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Racer Records - Sample Contract Commentary

Some notes on Racer Records' standard contract

This document is a companion piece to Racer Records' standard contract, which can also be found in this library. The contract file contains the text of our standard contract, which is the starting point for the final contracts we sign with our artists.

All Racer artists have asked for and received some changes to the contract that they ultimately signed. However, the contract you'll find here gives a good indication of our standard deal and provides a context for some other background info that many music industry folks may find interesting.

NOTE: This commentary is NOT a legal document and is intended for general informational purposes only. The content of this commentary does not provide a legal interpretation for the Master Purchase Agreement itself.

OTHER NOTE: I am NOT a lawyer. I've never had a law class in my life. I've done some reading and talked to some lawyers, but I wrote this document all by myself and I've undoubtedly made some mistakes. Please feel free to tell me where I goofed. More importantly, confirm anything I say here with someone who knows what they're talking about.

Contents:

Why upload the contract?

Interest:
Since I've been online, several people have individually, privately, asked if they could see the standard Racer contract. So far I've had requests from managers, artists, and owners of other indie labels. I've gladly sent them a copy. However, it seems likely that a number of other people share their interest, so I thought I'd make the contract easily available.
Education:
One of my ongoing interests with Racer is helping artists understand the business side of their art. Happily, many artists are pretty savvy about contracts and business deals, but some are not; in any case, most of us could stand to learn more. I hope that this commentary, especially, will provide people with some additional information so they can make better decisions about their careers.
Breaking down information barriers:
Gloria Steinem pointed out in one of her books that employers regularly forbid their employees from discussing salaries - which effectively keeps people from discovering and fighting unfair compensation practices. I don't have any problem with people knowing how I work payments to my artists. (Neither do my artists - I asked each of them if it would be okay to upload this information before I went ahead with it.) Just as important, most of us can use all the help we can get with learning about both standard practices (which often become standard because they work best) and alternatives (which often arise to take care of the cases where the standard practices no longer work). I'm grateful to all the people who have shared their knowledge with me, from colleagues in the business to authors of books about the biz, and I thought it would be nice to return the favor.

General Background

- How This Differs From A Typical Industry Contract

First off, why have a contract at all? After all, many independent labels (and successful ones at that) work on a handshake. Well, there are a few reasons. First, I believe that old maxim that having promises in writing is the surest way to avoid misunderstandings in the future. I wanted things to be spelled out clearly (as clearly as possible in a legal document <grin>) for the artists' protection as much as my own. One of my artists noted that I had promised some things verbally that weren't in the contract; I gladly added them into the contract. Of course, I also need to protect Racer, both because I don't want to lose all my money and work, but also because if I do lose the company, it's a drag for my artists, too. So it makes sense to have everybody understand what they're getting, what they're giving up, what they're expected to do, and what they can expect from me.

Next, you should know that this differs drastically from a typical "record deal." For a good example of a standard contract, I highly recommend the book "This Business of Music" by Sidney Shemel (Billboard Press). In fact, I started with the sample contracts in there and just overhauled them to meet my needs.

A typical record deal is an employment contract. The artist is employed by the record company to make recordings. My deal, on the other hand, is a purchase of a master recording; my artists sell me one album-length recording instead of becoming my employees. (One of these days I'm going to get Robbie Rist to stop calling me "boss"! <grin>)

Basic Concepts

Here are a few concepts you should know up front:
Two kinds of copyright
There are two kinds of copyright to deal with when releasing an album. I'll call them "sound copyright", which is the copyright to the recorded performances of the music, and "songwriting copyright", which is the copyright to the songs or compositions, both words and music. For example, if I record a cover version of a song Amy X Neuburg wrote, I own the sound copyright, while Amy owns the songwriting copyright (assuming, of course, that I'm not under contract to anyone as a musician, and Amy hasn't sold her publishing to anyone else).

Because there are two types of copyright involved, there are also two types of payment. In the above example, the record company would typically pay me a performing royalty for my work in creating the record; they would also pay Amy a mechanical fee, which is the legal phrase for a songwriting royalty.

Copyrights happen all by themselves
A song doesn't have to be registered with the government or anyone else to be copyrighted; the copyright (that is, legal ownership of the work) is automatic when the song is written or recorded. Registering a work with someone (like the federal government) is just a way to put an official date on the creation of your work so it's easier to protect your copyright later.

Paragraph-by-Paragraph Notes on the Contract

These are notes on the standard Racer Records contract. Users of graphical WWW browsers can click the section headings to view the corresponding segment of the sample contract.

Preface:

Note that this is a purchase agreement, not an employment contract (see above). You've got all the usual stuff - the date, plus identification of the parties: Racer Records of San Francisco and the artist, of whatever town. (I have to be careful to tell the artists that the last blank is for their city, not the band name, i.e. "Paul McCartney" of "Liverpool, England", not "Paul McCartney" of "Wings".)

Next come the statements that the Seller owns the recording and the copyright in the recording (both the physical tape or CD-R and the copyright, which is automatically created when the recording is made), and that the Seller wants to sell both to me. Note that the ownership of the recording is not a simple thing. If Wendy, Bob, Akiko, and Raul get together and make a tape in Wendy's garage, they all own it, because they all played on it - unless they've made a written agreement for some other arrangement. Any artist who performs on a recording owns their performance unless they sell it or unless it was a work for hire, which requires a written contract and a payment of some kind. A little later on, the Seller has to confirm that it owns all rights to the recording. (Incidentally, some of my artists have agreements like this and just one band member owns the recordings they make; others don't have such agreements, and they all own the recording, so they all sign the contract.)

Paragraph 1:

Seller will give me a physical recording (DAT or whatever) that I can use as a master.

Paragraph 2:

Seller says it owns the physical recording (DAT or whatever) as well as the copyright. Seller says "I own the tape free and clear - there are no liens on it, no one else has any claim to it but me", and then says the same thing about the copyright in the music found on the tape. Sometimes recording studios or producers will put a lien on a tape until their services have been paid for, so it's important to have the Seller say right out that that's not the case with the tape being sold here. Same goes for the Seller's ownership of the copyright to the performances; see Preface for more.

In the second (long) sentence, Seller transfers ownership of the copyright to Racer.

Paragraph 3a:

Seller says it has the right and power to sign this contract and it won't sell the same rights to anyone else.

Paragraph 3b:

Seller says it hasn't already sold the rights to anyone else, and that there are no liens on the tape (see Paragraph 2). Seller also says that no one else has made or sold copies of the tape, with an important exception: if copies have been made and sold, Seller promises to sell me any inventory it has. Many of my artists have sold cassettes and sometimes even CDs that they pressed themselves. This paragraph lets me pick up some inventory and gets them some cash.

Paragraph 3c:

Seller says it's paid everybody it's supposed to in connection with the creation of the recording; this reassures me that the producer or the studio won't come to me and demand payment for their services.

Paragraph 3d:

Seller says there aren't any lawsuits going on or threatened involving the recording.

Paragraph 3e:

Seller says that Racer's use of the recording won't infringe anyone else's rights. This is important: in this paragraph, Seller says, among other things, that there aren't any samples in the recording (sound samples from other copyrighted recordings), since those would infringe the rights of a third party. This does not say that there are no cover versions on the recording; I can exercise my right to sell records containing cover versions as long as I pay the songwriters, so that's not a problem.

Paragraph 3f:

Seller says either it did (1) or did not (2) pay everybody union scale wages for their work on the recording. I think most of the artists I'm likely to work with would initial 2 (did not), in which case Seller agrees to be responsible if the union gets upset.

I have mixed feelings about the musicians' unions. On the one hand, I greatly respect unions in general and the changes they've made in the American workplace since the beginning of the century; we take for granted a number of the benefits they worked long and hard to win for us. Members of my family belong to unions and generally are very supportive of the unions' presence and accomplishments in their workplaces.

On the other hand, the musicians I know who have joined the unions have done so only because they wanted to accept a particular gig that required union membership, due to a studio's or a label's agreement with a union to only use union labor. In the cases of these few people I personally know, they were typically upset with the unions a short time later because they couldn't play a free show, or a low-paying show, that they would have been able to play before; in many cases, they just ignored the union's rules, which didn't do them any obvious harm but bugged them nonetheless because they had to violate their agreement in order to perform when and how they chose. I've heard much better things about the union's work with classical musicians, but for the rock and pop and jazz musicians I know, the union has provided them few real benefits and numerous small headaches.

Racer has no agreement with any of the unions, so really this paragraph is mostly for my information. It does, however, also keep the blame off me if there's a problem with a union later.

Paragraph 4:

Seller promises to give me a copy of any agreements that exist with anyone who worked on the recording, including other musicians and producers and such. This tells me what the other folks are expecting from the seller and helps me learn whether various contributions were works-for-hire or what.

Paragraph 5:

You see a paragraph like this all the time in contracts (and not just recording contracts). This basically says that if anyone sues me or I suffer a loss because Seller lied about something in the contract or fails to do something it promised to do, then Seller will help me out and will certainly not sue Racer if Seller loses money or gets sued because it was lying or failing to live up to promises. Also, if Racer gets sued because of something Seller did, Racer can withhold royalties and other payments to help offset the loss.

Paragraph 6a:

This is the amount of money Seller gets as the price for the recording. There are two things about this that bug me. First, the amount I can currently pay is much, much too small (I usually call it a "nominal amount" when talking with managers over the phone). At the moment, it's a measly $100, which is nothing - it doesn't even cover the recording costs, unless the recording was made in a home studio or on donated studio time. My only defense is that it's about all I can afford; Racer is self-financed, and every dollar I pay to anyone comes out of my personal pocket ... and as soon as you start paying more (say, $1000), you have to pay it to everyone, so trying to release 10 albums means going from $1000 to $10,000, which is considerably harder to amass. I try to make up for the tiny purchase price with my royalties (which one tough industry lawyer called "very generous") and my guaranteed promotion. Although the artist doesn't get much up front, the better the album does, the better the artist does.

The other thing that bugs me about this is that the payment is an advance against royalties. I've thought about changing that, and I may just do that someday. To my surprise, though, I've discovered that there's a tax reason for having it be an advance. If it is an advance, I can write it off, since it's royalty payments; but if it isn't an advance, I can never write it off (at least until the album becomes worthless, which it probably never will - or maybe it would when the copyright expired, in about 30 years), because it's a capital investment. Yuck.

Paragraph 6b:

Racer agrees to pay Seller royalties specified later in Schedule A. Note that royalties are paid on albums sold; Seller doesn't get paid for promo copies that are given away.

Paragraph 6c:

Seller gets 75% of regular royalties for albums sold outside the US. Come to think of it, I don't think I've actually done this properly for albums sold so far; I think I've accidentally paid full royalties on the handful of records sold to Canada and Europe. Oh well. ... Again, note that Seller gets paid only if I get paid.

Paragraph 6d:

This restates and clarifies that Seller gets nothing for promo copies. This spells out a little more clearly who will get promo copies.

Paragraph 6e:

This says that, if I do a K-Tel-type compilation with one or two songs from the Seller's record plus a bunch from other artists, then Seller gets a prorated royalty. Note the last sentence, which says that Seller gets nothing for promo copies; this is important, since I give away all those free samplers.

Paragraph 6f:

This says that I don't have to pay Seller anything until I'm granted a mechanical license for the use of the songs (remember, the songs have a completely different copyright from the recording, and I have to get permission to use the songs). This is just a little added incentive for the artist to help me get the license to use the songs. In most cases, the owner of the song copyrights is the artist, so it's just a matter of signing another piece of paper. ... I'm not legally allowed to sell the recordings until I have these licenses anyway, so the Seller isn't really giving up anything here.

Paragraph 7:

This says that the money I'm paying to Seller is supposed to include all the royalties that are due anyone, and Seller is agreeing to pay any additional royalties due anyone else out of his/her checks from me (or out of his/her own pocket, if other performers on the album are owed more than the amount I'm paying the seller).

Paragraph 8:

This says that I will take care of getting the mechanical licenses for any cover songs on the album. It also says that I'll take care of getting mechanical licenses for songs the Seller wrote, and Seller agrees in this paragraph to grant me a mechanical license for those songs. I agree to pay the statutory mechanical license fee (songwriting royalty). (Unlike many labels, I don't try to get away with paying 75% of the legal rate, and I don't limit the number of songs I'll pay for.) It also specifies that I won't pay songwriting royalties on free promo copies.

Paragraph 9:

This says that I'll pay quarterly royalties within a month after the end of each quarter. (Many labels pay once or twice a year.) It also allows Seller to examine my books once a year. Seller can examine my books more than once a year by paying me $250; if Seller finds errors in my royalty payments, the $250 is refunded. This is probably overkill; it's a system I came up with to let Sellers examine my books as often as they wanted, but to discourage them from hassling me by checking my books every couple of days, unless they find that I've been ripping them off, in which case they darn well should be checking my books.

Paragraph 10:

This requires Seller to give me all the details about who wrote the songs on the album (so I can make sure to get the correct paperwork taken care of to pay mechanical fees); the names of everyone who performed on the album; info about whether the session was done according to union rules (generally, Racer recordings are non-union affairs); and a copy of any copyright for the sound recording if it's been registered before. This is all primarily to make sure I can do all the appropriate paperwork.

Paragraph 11:

This states that I'll use copyright symbols on the copies I distribute, and that I'll do the usual stuff to protect the copyright.

Paragraph 12:

This spells out the rights I gain by buying the master, including:

Paragraph 12a:

the right to make copies of the recording to sell, and the right to sell, lease, and license the master;

Paragraph 12b:

the right to sublicense stampers so other manufacturers (say, labels in other countries) to press copies;

Paragraph 12c:

the right to sell copies of the album under my trademarks (in all honesty, I don't know why this is necessary);

Paragraph 12d:

the right to use pictures and bios of the artist and the right to let others use pictures of the artist, to help in publicizing and promoting the album;

Paragraph 12e:

the right to let radio stations broadcast the music on the album (actually, I'm not sure anyone can prohibit a station from broadcasting music from a publicly released album);

Paragraph 12f:

the right to control the use of the master

Paragraph 13:

Here Seller agrees not to sell any copies of the recording as of the date of the contract (if artists have a bunch of CDs already pressed, I generally buy them to sell through Racer). It does allow the Seller to buy copies from me at a little over my cost to sell at shows.

Paragraph 14:

This is the paragraph artists hate. It says that the artists on the record won't re-record the songs for any other company for 7 years. It's designed to keep artists who sign with a major (since I've made it so easy for them to jump ship) from re-recording carbon copies of songs I've spent lots of time and money promoting. In practice, I don't think this is really much of an imposition; by the time a major gets interested, an artist will have written a bunch of new songs and will be really sick of the songs on the album I've released. And, in comparison with standard recording contracts, I don't think it's bad at all - the artist is still free to go record other songs for another label, after all. Still, I understand the artists' reluctance to give up any control over what they can do with their own songs. I wish I didn't feel like I needed this clause, but I do.

It's worth pointing out that it has no bearing at all on other people covering their songs. If Madonna wants to cover one of my artist's songs, I have no control over that, and I get no money from it.

Paragraph 15:

This guarantees that I will promote the record. This is extremely unusual; most labels don't guarantee promotion. If I don't live up to my promise to promote the album, the Seller can buy the album back for the original price I paid. (I get to sell any copies I've already pressed, though.)

Paragraph 16:

This specifies that the agreement is subject to the laws of California (not, say, New York or Illinois). It also says that any changes have to be made in writing, and that if a court rules that part of the contract is invalid, the rest of the contract is still considered valid.

Paragraph 17:

This says that the agreement applies even if the parties change. In other words, if I sell the master, the new owner still has to pay the royalty rates I agreed to.

Paragraph 18:

This defines the term "record" as any kind of device that plays back sound, ensuring that the agreement covers whatever new technologies the recording industry comes up with in the future.

Paragraph 19:

This paragraph was somewhat my idea. I wanted to remind the Seller to be sure to understand everything in the contract.

Paragraph 20:

This paragraph helps keep us out of court. It specifies that we'll try mediation first, then binding arbitration, instead of going straight to the courtroom. It's explicitly two-sided, so neither party is asked to give up typical legal channels unilaterally.

Schedule A:

This spells out in dollar amounts how much the Seller gets for each copy sold. By specifying the amount in dollars instead of a percentage of suggested list price, I made it clear to the Seller exactly how much money would be due for each unit sold. This way, there's no confusion over the fact that I price most CDs at $10.98 when I sell them mail order, but when they're sold at record stores, they usually go for $15.98. It also means Sellers get the same amount whether a sale is in cassette or CD format.

The last paragraph says that Seller can buy stuff from me to sell at shows and sets the price; no royalties are paid on those units. Artists can pay a higher price and collect royalties, if they prefer.

Exhibit A:

This lists most of the info required in Paragraph 10, helping me take care of the paperwork associated with getting mechanical licenses for each song. It also helps in compiling the liner notes, making sure everyone's credited properly.

Exhibit B:

This states what name goes on royalty checks and where they should be sent. This makes sure the money goes to the right place, and helps keep me out of any disputes that arise later among the band members or anyone else who's owed part of the royalty payments.

Exhibit C:

This specifies what promotional activities I'm guaranteeing to the Seller. This is typically a minimum, and I often do more than I've listed here, but if I fail to do what's listed here, the Seller can buy back the master, as stated in Paragraph 15.

There you have it - the standard Racer Records contract (for now, anyway). I usually tell artists who'd like to work with Racer that there's not a lot of room for changes, because I want to make sure all my artists are getting similar deals, so they know they're all getting roughly equal support from me. However, if artists don't tell me what changes they'd like, I can't make them, so I encourage artists to ask for whatever changes they're interested in. It never hurts to ask.

If you're a label looking for examples for your own contract, or if you're an artist trying to learn more about typical industry contracts, I strongly suggest you at least leaf through This Business of Music, by Sidney Shemel and M. William Krasilovsky, and I encourage you to read All You Need To Know About the Music Business, by Donald Passman as well. Remember that you don't have to do things the way other people have done them - be creative in writing your contract and asking for changes. Finally, I urge labels and artists alike to talk to a lawyer before signing anything. It's important to understand as much of the legal stuff as you possibly can, but even when you do, a good music industry lawyer can point out a thing or two you hadn't thought of.

We're always interested in feedback. Please feel free to send comments, compliments, and complaints to head Racerhead Kristi Wachter at racer@racerrecords.com.

This page was last updated on March 3, 2004 by Kristi Wachter.