotiations: Maybe you can’t sign the current deal, but that doesn’t mean you can’t do business with them. They might be open to a different type of deal or alternative terms to the same deal. (See A Simple Guide to Contract Negotiation). Many of these proposed alternatives won’t pan out, but you’ll never be able to explore the possibilities if you don’t ask the question.

4. Leave with dignity: Comics is a small business. The minor person you deal with today might be the head of Marvel tomorrow. The hot new artist this year could find himself without a deal next year. Don’t have a fit, throw a tantrum or make threats just because you don’t want to sign a bad deal. Don’t do it in person. Don’t do it over the phone. Please don’t email it and for the love of everything don’t do it on Twitter. Just don’t do it. Thank them for their time, express your hopes for working with them in the future and walk away.

5. Go Back to Work: One failed deal isn’t the end of your career, especially if you didn’t sign it. You need to go back to your craft, keep pushing your work into the world and try and find the next deal. If one person was willing to take a chance on you, there could be others. But you can’t find them if you don’t look.

Signing the wrong deal can cost you thousands of dollars and control of your art. Rejecting the wrong deal the wrong way can cost you your reputation in the industry and the opportunity to work with someone else in the future. Stay friendly and professional and you can turn a bad contract into a learning experience.

Just remember to blame your lawyer for everything

Have fun with your comic.

Gamal

If you have questions about the business or legal aspects of your comic book publishing and you'd like a free consultation, please contact me and we can set something up that fits in with your schedule.

If you enjoyed this post, consider joining Comics Connection. Comics Connection gives creators a community to elevate their comic book careers. We offer access to business and creative resources you can’t find anywhere else. For a limited time, the first month of membership is free.

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE AN ISSUE WITH YOUR COMIC PROPERTY, DISCUSS IT WITH A QUALIFIED CONTRACT ATTORNEY OR CONTACT C3 FOR A FREE CONSULTATION

A Simple Guide to Creative Contract Negotiation

By Gamal Hennessy

This is a modified excerpt from a book I’m working on called Independent Comic Book Publishing. It’s designed to walk you through the basics of contract negotiation. The post is geared towards comic book creators, but the information is also applicable to independent entertainers and small business owners of all types.  While this can’t be used as legal advice, I hope you’ll find it helpful.

Getting a contract signed for your independent comic book can be a complex process. First, you need to understand what a contract is and what elements go into an agreement (See A Simple Guide to Understanding Creative Contracts). Then, you have to figure out if the particular deal you’re working on requires an artist collaboration agreement (See A Simple Guide to Artist Collaboration Agreements), or a work for hire agreement (See A Simple Guide to Work for Hire Agreements). Finally, you have to agree on the terms of the specific agreement with each creator.

Achieving this consensus isn’t always easy. Both sides could have competing interests, agendas and levels of leverage. This post offers some guidance on how to negotiate a contract that everyone is happy with, instead of one that someone (or no one) is excited about signing.

How Do You Reach an Agreement Everyone Is Happy With?

Creating a mutually beneficial contract requires balancing relationships and interests. Because you’re going to be working with the other person for weeks or months, you don’t want that interaction tainted by negative feelings related to the contract. At the same time, you might not be able to give the other side everything they want for the sake of the working relationship.

What you can offer any potential business or creative talent will be based on:

1.    Your goals

2.    Your budget

3.    Your timetable

4.    Your level of interest in the skills and abilities of the individual.

The offer your potential talent wants to accept is based on:

1.    Their professional goals

2.    Their financial needs

3.    Their available time

4.    Their level of interest in your project and you as a publisher.

Because your interests are different and in some cases in direct opposition to each other, there is a tendency for each side to try and negotiate a compromise between the two positions. This is known as positional bargaining. The problem with positional bargaining is that neither side really gets what they want. Depending on the negotiating power of one side over the other, someone might feel they are signing a contract out of duress or with a certain amount of resentment. This isn’t the best way to start a creative relationship.

Fortunately, there is an alternative to positional bargaining. Roger Fisher, William Ury and other members of the Harvard Negotiation Project developed an alternative negotiation theory known as interest based negotiation in their bestselling books Getting Past No and Getting to Yes. While it is not a perfect solution to the negotiation process, it does strive to create solutions both sides want, instead of forced concessions.

How Does Interest Negotiation Work?

Ironically, understanding when it is time to walk away can help bring parties together. One of the primary concepts of interest negotiation is the Best Alternative to a Negotiated Settlement (BATNA), or what I like to refer to as options. A BATNA is “the most advantageous course of action someone can take if the contract negotiations fail”. For example, if a publisher wanted to hire you as an artist for their comic and your demands were more than they were willing to agree to, their option would be to hire someone else.

Most options are not that straight forward. In many instances, options have to be developed. Some negotiators begin by compiling a list of alternatives to the current proposal. At this stage, no alternative is rejected. This is a creative exercise to explore all possibilities to figure out what you actually want to accomplish with this deal. The most promising opportunities are then singled out and improved upon if possible until the best option to a contract is found. In our example, the publisher might have a list of other artists, or they could learn to do the work themselves, or they could create a novel instead of a comic, or they could try to sell the idea to another publisher. In the best case scenario, you have several different alternatives to achieve your interests.

The next step in the process involves trying to understand the other side’s options in specific detail so you can identify their interests. As an artist, you might want a combination of money, ownership, creative freedom, credit or other factors that are important to you.

When the time comes for all sides to negotiate the terms of a contract, the underlying interests of both sides are used to reach a consensus. Each side understands the interests of the other side and expresses their interests with the goal of seeking a flexible solution. If the goal of the publisher is to keep costs down and the goal of the artist is money, then a possible solution is for the artist to handle the art, inks, lettering and colors at a reduced page rate than the publisher would have to pay for four different people.  

What Are Interest Negotiation Techniques?

While every negotiation scenario is different, there are some basic principles that apply from the perspective of writing the contract.

1.    Look for a favorable agreement on all sides, not just an acceptable one.

2.    Create language in the contract on an ongoing basis to record areas of agreement

3.    Move towards commitments gradually on both sides

4.    Offer tentative commitments until you see the total package

5.    Be rigid in your pursuit of your interests, but flexible in terms of solutions

6.    Do not allow a “bottom line” to blind you from creative solutions.

7.    Consider being generous near the end but stick to your interests

How Does Leverage Impact Interest Negotiation?

Different sides have different levels of power and control in contract negotiations. Leverage is defined as the power one side has over the other side in the pursuit of their interests. Depending on the disparity between the parties, the leverage one side has over the other can undermine the interest negotiation process. For example, if the publisher in our example was Marvel or DC and you were an aspiring artist looking for their first major gig, their options would outweigh your options so much that you might sign whatever deal they put in front of you (See my post on Negotiating Power in Creative Contracts).

The concept of leverage might not strike you as fair, but as attorney and author David Tollen states in his book The Tech Contracts Handbook, “If you focus on what is fair, you might walk away from deals that make economic sense.  But that is a poor choice if you can’t get better terms from anyone else, and if accepting the terms would be more profitable than dropping the project.” It makes more sense to focus on the best option available, rather than fairness.

Keep in mind that leverage can be abused to the detriment of the more powerful side. The comic book industry is small. Reputations, good and bad, travel quickly. Power and influence are relative. Positions shift all the time. Keep the following ideas in mind, especially if you have the leverage:

1.    Don’t damage the relationship

2.    Don’t damage your reputation

3.    Don’t overstate your value.

4.    Don’t agree to things that won’t work for either side.

Drafting, negotiating, and signing the contracts for your creative project might take some time and cost you some money, but if you sign the right contracts up front, you'll save money in the long-term and put both you and your book in a better position to succeed.

If you have had contract negotiation issues in the past, feel free to share them in the comments below and tell us how you dealt with the problem.

Have fun with your comic.

Gamal

If you have questions about the business or legal aspects of your comic book publishing and you'd like a free consultation, please contact me and we can set something up that fits in with your schedule.

If you enjoyed this post, consider joining Comics Connection. Comics Connection gives creators a community to elevate their comic book careers. We offer access to business and creative resources you can’t find anywhere else. For a limited time, the first month of membership is free.

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE AN ISSUE WITH YOUR COMIC PROPERTY, DISCUSS IT WITH A QUALIFIED CONTRACT ATTORNEY OR CONTACT C3 FOR A FREE CONSULTATION

How Much Do You Get Paid Per Page?

By Gamal Hennessy, Esq.

When you first start out in comics, there’s a lot of details about the business you need to understand. Everything from how to find work, to what to look for in a contract, to making sure you get paid are all things you have to take care of in addition to making great art. Not only do you have to digest a lot of information, but aspects of the comics industry change from publisher to publisher and from month to month. One of the most important and the most fluid aspects of freelance comics work is how much each publisher pays per page. I’d like to make the process of determining your page rate a little easier by talking about what a page rate is, what the common rates are and how you can keep track of changing rates in the future.

What is a Page Rate?

Different professions get paid according to different measurements. Lawyers get paid by the hour. Sales people get paid based on commissions. Freelance comic book artists (and some creator driven artists) get paid a page rate. The basic idea is for every page you’re hired to work on, you get a set fee. So if you get $100 per page and the book is 32 pages, then you get $3,200.

A page rate is a base number. It doesn’t take into account incentives like royalty pools, recoupment, back end participation or anything else that could muddy the waters. It’s a straight forward transaction; one page for one price. As long as you know what the price is, everything else is based on that.

What Were the Current Page Rates for 2016?

The confusing question is ‘what is the right page rate for you?’ Your page rate can and will vary based on your experience, skill level, established fan base, prior projects and the publisher you’re working with. While several factors are subjective and based on you as an individual, there are some baselines you should keep in mind. Thomas Crowell, author of the excellent book Pocket Lawyer for Comics Creators recently offered this snapshot of the industry at the 2016 New York Comic Con:

• Writers:                              $25-$220 per page
• Cover Artist:                      $200-$750 per cover
• Pencils:                             $100-$250 per page
• Inks:                                  $75-$200 per page
• Coloring:                            $35-$150 per page
• Flatting:                             $8-$20 per page
• Lettering:                           $10-$50 per page

This list is not a guarantee. You might be offered less than the numbers above. You can always ask for more. This should just serve as a guideline to what you can expect when you deal with a publisher. Other factors will play a role, but this gives you somewhere to start from.

How Can I Keep Track of Page Rates?

As a freelance artist, you’ll get a sense of where the market is in terms of page rates as you spend time in the industry working on different projects. Publishers can alter their rates at will, so it pays to keep in touch with other artists in the field, pay attention to message boards and discussions and talk to your editors and publishers on a regular basis to find out their individual positions. There are also ongoing resources you can use and participate in to make page rates more transparent. The list above was derived from a site called Fair Page Rates that isn't perfect by any means, but it attempts to track rates for various US publishers in a system that is inherently subjective.

Once you understand what a page rate is, how you can figure out your page rate and who pays what, you have a lot of information to help you chart your freelance comics career. If you know how many pages you can do a month, you can calculate your maximum potential income. If you know how much you need per year to work on comics full time, you can figure out what page rate you need and how many books you need to work on to make freelancing a viable job. Then you can spend some time actually practicing your craft and making great comics.

Have fun.

Gamal

Related Articles:

Your Career in Comics: Freelance Artist

Your Career in Comics: Creator Driven Artist

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE A LICENSING OR INTELLECTUAL PROPERTY ISSUE, DISCUSS IT WITH YOUR LEGAL ADVISOR OR CONTACT C3 AT gamalhennessy@gmail.com FOR A FREE CONSULTATION.

Talking to Professionals on the Business of Comics

by Gamal Hennessy

The comic book industry is a confusing, chaotic and insane industry for everyone involved, especially the newcomer. Fledgling writers and artist often make mistakes on the business side of things that cost them tens of thousands of dollars, years of work or both.

The best way to avoid mistakes in the comics industry is to learn from professionals who already know what they're doing. Over the summer, Aaron Long of Comicosity asked dozens of established comics professionals what type of advice they would give to new creators. The insight they provided covered professionalism, marketing, accounting, time management and outlook, but one of the most consistent statements is the same thing I've preached on this site for years. 

COMIC CREATORS NEED TO UNDERSTAND AND NEGOTIATE THEIR CONTRACTS

When I worked at Marvel and Central Park Media, we often sent out contracts to talent saying "have your lawyer look over this before you sign it" knowing full well that person didn't have a a lawyer. I started C3 to change that and give writers and artists a chance to understand and benefit from the legal side of comics. The professionals already understand this. Read their comments and learn from their mistakes. 

Have fun.

Gamal

Success in the comics industry requires an understanding of the business, creative, and legal aspects of the medium.

Sign up forThe Professional Comics Creator to get monthly e-mail news, tips and advice on how to get the most from your characters and stories

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE A LICENSEING OR INTELLECTUAL PROPERTY ISSUE, DISCUSS IT WITH YOUR LEGAL ADVISOR OR CONTACT C3 AT gamalhennessy@gmail.com FOR A FREE CONSULTATION.

Get What You Give (Rights and Revenue in Comics)

by Gamal Hennessy

A contract is an agreement between one or more groups for the exchange of resources. The exchange could be time for money, goods for services, property for future gains or any combination of those things. The best agreements exchange roughly equal resources. The worst ones have one side trading large amounts of resources for little or nothing in return.

This is the problem that artists run into with many of the contracts that I see. The most important service I provide is showing my clients what they are giving up in comparison to what they are getting. I’d like to provide an overview of the different types of rights and revenue streams as a general overview for creators looking to get their projects into the market.

Types of Rights                               

Comics and publishing are governed by a branch of the law called intellectual property. Copyright law is a specific type of intellectual property. A copyright gives the creator of an original work (like a comic) the right to benefit from the sale and distribution of that work. There are various types of ways currently available for comic creators to benefit from their creativity. Some of the major distribution methods include:

• Publishing (Traditional printing, digital printing, novels, audiobooks, etc.)
• Public Display (gallery displays of artwork)
• Theatrical (Movies whether live action or animated)
• Television (including network, basic cable, premium cable, PPV whether live action or animated)
• Home Video (including DVD, Blu-Ray, etc.)
• Live Performance (including Broadway performances and theme park performances)
• Interactive (including console computer or mobile video games)
• Merchandise
• Sponsorships or product placement

As new forms of media distribution are created, new rights are created for the artists. These rights are universal, but they can be divided or carved out by geographic area, time frame, distribution channel, language and other factors. (This division can be complicated, so I’m going to save that for another post)

Types of revenue

Just as there are different rights that creators can use to get their work into the world, there are various ways that they can be paid. Comic creators need to focus on four ideas:

• A royalty is a percentage that the artist earns for every finished unit that is sold. For example, an artist might receive 30% of every one of their comics that is sold to the public.
• An advance is paid before the work is finished. For example, a writer of a novel might receive money up for her novel based on the proposal not the finished product.
• A minimum guarantee (MG) is money paid up before the work is finished, based on anticipated sales. For example, if a toy company plans to sell a new licensed toy for $10 and the creator gets 10% of that sale, then the creator gets $1 per unit sold. If the company expects to sell 100,000 units, then the MG that the artist gets for this deal is $100,000.
• A page rate is a flat fee paid to the artist for every page accepted by the client or publisher. For example, a penciler with a $300 page rate deal gets $9,600 for a 32 page book, not counting the cover.
• These are broad revenue concepts. They are often altered and refined by concepts like gross, net, recoupment, offsets and other variables. (This is another complicated subject that I’ll can talk about later.)

Choices that Artists Must Make

In certain comic deals, the types and amounts of revenue are fairly straight forward, like the work for hire page rate. There is more confusion for creators pursuing creator owned deals. There is often no advance, no MG, and a blanket royalty rate for all forms of distribution. This puts them creators in a dangerous position since the lack of upfront money and the uncertainty of any profitable sales in the future means that the creators are really working on spec while at the same time giving up all their rights to their property.

From the publisher’s perspective, it is understandable why they would do this in their contracts. Publishers protect themselves from risk by limiting exposure to projects that might not be financially viable. At the same time, they maximize their potential gain by securing as many rights as possible for projects that are financially viable. Artists need learn the same lesson. They need to counter the publisher’s position by attempting to limit the rights that a publisher gets for projects that are financially viable and maximizing revenue for every project they do.

I know negotiating power is often limited for artists. But having a clear understanding of the relationship between revenue and rights and clear goal of where they want to go can help maximize their limited negotiating power and increase their chances of success.

Best

Gamal

Success in the comics industry requires an understanding of the business, creative, and legal aspects of the medium.

Sign up for The Professional Comics Creator to get monthly e-mail news, tips and advice on how to get the most from your characters and stories

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE A LICENSEING OR INTELLECTUAL PROPERTY ISSUE, DISCUSS IT WITH YOUR LEGAL ADVISOR OR CONTACT C3 ATgamalhennessy@gmail.com FOR A FREE CONSULTATION.

David v.s. Goliath: Negotiating Power in Creative Contracts

By Gamal Hennessy

When I analyze contracts for my clients, I point out all the language in the agreement that has been written to favor the publisher. I point out all the ways that contract clauses are used to limit their control over their work and their ability to make money. I offer them suggestions on how to make the contracts more equal and level the playing field. But I am aware that the terms of most of these deals will never be changed. As a comic book creator, you often must deal with the reality that you have little or no negotiating power relative to a publisher. Taking this fact into account will help you make decisions about what deals you will or will not get into and help you understand how they will impact your career.

Scarcity Breeds Power         

Publishers have to take the financial risk of releasing an unknown and unproven book. In order to mitigate this loss and to give themselves the potential for substantial revenue and control on the back end, many of them incorporate biased language into their contracts. Many creators sign those contracts because of their lack of influence.

It is easy to understand why comic creators normally have very little negotiating power. It boils down to supply and demand and market scarcity.

The publishers currently corner the market on supply. They control the means of production (printing) and direct distribution (comic shops, bookstores, online and digital) and often control secondary distribution (merchandise and media licensing)

The number of comic creators who want to gain access to the publishers supply is massive compared to the number of publishers. Who knows how many potential artists and writers are out there dreaming of getting their books in print, movies and games?

The scarcity of publishers relative to the abundance of creators produces a situation where publishers can afford to offer one sided deals. Every unknown creator who demands a superior deal can be rejected by the publisher because there are ten or twenty other creators willing to accept an inferior deal. Since the publisher is primarily looking for books to fill their publishing plan, one unknown book is just as valuable as any other from their perspective.

Options for Creators

In light of the reduced negotiating power that undiscovered creators have, does it make sense to push for a bigger deal for a creator owned project or page rate? Yes and no. While you might not be able to wrestle a six figure advance out of Marvel, there are options you can pursue to make the most of your work.

• Establish your reputation in the industry by taking on work for hire projects that will get you exposure for your skill without exposing the characters and story lines that you are saving for a creator owned work.
• Find a more flexible small press that will offer more reasonable terms for new creators.
• Explore self-publishing if only to increase your name recognition in the market.
• Accept the biased deal as a means of name recognition.

While none of these methods is a quick road to fame and fortune, they can boost your negotiating power over time. An unknown creator has almost no leverage with a publisher. A creator with a following who represents tens of thousands of copies sold per month can command lucrative exclusive contracts, back end participation deals and creator owned contracts that give them considerable revenue and control potential. The best analogy is the contract situation in professional football. As a player, you may not make very much on your first deal but once you prove yourself as a marquee player, your subsequent contracts can be huge.

Need to Understand Your Agreements

Whether you make the choice to accept a one sided deal, negotiate better term or walk away, you need to understand what the terms are for the deal you are being given. It might make sense to take a bad deal now if it will boost your career later. The key is making an informed decision about what you are doing. Whether you decide to use a service like mine or not, knowing what you are signing and why is key to building and leveraging your negotiating power.

Best

Gamal Hennessy

Success in the comics industry requires an understanding of the business, creative, and legal aspects of the medium.

Sign up for The Professional Comics Creator to get monthly e-mail news, tips and advice on how to get the most from your characters and stories.

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE A LICENSEING OR INTELLECTUAL PROPERTY ISSUE, DISCUSS IT WITH YOUR LEGAL ADVISOR OR CONTACT C3 at gamalhennessy@gmail.com FOR A FREE CONSULTATION.

Letters of Intent: Uses and Abuses

By Gamal Hennessy

            Contracts come in a variety of flavors. Some are simple one page affairs. Others run dozens of pages. They can be unchanging boilerplate or fluid documents with several amendments and changes overtime. Even a verbal agreement can be enforceable as a contract under certain circumstances. Every contract is a different animal. Being familiar with the variations can save you a lot of headaches in your business.

            A letter of intent (LOI) is a very curious beast. It is often used in major deals like business acquisitions or investments, but they are also used frequently in entertainment and media contracts. Sometimes they are called deal memos, short form agreements or memorandums of understanding. Each one has their own nuances and weight in a legal sense, but the basic concept behind each one is a sort of pre-contract; a meeting of the minds before a more formal agreement is negotiated.

            In some instances, an LOI is helpful, even vital (See Forbes: The First Step in a Big Deal). In other situations it can signal a dead deal or deceptive maneuvers by the potential partner. Here are some of the pros and cons of LOI’s and what you should look for if they come up in your freelance or small business.

Uses:

A LOI can help you close a deal in several ways, including:

• Wrapping Your Head Around the Deal: It can help you figure out what you’re getting and what you’re giving up. If you don’t understand the economics of your contract in a few pages, you probably won’t understand it in a few dozen pages. (See Considering Consideration)
• Understanding the Economics: A LOI is a good place to figure out who gets paid, how much they get and when they get it. (See Your Slice of the Pie)
• Getting a Feel for Your Negotiation Partner: Contract negotiation can be stressful or easy. A LOI can give you a sense of how hard it will be to both close the actual contract and work with the person once the deal is done. Someone who is easy to deal with for a LOI won’t always be the best business partner, but a difficult LOI negotiation can be a red flag for the road ahead.
• Creating Something Each Side Can Bring to Their Respective Camps: If you have partners, investors, attorneys or anyone else who has input on your business, it can be helpful to hammer out a LOI to get their sign off before slogging through a contract. One document with all the major deal points is a useful tool for getting buy in and advice on both sides.
• Creating Momentum: A LOI can generate a sense of inevitability in a business deal. Once everyone agrees on the major points, there can be more motivation to work together and close the deal. This psychological impact isn’t guaranteed and it might be fleeting, but it’s useful if you can get it.
• Space to Shop: Unless there is a specific prohibition in the LOI, both sides have the ability to continue negotiating with other parties while the deal terms are being laid out. Either side might feel jilted if the other partner decides to leave in the middle of the dance, but a LOI often gives both sides room to maneuver.
• Due Diligence: Related to the ability to shop around for a better deal and feeling out the other side, negotiating a LOI gives each side time to investigate and research the other side before the contract is negotiated. Potential problems and issues revealed in this stage can be corrected or avoided without much loss on either side.
• Savings: A LOI can be negotiated at a lower cost in terms of time and money than a formal contract. So if the deal breaks down at the LOI stage, both sides can often walk away without much loss.

Abuses:

There are also several ways a LOI can be used as a weapon, including:

• Contract Replacement: There are circumstances where one party might negotiate a LOI without any intention of executing a more comprehensive agreement. There have been several court cases where a LOI has been found to be an enforceable contract. If there are aspects of the deal one side was planning to negotiate in the main contract, they’ll never get the chance if the main deal never comes.
• Creating Confusion: A LOI often focuses on the business and economic aspects of the deal without much attention to the legal considerations. If this LOI is the only thing the parties have signed, many questions about the deal could go unanswered.
• An Inducement to Act: One side can use a LOI to pressure the other side to pay for something or perform some action before the final deal is in place. Once one side acts, their ability to negotiate might be hampered because they’ve already invested in a deal that may or may not exist. The other side can take advantage of this weakness and force a deal they couldn’t otherwise get.
• A Delaying Tactic: This is related to the Space to Shop benefit described above. If one side isn’t really looking to make a deal with you, a LOI might give them the space they need to find another partner and waste your time. In addition, if your LOI negotiations are not bound by a confidentiality agreement, the terms of your LOI could be used by your alleged partner as a negotiation tool to close a deal with someone else.

Considerations:

            When faced with the prospect of negotiating a LOI instead of a full contract, how will you know whether the document is being used or abused? Every situation is different, but consider these questions when analyzing the situation:

• Is a LOI necessary for this deal? Does it make sense to have a LOI given the nature of the agreement or the parties involved? If not, the other side could have ulterior motives. Keep in mind, the larger or more complicated the deal, the more a LOI can make sense.
• Can you get some specific benefit from the LOI? If you aren’t exactly clear on the terms or economics, a LOI might be what you need to get comfortable with the process.
• Do you see the potential for abuses from the other side? If you don’t see an upside to drafting a LOI, ask for clarification and don’t be afraid to walk away. (See How to Reject a Bad Contract)

If you do decide to move forward with a LOI for any deal, be sure to compare the terms in the main contract to the terms you agreed to in the LOI. It does you no good to make a good LOI and then sign a bad contract.

Have fun.

Gamal

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU NEED A CONTRACT WRITTEN, OR YOU HAVE A CONTRACT YOU NEED EXPLAINED TO YOU, CONTACT ME ATgamalhennessy@gmail.com FOR A FREE CONSULTATION OR VISIT C3 athttp://www.creativecontractconsulting.com/ FOR MORE INFORMATION ABOUT MY SERVICES.

Are You Working for Free? (Considering Consideration)

by Gamal Hennessy

Consideration is one of the most important aspects of commercial contracts, especially for freelance professionals and small business owners. In a legal context, consideration is not about being thoughtful. It’s about an exchange of value between you and the other side.

In most cases, a contract is an agreement between two or more parties who trade something of value. A lot of things can be thought of as valuable in these situations: money, goods, services and even promises can be used as consideration under certain circumstances. As an independent artist, freelancer or small business owner, there are four types of consideration you should look for in your contracts. If you don’t find any of them in a particular deal, then the deal might not have any value to you.

The Four Types of Consideration

·         Delivery Based Consideration: You get something specific once you deliver the agreed upon material. For example, if you design a website for $300 per hour and you spend 22 hours on the project, then you get $6,600 upon delivery of the site. This type of consideration could be defined as a flat fee, based on some measure of performance. This type of payment is typical of work for hire agreements where you are hired to perform a specific task for a limited amount of time (See Contracts 101: Creator Owned vs. Work for Hire)

·         Performance Based Consideration: You get something specific once the project begins to generate some sort of profit. For example, if you are entitled to 20% of the gross revenue of a book, then you make money if and when revenue comes in from the sale of the book. This is a common form of consideration for collaboration agreements, self-publishing platforms like Kobo, KDP and creator owned agreements with certain publishers.

·         Combined Consideration: You get paid coming and going. In an extreme example, Robert Downey Jr. allegedly pulls in up to fifty million dollars in direct salary, box office bonuses and back end participation for playing Iron Man in the Marvel cinematic universe (See RDJ Pay Set to Hit Fifty Million). While you might never make as much as RDJ, these can be the most lucrative types of deals because they give the artists both protection against a poor performing project and the benefits of a successful project.

·         Production Consideration: You get someone else to pay for the cost of your project. For example, if you have a story you want to publish, but can’t cover the production and distribution costs of the release, someone else can pay those upfront costs to get your work out into the world. Sometimes this comes from single sources, like a production company or publishing house. Crowdfunding is another variation on production consideration. This can be the least lucrative kind of consideration. With a single source, the creator can lose all the rights to their characters and stories for a few thousand dollars that they never receive directly. With crowdfunding, all the revenue might go into the project or you may fail to reach your funding goals altogether. While many of these deals can provide exposure and ego gratification, many people regret signing these deals, especially if the project becomes successful and they have no ability to share in the financial windfall.

One of the first things you need to ask yourself when looking at a contract is ‘what am I giving up and what am I getting for it? Giving up your time and effort for cash is a way to make a living. Giving up your inspiration and creativity for the chance at future success is also a decent idea. Giving up everything for nothing is no way to manage your career. Always try to get some consideration in your contracts, even if the other side isn’t being considerate.

Have fun

Gamal

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU NEED A CONTRACT WRITTEN, OR YOU HAVE A CONTRACT YOU NEED EXPLAINED TO YOU, CONTACT ME AT gamalhennessy@gmail.com FOR A FREE CONSULTATION OR VISIT C3 at http://www.creativecontractconsulting.com/ FOR MORE INFORMATION ABOUT MY SERVICES.