What is the difference between fixed and contingent compensation?
Before going into the different types of contingent compensation, you have to understand the distinction between fixed and contingent compensation. Fixed compensation is guaranteed money and not subject to any specific events like box office receipts. The most common way to lose fixed compensation is when an artist breaches their contract and gets fired (which leads to a whole can of worms). Contingent compensation is compensation that is paid subject to the occurrence of specific event(s), for example, an actor is paid an additional $10,000 if the box office receipts total over $1,500,000. Another example of contingent compensation is an actor receiving a certain percentage of net receipts (more on that later).
Contingent compensation can be broken up into two groups: (1) participation and (2) bonuses.
How does Participation work?
Contingent compensation based on participation is typically based on net proceeds, adjusted gross participation, or first dollar gross. Net proceeds can generally be thought of as the total revenue from a film minus the expenses. In other words, the total amount of money a film generates, minus all of the costs that it took for the film to make money such as distribution fees, advertising, and production costs. When negotiating a percentage of net proceeds, the attorney or agent representing the artist must be careful to specifically define the term net proceeds because “net” is a term that gets loosely thrown around and without careful consideration, can have an extremely unfavorable definition for the artist. A percentage of adjusted gross participation is far more favorable than a percentage of net proceeds because adjusted gross participation is typically defined as the total gross earnings minus a limited amount of expenses or when the expenses are deducted at a more favorable rate (ex. half). Some top talent can secure first dollar gross which is similar to Adjusted Gross Participation or even true first dollar gross where the artist receives a percentage of the gross receipts without any deductions. There's also something called first dollar gross at breakeven, meaning the artist can receive a percentage of the box gross receipts as soon as the cost for producing the movie has been recouped.
How do bonuses work?
Bonuses are more straightforward than participation because less accounting goes into the equation. Bonuses are specific sums of money granted to an artist contingent on the occurrence of a specific event. Some of the most common types of bonuses are award bonuses, box office bonuses, production bonuses, and under-budget bonuses. An award bonus is a bonus for an artist in the event the artist wins and/or is nominated for a specific award. Box office bonuses are bonuses granted when the box office hits a certain number (worldwide and/or North America). Production bonuses are bonuses granted to writers or producers in the event the project they're working on is made (Note: production bonuses are usually tied to credit like sole writer's credit). Underbudget bonuses are bonuses awarded to a director or producer for keeping the cost of production below a certain dollar amount.
How can an attorney help with contingent compensation?
It's important to recognize that contingent compensation must be negotiated for and carefully defined. Any representative can look at a deal and change the terms. A strong representative can look at a deal and see what's missing, then negotiate for those missing terms. Reach out to my office anytime at (424) 202-4239, send an email to [email protected], or visit the website at pittentertainmentlaw.compittapc.co to set up your free consultation.