Good Music. Bad Deals. How Mismanaging Music Royalties Can Lead to Financial Ruin

Mar 07, 2017

Royalties are valuable assets. So valuable that demand to own a slice of them is growing by the day.

At Royalty Exchange, we try to get artists the best return on their royalties by placing them on an open marketplace where this demand translates to competition and, ultimately, better prices for royalty owners.

But this same demand is the root of some of the worst deals in music history. Deals offered in private, with no opportunity for review and often without the knowledge or understanding of the artist affected. These bad deals can simply sink an artist, siphoning off all the royalties earned from their creative talent early in their career to the manager, label, or publisher that drafted it.

Here are a few of the more mind-boggling examples that should serve as a lesson for all artists.

Little Richard vs. Specialty Records

Richard signed with Specialty Records in 1955, reportedly giving the label full ownership of all the music he recorded with them in return for 50% of the royalties earned. According to his authorized biography, he sold his publishing rights to “Tutti Frutti” for $50, leaving him with a paltry half-cent royalty rate per record sold.

In 1959, Richard left the label and filed a lawsuit claiming he never received his royalties. He settled the suit for $11,000 and waived his rights to royalties from such hits as “Tutti Frutti” and “Long Tall Sally.”

Richard ultimately filed another lawsuit in 1984 for $112 million and control of his royalties, which was settled out of court in 1986. 

"I was educated,” he explained in this New York Times profile. “I learned about investments. I learned how to be in charge of things, which is just as important as talent. First, I didn't read my contracts right; I signed bad contracts. And I didn't have good management or a good accountant. I was just a dumb entertainer, and I paid a big price. I paid dearly for it.”

TLC vs. LaFace Records

Tionne “T-Boz” Watkins, Lisa “Left Eye” Lopes, and Rozonda “Chilli” Thomas were a hit machine in the 90s, ultimately winning a Grammy for the classic “Crazysexycool” and selling 14 million albums. But the group wound up filing bankruptcy, allegedly earning only between $30,000 to $50,000 a year. In fact, the cost of performing at the Grammy telecast came out of their future royalties.

The problem stems from a production and publishing deal they signed early on with manager Perri “Pebbles” Reid. In addition to a large chunk of their publishing, Reid also owned the TLC name (which the band later paid $3 million to get back). What’s more, she struck a deal with LaFace Records, owned by her husband, L.A. Reid, that gave her company 15% of TLC’s royalties, while paying them 7% (after recoupment costs), which they split between them.

"I hope we go down in history for being something more than just another famous act that got ripped off," said Lopes, in the LA Times. "It's hard to believe that a group can sell 14 million records and still be treated so badly. But guess what? This is a cutthroat business full of greedy individuals who take advantage of naive young artists."

George Clinton vs. Bridgeport Music Inc. & More

George Clinton was the driving force behind funk pioneers Parliament and Funkadelic. In addition to the hit songs these groups produced, their music is some of the most sampled of all time. It’s a royalty owner's dream.

But Clinton’s ownership history of his catalog is a confusing mess of lawsuits and bad blood on many levels. It all stems from Clinton (apparently) signing away his publishing rights to Bridgeport Music for music he wrote between 1976 and 1983… the height of his career.

Clinton claims his signature on that deal was forged, and began a series of lawsuits to reclaim his royalties, all of which he lost. He’s also sued Universal Music Group, his bandmates, and his own lawyers. He later lost his master sound recording copyrights to his early work, which were sold to satisfy his legal debts.

“The legality of the situation is unbelievable,” he told Vulture. “The accounting, the documentation on royalties — you can’t get any of that information right now. It’s like slavery. You can’t find out what you’re owed and, at the same time, you get sued by the same people that’s stealing from you and they’re using your money to sue you.”

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The history of the music business is littered with these types of cases. Such is the result when on one side you have artists who are not well versed in business terms, and on the other backroom deals conducted in private.

Songwriters, artists, and other rightsholders interested in managing their royalties for financial gain should demand to do so in a fair and transparent manner. All-or-nothing, take-it-or-leave-it deals are a thing of the past.

To learn more about how Royalty Exchange can help generate demand and competition for your royalties with fairness, openness, and transparency, just click the “Get Started” button below to speak with one of our experts. 

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