As we discussed in “Invest in the Best”, royalty advances can be a fantastic tool to further your career. Today, I will shed light on the nitty gritty of the mistakes artists make when they take an advance. The goal is to have their mistakes serve as a warning for you and save you any future headaches.
1. Taking more than you need
Who doesn’t love money? After all, cash is king. The number one thing to remember when you take an advance is that you will have to pay that money back plus whatever fees you agree to up front (we will get to that in a bit).
The best recommendation I can give is to plan. When you think plan ahead, you are less likely to take more than you need. For example, are you planning to record new music? Calculate the cost of studio time, producer costs and the cost of mixing. Make a budget, then stick to it. While it may not be the most exciting or fun way to think of money, you will thank me in the long run.
2. Using your advance unwisely
An advance is a cash flow management tool. Investing the funds from an advance into growing your career is the smartest move. Yet, in a society where we feel the need to keep up with the Joneses, the urge to splurge takes over.
How many times have we heard about artists spending a boat load of cash on the most ridiculous things? A perfect example is Russell Simmons’ gold toilet on MTV’s Cribs. Russell isn’t the only one to show off his extravagant purchases, check out Complex Magazine’s list of “20 Dumbest Rapper Purchases” ever made.
Moral of the story, as much as you think you need that Rolls Royce or diamond chain, you don’t! At least, not with the money you take in the form of an advance.
3. Failing to calculate fees & not knowing the strings attached
There is no such thing as free money. Before agreeing to any advance, whether it is from your label or a private company, DO THE MATH. I cannot stress this enough. It never ceases to amaze me when an artist comes to tell us about some “unbelievable deal” they have found. When a deal sounds too good to be true, it is – especially when it comes to money.
Some companies advertise royalty advances for a 4% fee. But when you do the actual math on the deal, it’s more like 40-50%. Always demand to see what your total payback amount will be.
The best way to protect yourself from these types of predatory companies is to do your homework.
4. Not maintaining your rights
If someone wants you to sign over the rights to your catalog in return for an advance – RUN! Do not even finish the conversation. Just turn around and run. Reputable companies that specialize in music finance will not ask you to sign over your rights.
Keeping your catalog in your possession is vital to the growth of your career. Think of it like this: If you catalog doubles in value over time, do you want to reap that benefit or do you want some random company to benefit?