Episode 236
Navigating the Financial Landscape of Creative Success
The primary focus of our discussion centers on the imperative for artists and creatives to cultivate a robust understanding of the financial and legal frameworks that underpin their careers. We elucidate the significance of utilizing one's platform and success to forge opportunities, thereby ensuring the longevity of one's endeavors in the realm of entertainment. It is vital to acknowledge that the transition from passion to profession demands a profound shift in mentality, as one must recognize the inherent responsibilities that accompany the pursuit of their craft as a livelihood. Furthermore, we emphasize the necessity of establishing a formal business structure to safeguard one's interests and optimize financial management, particularly in light of the complex tax implications that can arise. Ultimately, our discourse seeks to empower individuals to navigate the intricacies of their creative industries with diligence and foresight, thereby maximizing their potential for success.
Takeaways:
- Utilizing one's platform and success is essential for personal and professional development.
- Young individuals often lack the necessary skills to manage substantial financial resources effectively.
- Artists must understand that transforming a talent into a livelihood involves significant changes in mentality and approach.
- Establishing a legal entity is crucial for managing income and protecting one's business interests in the entertainment industry.
- The distinction between publishing rights and sales is fundamental for artists and producers to comprehend for financial success.
- Understanding the implications of tax obligations on income from advances is critical in financial planning for creatives.
Links referenced in this episode:
Companies mentioned in this episode:
- DNA Project Inc.
Transcript
Realize that.
Speaker A:Use your platform, use your success to create something for yourself.
Speaker A:Outside of music as well, you're just in a much better position.
Speaker A:Same thing with professional athletes, right?
Speaker A:Like, it's, you know, they're all the same type of thing where as much money as you make, it all has to go back into it and then you can blow through it very quickly.
Speaker B:Right.
Speaker A:And if you don't really know, especially, you know, a lot of these as young people, you don't know how to manage this type of money.
Speaker A:You don't know how to deal with these things.
Speaker A:Right.
Speaker A:Like, you get in advance on a deal and you end up blowing it on whatever it is.
Speaker A:Sometimes it's not even, you know, like chains and cars.
Speaker A:It's like, okay, let me, you know, like, get a case for my girl or like, you know, help my mom with some debts.
Speaker A:And like, all the money's gone.
Speaker A:You're not realizing there's tax owed on all that money you just got.
Speaker C:Right?
Speaker A:So now, end of the year, it's like, okay, all the money's gone, but now I owe taxes and you're already in a.
Speaker A:In a, you know, a red situation.
Speaker B:Right.
Speaker D:Definitely have to be looking ahead, right?
Speaker A:Yeah.
Speaker D:So, I mean, when I hear entertainment attorney kind of have this big picture of what that means and kind of almost think that the job entails everything.
Speaker D:So how would you define kind of just the range of what your job really does entail?
Speaker A:Yeah.
Speaker A:So an entertainment lawyer is essentially a contract lawyer, specific for the copyrights involved in entertainment.
Speaker A:Okay.
Speaker A:There's a few, you know, within that, there's a few different roles, and entertainment lawyers can play a few different hats they can put on.
Speaker A:So some of them are just contract lawyers.
Speaker A:So you have an agreement you need, they'll kind of put that together for you or negotiate it.
Speaker A:Some of them are entertainment litigators.
Speaker A:So let's say you need to sue someone for trademark infringement or copyright infringement.
Speaker A:You know, they'll specialize in that.
Speaker A:Some will do both.
Speaker A:And then some lawyers will actually solicit opportunities for their clients and kind of, you know, like put parties together.
Speaker A:Like, you know, if you have an artist and you're trying to source distribution or recording or something like that, some lawyers are able to use networks to kind of do that for clients as well.
Speaker C:That sounds more like a manager.
Speaker D:That's what I was gonna say as well.
Speaker C:Yeah.
Speaker B:Or agent.
Speaker A:Yeah.
Speaker B:Bleeding into all three.
Speaker A:Yeah, exactly.
Speaker A:And I mean, entertainment almost, it does kind of.
Speaker A:There's many aspects of it.
Speaker A:But sports is also another area Especially with the blend now of, like, esports and stuff like that.
Speaker A:But all these sports agents have legal backgrounds, right?
Speaker A:Right.
Speaker A:They're all lawyers.
Speaker A:They're all registered.
Speaker A:They're licensed and registered because you're soliciting the opportunity and then you're negotiating the contract and everything.
Speaker A:So there's a lot of technical legal stuff in there.
Speaker A:So it's very common and same thing.
Speaker A:So, you know, for myself, I don't litigate.
Speaker A:I have done it before.
Speaker A:It's not something I enjoy.
Speaker B:Right.
Speaker A:So I just kind of.
Speaker A:I just don't do it.
Speaker A:And I would rather leave it to someone who is good at that.
Speaker A:I'm a strong believer in, like, focusing on your strengths and then finding people who are stronger in your weaknesses.
Speaker A:So I don't do that, but I do solicit a lot of opportunities for my clients, and especially because I was on the management side of things and mainstream connections and kind of know how that works, how to leverage certain things to get opportunities.
Speaker A:I definitely do as much of that as I can.
Speaker D:Okay, what are some of the, I guess, fundamental things that artists, musicians, freelancers, I guess, other creatives and entrepreneurs should have in place?
Speaker A:Yeah, so, I mean, there's like, the legal stuff, but I think the.
Speaker A:The biggest fundamental, I think, is the mentality when you decide to get into something like this.
Speaker A:So what I mean by that is a lot of, you know, let's say you have a talent, you can sing.
Speaker A:For you to then take that and turn that into your livelihood changes that all together.
Speaker A:Right, Right.
Speaker A:So fundamentally, you need to understand that before deciding to do this.
Speaker A:And then once you understand that, you can give it that respect and then give it everything it needs to succeed in that.
Speaker A:In that space.
Speaker B:Now, I think that's important for anyone that has a hobby, too.
Speaker B:Like if you're a carpenter, if you like making bird nests or something, whatever, and you want to get that into a business.
Speaker B:No, we're making this, and you have a passion and you want to turn that to an.
Speaker B:Into a business.
Speaker B:You have to also change your mind set because you'll.
Speaker B:You'll lose.
Speaker B:You lose yourself in the hobby and not focus on the business.
Speaker B:And both of them are equally as important.
Speaker B:So I think there's.
Speaker B:It's not just for musicians or artists.
Speaker B:That could be applied to anyone looking to actually make.
Speaker A:Make something their livelihood 100%.
Speaker A:And, and.
Speaker A:And, you know, I recognize that that was an issue that people weren't realizing that.
Speaker A:That's why, you know, I'm stating that now.
Speaker A:But you're completely right.
Speaker A:It's for all my new business startups.
Speaker A:I always tell them, I'm like, if you're going to take your passion, if you're going to pursue your passion as a career, it's no longer a passion for you.
Speaker A:You need to understand that.
Speaker A:Exactly right.
Speaker A:The utility, the fun you got out of it, the enjoyment got of it.
Speaker A:It's just the passion is, is gone now.
Speaker A:It's now your livelihood.
Speaker A:You can still get some enjoyment out of it, but you got to understand everything else that comes with that, that's a trade off.
Speaker A:Exactly right.
Speaker A:Like, and I also tell people it's like understanding that now, you know, life is not really about pursuing your, your passions as your career because again, that will change.
Speaker A:Right.
Speaker A:It's more so about trying to become passionate about what you're pursuing or what you're doing.
Speaker A:For example, never wanted to practice law.
Speaker A:I just happen to find a way to become passionate about how I practice it and which has led to my success for sure.
Speaker A:So, you know, that's, I think that's a fundamental thing and every time I talk about this, that's always where I start.
Speaker A:It's like you need to understand that you are now taking something that you may be talented in or passion you have and now converting it into a livelihood, which is fine as long as you can give it that respect and understand what it is, then you know how to deal with it properly and you know, talk to a lawyer, get an accountant.
Speaker A:Right.
Speaker A:Maybe you need a manager.
Speaker A:Once you do that, you can understand the skills you have, which is usually just creating the product and then understanding that you need other people now or other service providers or other tools to help market and commercialize your product that you're creating?
Speaker B:Yeah.
Speaker D:Would you say that you had some sort of underlying passion like even just growing up that kind of is there now that ties into what you do?
Speaker A:Yeah.
Speaker A:So I'm, I'm, I'm big on design, so I, you know, like for a few of my clients I like to help or advise on, you know, like some of the merchandise and things like that.
Speaker A:So for me I've just found a way to incorporate some of what I'm passionate about into what I do.
Speaker C:But reminds me of you guys.
Speaker C:Remember Mike Rowe, Dirty Jobs?
Speaker C:Yeah, that guy.
Speaker C:So you had a talk.
Speaker C:I think it was basically for graduating high school students, just debunking the whole follow your passion thing.
Speaker C:I recommend finding it online, but it ends with him saying, don't follow your passion but always bring it with you.
Speaker C:Really Reminds me of what you're saying.
Speaker B:Yeah, for sure.
Speaker A:Yeah.
Speaker A:No, that's the.
Speaker A:Yeah, that's exactly.
Speaker A:That's it.
Speaker A:And I think, you know, society as it is right now, we're so used to this, like, instant gratification and like, it's, it's.
Speaker A:It's kind of perverted the way we think about how we should be happy.
Speaker B:Yes.
Speaker A:Right.
Speaker A:So, you know, you have a whole generation now that's like, you know, I'm not happy.
Speaker A:I'm not instantly fulfilled in what I'm doing.
Speaker A:Not realizing I'm doing this in exchange for a paycheck.
Speaker A:This is not.
Speaker A:It's not called fun.
Speaker A:It's called work.
Speaker A:Right.
Speaker A:It's called your job.
Speaker A:Right.
Speaker A:So as long as you can understand that and then, you know, give it that respect, it won't take away from whatever you do enjoy in life and, like, what you, you know, are passionate about.
Speaker A:And at any opportunity, if you're able to, you know, put the two together, then that's just even better for sure.
Speaker B:What.
Speaker B:What stage of an artist's progression do you think they should even reach out to?
Speaker B:A lawyer?
Speaker A:Yeah, so, so.
Speaker A:And also to tie into your question about the fundamentals.
Speaker A:So, you know, one is really getting the mindset, right?
Speaker A:Talking to a mentor, trying to understand who.
Speaker A:What's involved, and then deciding if you're willing to take that on.
Speaker A:And then two is actually getting the business set up.
Speaker A:Because you are a business.
Speaker A:You have to understand that you yourself are now becoming a business.
Speaker A:Whether you're a producer, an engineer, you know, a singer, songwriter, whatever it is, you're now becoming a business.
Speaker A:So you need to do everything that comes along with that.
Speaker A:I typically advise my clients the first place to start is setting up a corporation, right.
Speaker A:You will need it eventually, especially as an artist.
Speaker A:Once you get signed, you'll need something called a loan, through which basically how the label pays you.
Speaker A:But, you know, you got to set this up.
Speaker A:And there's a number of other benefits.
Speaker A:You know, you start to, like, let's say, you know, it's DNA Project, right?
Speaker A:DNA Project, Inc.
Speaker A:Whenever we register that corporation, that name is now registered somewhere that the.
Speaker A:That's.
Speaker A:It's, It's.
Speaker A:It's a protected name in the sense that we can trace back and say they've been using it since this date.
Speaker B:Right.
Speaker A:Somebody comes three years later and tries to take the name, it's like, well, no, we have a reg.
Speaker A:Not only can we show you our website, this and that that we've been using, we also have A registration showing that this is a name we secured since the state.
Speaker A:Right, right.
Speaker A:So it's beneficial that way.
Speaker A:But it also helps you organize your income.
Speaker A:Right.
Speaker A:So as money comes in, I mean, a good accountant is always good to have, but they'll tell you as much as you can leave in there, leave it.
Speaker A:Because your corporate tax rate is going to be far less than your personal tax rate.
Speaker A:And I'll give you a quick example because, you know, maybe it's easier to conceptualize in my mind.
Speaker A:I talk about this stuff all the time.
Speaker A:But let's say, you know, you sign a record deal and you get $200,000 advance.
Speaker A:If you don't have a corporation set up, that income comes to you personally.
Speaker A:Right.
Speaker A:So Matthew Ram is now taking an income for 20, 20 of $200,000.
Speaker B:Right.
Speaker A:I'm gonna pay income tax at a tax rate of $200,000.
Speaker A:But you also got to take in whatever other income I've taken in that year.
Speaker A:Right, right.
Speaker A:So let's say I'm at $250,000.
Speaker A:I'm gonna pay, you know, whatever the tax bracket is, 30 something percent, 40%, whatever it is.
Speaker A:If I have a corporation, I can now pull that money, have it paid to the corporation where I leave it in there and I pay corporate tax rate of whatever it is, 13%.
Speaker A:And I only take out whatever I need essentially to use.
Speaker A:I only need like 50,000 within that year.
Speaker A:I just take that, add it to my personal income, and then I'm in a tax bracket.
Speaker A:If my other income was 50, I've now taken 50 out of my corporation that has this 200,000.
Speaker A:I'm paying income tax on 100,000 as opposed to if I took it personally and paying on 250,000.
Speaker A:Right, right.
Speaker A:So.
Speaker A:And all these things matter, especially these numbers get bigger and bigger.
Speaker A:It really matters.
Speaker A:So for sure, that's another benefit.
Speaker A:You can definitely manage your income better.
Speaker A:And now also again, mentality and mindset.
Speaker A:So you're now interacting with people in the industry through a legal entity.
Speaker A:Right.
Speaker A:So it's.
Speaker A:If you have a manager and they're an employee of your, your corporation now or, or they're contracted with you through your corporation.
Speaker A:It's just a different way to deal with people then, you know, as a sole proprietor or just.
Speaker A:Which is essentially just you acting as yourself.
Speaker C:Can I ask you, Sorry, anybody else?
Speaker C:A lot of people tune in just because they want to hear.
Speaker C:Dori calls them nuggets of information that nobody would have heard.
Speaker C:And I remember when I was.
Speaker C:I Had a small inner, like, like entertainment law class in college.
Speaker C:And I remember just our minds being blown constantly of, like, that's how that works.
Speaker C:Do you have any examples of working with new or advanced artists?
Speaker C:And anything that you find that a lot of artists and the public don't know, that, I don't know, blows their mind, scares them, confuses them.
Speaker C:Can you give us a few examples?
Speaker A:I'll give you one.
Speaker A:One example that's pretty common, especially for people just getting into this.
Speaker A:And you know, when I mention this to a lot of people, it's kind of like, oh, yeah, yeah, I knew that.
Speaker A:But they had no clue.
Speaker A:So a lot of people don't understand.
Speaker C:We'll be honest if we knew it or not.
Speaker A:Yeah.
Speaker A:So in music, there's a very clear distinction between publishing and then sales.
Speaker A:Okay.
Speaker A:Right.
Speaker A:So, you know, for producers, when they're.
Speaker A:When I'm doing agreements for them, even with artists, but I'm doing agreements, you know, like for.
Speaker A:For an instrumental.
Speaker A:And, you know, there's an advance, you buy.
Speaker A:You buy the instrumental.
Speaker A:Right.
Speaker A:But the producer has no idea that they're also entitled to their publishing on this record.
Speaker A:Same with the artists.
Speaker A:They're.
Speaker A:They don't understand that, you know, all of this publishing is not even yours.
Speaker A:Half of that song, that instrumental, goes to the producer, and then half of it goes to you.
Speaker A:And I'll just kind of explain that what that is.
Speaker C:So is that automatic or.
Speaker C:That's something that the producer.
Speaker A:That's automatic.
Speaker A:Okay, that's automatic.
Speaker A:So the.
Speaker A:Your publishing is tied to your copyrights, right.
Speaker A:So once you create something and it come as soon as you've created, you've also created the copyright, and then that's captured by your publishing.
Speaker C:Can we back up for a second about copywriting?
Speaker C:As soon as you create it, it's yours.
Speaker C:That's something that I think a lot of artists don't understand.
Speaker C:They think, and I did this too, when I was 15, they mail themselves a CD back then just to prove that it's theirs.
Speaker C:But really, as soon as you create something, it belongs to you.
Speaker A:Yes.
Speaker C:Right.
Speaker C:It's just yours because you made it.
Speaker A:That's correct.
Speaker C:People should understand.
Speaker B:Legally, that's.
Speaker A:Legally, as soon as you create it, it's yours.
Speaker A:Right.
Speaker B:I don't think a lot of people know that.
Speaker A:Yeah.
Speaker A:As soon as you create, it's yours.
Speaker A:Legally.
Speaker A:As soon as it's made, those copyrights attach.
Speaker C:It would help if you can prove that it's yours for sure.
Speaker A:That's the whole mailing thing, right?
Speaker A:And I, and we're gonna get on some tangents here, but I always tell my clients, like, especially if you're a songwriter or something, yo, email yourself back these lyrics, right?
Speaker A:Because as you shop them out, you never know where something may end up.
Speaker A: , I sent it to this person in: Speaker A:Here's the email, right?
Speaker C:And email, it can be used legally if it's a server.
Speaker C:Like, you can.
Speaker C:Right?
Speaker A:Yeah, you can go, okay.
Speaker A:And that.
Speaker A:So the whole mailing, you know, yourself your own CD or something like that is just to show there's a registered mail.
Speaker A:Just proof something registered that shows this was created on this date.
Speaker A:Documentation.
Speaker A:That's the only proof of that.
Speaker A:That's the only reason for that.
Speaker A:Sorry.
Speaker A:So, you know, I always advise clients to do that.
Speaker A:If you're sending out B packs, you know, like, send me a copy as well.
Speaker A:Just so at least I have it in my.
Speaker A:In my office.
Speaker A:Like, on this day, this was a pack, so.
