Tour budgeting, international tax laws, nontraditional revenue streams -- today's business managers must be on top of it all

When award-winning recording artists give acceptance speeches, they thank a parade of people. Fans receive words of gratitude. Personal managers get thanks. Label presidents feel the love. Another artist whose work inspired a Grammy Award-winning set might even hear an emotional thank you.

But a proclamation of thanks for a business manager? Don't count on it.

Although business managers receive few public declarations of appreciation, they play an integral role in an artist's career. They track receipts and expenses, perform audits and set tour budgets-among a litany of other duties. And as the music business has evolved, so has the work of business managers, forcing them to adapt to changing market conditions that require a greater emphasis on cost control, nontraditional revenue streams and shifts in tax laws. The behind-the-scenes role of business managers has become even more crucial to an artist's longevity. "The broad term," says veteran business manager Jamie Cheek of Flood, Bumstead, McCready & McCarthy, a Nashville-based firm that represents such acts as Pearl Jam, Dierks Bentley and Kelly Clarkson, "is to be a financial watchdog for the artist that hires me."

Consider their crucial role in artist development. Business managers have historically been tasked with taking label and publisher advances and managing monies so that an artist has time to build a career with some sense of security and comfort. "It takes years and years," Cheek says, "and albums and albums to develop yourself as a viable live act, [reaching] a place where you can support yourself and pay bills."

But as the dollar amounts of typical advances have fallen, artists have less to work with. "Now we're seeing the possible $100,000 [label] advance, which is nothing," says Diane Kruse of Rashford Kruse & Associates in Nashville, which represents a variety of entertainment industry clients, including emerging country artists. Reduced touring and marketing support adds further challenges, requiring artists and business managers to proceed even more cautiously.

"There's not a magic solution out there," Cheek says. "Times are tighter."

THE IMPACT OF MULTIRIGHTS DEALS

The emergence of multirights deals, which give labels a cut of ancillary revenue streams from touring, merchandise sales and sponsorships, has required business managers to embrace different strategies in the early years of an artist's career. Such arrangements can potentially help new artists snare a larger upfront advance in exchange for a piece of their tour receipts or merch revenue. But keeping track of the financial components of a multirights deal adds layers of complexity that didn't exist in previous contracts. "We shudder when we see somebody come in with a deal like that," Kruse says, adding that they can be "a financial nightmare" to keep track of.

For example, multirights deals require business managers to figure out what percentages of various revenue streams trickle down to the numerous parties involved in those deals. Problems arise when a contract doesn't define these terms clearly. "Everything stops because everybody's fighting over that couple-percent variable," Kruse says. "We run into some real accounting nightmares."

In addition to creating extra work for the artist's team, multirights deals can leave some artists, particularly emerging acts, earning less than they did under traditional record contracts, Kruse says.

In these situations, Kruse and her team develop budgets that take into account a young artist's financial reality. That can mean staying in a van instead of using a tour bus. Or sleeping on the bus instead of getting hotel rooms for the artist's traveling team. Or paying support staff less so the artist can take home a bit more. "Our younger artists are getting stuck on those deals because they're not being offered anything different," she says, "and they don't have the ability to demand anything different."

"They get out of [the contract] after three or four years of real hard work and don't have a whole lot of money to show for it," Kruse says. "A lot of the time, it's debt they end up having at the end of something like that . . . I'm surprised there aren't more people out there who have gotten burned."

As revenue from recorded-music sales continues to decline for artists at all levels of their career, the importance of touring continues to be the primary focus of young and established performers alike. "A lot of the focus has become touring-centric because that's one of the healthier sides of the business," says Bill Vuylsteke, senior managing director at Provident Financial Management in Santa Monica, Calif. Vuylsteke's clients include Sheryl Crow, Shakira, Metallica and the Red Hot Chili Peppers. "It's monitoring tours, budgeting tours, follow-up and collections," he says. "We act as the CFO for the tour."

In the past, touring was mostly seen as a marketing activity to promote the sale of music, and the money spent on touring was considered an investment toward boosting radio play and album sales, which is where the real money was. But now that playing concerts has become a vital profit generator unto itself, artists no longer lose money on touring with the expectation of making it up elsewhere. As a result, business managers are increasingly focusing on controlling touring costs and improving an artist's return from live performances. "It requires a lot more micro-management and exact budgeting," Vuylsteke says. "It's a lot of work on our part to get things rolling . . . and make sure we're monitoring every penny."

KEEPING UP WITH CHANGING TAX LAWS

Adding to an artist's challenges on the road have been new tax accounting issues brought on by the recent recession. Some financially troubled state governments have been raising tax rates that affect touring artists in an effort to narrow yawning budget deficits.

Lainie Allbee, a partner at Martin Allbee & Associates in Nashville, which represents such acts as Brad Paisley and Skillet, says business managers need to stay on top of the changing requirements for visiting performers. "Every time you turn around, another state is holding out its hand," Allbee says. At the same time, the federal government has been more aggressive in staying on top of foreign artists who tour the United States, requiring them to work out central withholding agreements with the Internal Revenue Service (Billboard, July 17, 2010).

"There are a lot of hoops you have to jump through," says Charles Sussman of Sussman & Associates, a business management firm in Nashville. "You have to register with Social Security here. You have to give them a Social Security number. You have to file individual tax returns here." When U.S. artists tour overseas markets, they face similar challenges, Sussman says. "It's becoming more and more [complicated] as countries need more money. They're cracking down more and more."

Meanwhile, one of the biggest changes affecting the role of business managers has been advances in digital distribution, which enables artists to bypass record labels and sell music directly to consumers. It's a conversation that Cheek feels is taking place more often with his clients. "I don't know if I've lived long enough to say it's unique to our times," he says, "but certainly I feel like I'm coming across more situations where artists are looking at ways to finance projects themselves . . . and if they partner with a label, to do it only in a distribution capacity."

Artists who sell music and merch directly to consumers require a different set of skills from a business manager than those who go through labels and merch vendors, Vuylsteke says. His firm increasingly finds itself focusing on services needed by independent, DIY artists.

"There are a lot more clients who are unsigned and doing their own thing; they've taken the business into their own hands," Vuylsteke says. "We have a music publishing administration company, a royalty department that does artist royalties and publishing royalties. We represent record companies that are owned by our clients. We've always done that, but now it's increasing."

••••Additional reporting by Mitchell Peters.