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The guys end the week by talking about the patently unfair contracts that contestants for American Idol must sign.
Full Podcast Transcript
NASIR: Welcome to our business law podcast where we cover business in the news and add our legal twist to it. My name is Nasir Pasha.
MATT: And I’m Matt Staub.
NASIR: All right. Well, thank you for joining us once again on this Friday episode where we’re covering your favorite show pretty much of all time or is it just top five?
MATT: Of mine? Bottom five, maybe. I don’t know.
NASIR: So, American Idol is coming back this season, right? It seems to be coming up soon, if it hasn’t started already.
MATT: I can’t say I even know if it’s still around or who the people are. All the original people are off of it now, aren’t they? I think that happened a long time ago.
NASIR: There is Ryan Seacrest and I think that’s all I know. I think that’s the only person I know that’s still there.
MATT: The original one was Simon something.
NASIR: Cowell.
MATT: Simon Cowell and…
NASIR: Paula Abdul and…
MATT: Paula Abdul.
NASIR: And the dog guy.
MATT: Randy.
NASIR: Randy.
MATT: And Seacrest. Is Seacrest still there?
NASIR: I’m pretty sure, yeah.
MATT: Probably. Sure, he is.
NASIR: Those were the classic days of American Idol.
MATT: I might have watched part of the first one with Kelly Clarkson. But I don’t know if I watched any other ones.
NASIR: That’s strange. I thought, since it was your favorite show, you’d watch it more. But I guess you just kind of like it from a distance.
MATT: And the reason I don’t like it is because they require their contestants to sign these oppressive contracts that just take advantage of the people that go on and, you know, I’m a little bit conflicted on this just because you’re never going to get this sort of publicity anywhere else because I’m sure it’s still watched by millions and millions of people.
NASIR: Sure.
MATT: It’s kind of like Shark Tank in that most people wouldn’t find out about your business unless you went on the show. But one winner with the unfortunate name of Phillip Phillips…
NASIR: When I was Googling it to do more research, I was trying to figure out if that was just, like, a mistake. No, it’s basically the same first and last name with an S difference, right?
MATT: Yeah. So, he was doomed from day one by his parents that named him that for some reason. I guess he was a winner a few years ago in 2012 and he’s trying to get out of his contract that was signed saying that, you know, it’s just really patently unfair and we actually have some – what we believe to be some – excerpts from the agreement. But, you know, a couple of things he’s saying, he got uncompensated for a show, he did a performance for an insurance company that was an endorsement deal and he was only paid 20 percent commission when he was supposed to be paid 40 percent. I mean, those aren’t as bad things as if you actually read the agreement itself and, like I said, I think we have something that seems pretty legit in terms of what’s in the actual agreement. You pretty much sign your whole career away to American Idol or 19 Group.
NASIR: Yeah, 19 Entertainment I think is the proper name and it looks like, I mean, I don’t see this in this contract but I’m seeing other people say that the initial contract extends for three years although 19 Entertainment continues to collect a percentage of some of the contestants’ earnings for ten years. So, even though the contract may only be for three years which, okay, I don’t think that’s totally abnormal for these kind of agreements, but the problem is that, basically, they sign an agreement as a contestant saying, “Okay. If you reach this top ten, you’re basically required to sign another management agreement with 19 Entertainment and with these certain terms.” And so, when they’re first signing that, you know, they’re practically nobodies so, of course, they don’t really have much negotiation power. But then, as soon as they get big, if they win the contest, for example, they’ve already pretty much signed the deal. But what’s interesting about this contestant, Phillip Phillips, is that what he’s alleging or his attorneys are putting forth is that this 19 Entertainment is not a licensed talent agency and this is all under the Talent Agency Act in California and it’s a very controversial old law. I think it was developed in the 60s but it’s been used, basically, if you are an individual manager or a corporation that is procuring employment on behalf of an artist or some other talent – artists are defined, all these have definitions, and procurement even has definitions and employment has definitions under the act – that you need to be licensed. What’s controversial is that, if you’re not licensed, then your contract may be totally voidable and that all the profits that could have been made without that contract may be disgorged from that unlicensed agency. And so, kind of peculiar is that this 19 Entertainment is being alleged to not be licensed as a talent agency and they seem to be just some kind of music label, yet they’re still kind of acting the same way as a talent agency. And, okay, it’s not like the listeners aren’t necessarily in the business and it’s not like we’re entertainment law attorneys but there is some basic differences between an agent and a producer and a label and so forth that I would assume they would have figured this out and, if these allegations are true, then this could affect every single American Idol contract since Kelly Clarkson which is pretty interesting. So, I assume they’re going to put up a fight and I wouldn’t be surprised if there’s some kind of loophole that perhaps we or these attorneys are missing.
MATT: Yeah, I mean, there has to be. It would be a huge mistake if they made this error. It would just invalidate all the agreements and it’s not even just, like you said, it’s not even the people that win. If you’re in the final ten, they can pretty much lock you into another agreement and their own discretion. Let’s say, you know, there’s seven in the final ten people are good or they think have potential, they just let three of them walk and lock seven other ones into this agreement where they have – let me get the words – “grant to producer the unconditional right throughout the universe.”
NASIR: Yeah.
MATT: So, not even just the US, not even just the globe, they have to give their unconditional right throughout the universe in perpetuity to use, simulate, or portray their name, likeness, whatever. So, basically, they signed over everything. You know, once they’re doing concerts on Mars next year, it’s still good. You can’t get compensated for that.
NASIR: We were making fun about this earlier, right? This whole “universe” thing. By the way, it is very common to see “world” in there. This is the first time that I’ve personally seen the word “universe” to describe this kind of situation. But I started thinking, like, you know, with SpaceX and Elon Musk is doing with space travel and so forth, what if they had a concert in a shuttle in space, would they have to describe whether “world” includes that space or not? And, by just changing your contracts to “universe,” I suppose that might be appropriate but – I don’t know – that makes it kind of interesting.
MATT: Yeah, I think we’re still, what was the term of this agreement? Up to ten years, possibly?
NASIR: Yeah.
MATT: I think we’re still pretty safe for right now.
NASIR: Oh, you never know. I mean, I think you can already pay to space travel. So, what if this Phillip Phillips decides to go on a little space ride and does a little concert sponsored by SpaceX?
MATT: Wasn’t one of the American Idol people trying to go into space? Oh, no, that was one of the…
NASIR: *NSYNC guys.
MATT: Yeah.
NASIR: I can’t remember his name. I don’t think he ever did.
MATT: Yeah, because he tried to raise, like, a lot of money and no one gave him any money.
NASIR: Oh, really?
MATT: It’s like, “Why would we pay for you to go up into space? There’s no reason to give you money to do that.”
NASIR: Let’s just pay an astronaut or a scientist to do the same thing. I think that makes more sense.
MATT: Yeah, I guess they’re more bang for our buck.
Just going back to this real quick, I mean, like you said, there’s really no option for these contestants. What are you really going to do? So, you’re trying to get on American Idol. Obviously, you’re desperate to get out there and get your name known. They’re going to give you this agreement and you’re not going to negotiate the terms with them. If you go back and say, “I want these things changed,” they’ll just say, you know, “We have plenty of people who are interested.” And so, it’s an unfortunate thing and it happens a lot of times. It’s you either choose to do business or you kind of have to walk and, you know, there’s really no way to get around that and it’s a one-sided negotiation, basically.
NASIR: Here’s the deal, right? Musicians, since the history of rock and roll I think, have always been somewhat oppressed – or at least they feel that they’ve been oppressed by their labels and so forth – to different degrees. That’s one issue. But what’s interesting about this particular lawsuit is that I think there’s a lesson here about legal strategy. If you’re suing to void a contract and you know it’s going to be public and you know that, if you are correct, it could possibly void every single American Idol contract in the last ten years – I don’t know how long American Idol’s been going on but – what are your chances of this being resolved any time soon? There’s no way that 19 Entertainment is going to give up on this issue or allow you to win on this issue. So, even if you win on the merits, if it gets to that point, whether American Idol buys him off or not but, if it gets to that point, it’s going to be appealed as many times as possible and it’s going to be a very long time running. In the meantime, what’s that going to do to your career now that the legal ambiguity of to whether or not you have to go through 19 Entertainment to do this or not is up in question and I wonder, I’ve never heard of Phillip Phillips so I won’t be surprised if this was kind of a last resort that he wasn’t getting anywhere with negotiations and he wants to do his own thing perhaps.
MATT: Yeah, I only know two American Idol winners. I guess they’re in Season 14 right now.
NASIR: Ah, so it’s more than ten years then, right? It’s crazy.
MATT: I don’t think it was necessarily…
NASIR: One per year? I don’t think they’ve had more than one season per year but I could be wrong.
MATT: First one debuted June of 2002.
NASIR: Oh, it’s about 13 years. How time flies!
MATT: So, these people, these oppressive contracts, but in the peak, there was season viewers over 30 million viewers. That’s a lot of people that see your name that would have never known about you.
NASIR: Yeah, and I’m reading some statistics here. This is not necessarily statistics, this is just some guy posting something, but he says the bottom-line is that anyone in the top twelve can expect to earn at least $50,000 from the show, the top ten at least $100,000, the winner can expect to become a millionaire and maybe a massive star. The other top finishers who get record contracts will wind up making at least $500,000 from the show. I really wish I read the whole sentence because, at the end, it says “as a guest.” So, that could be completely off but they’re still paid some. It’s just the question of the actual contract terms and how much they could have made if they were able to negotiate their contract a little more freely.
MATT: Yeah. Well, bad news for Phillip Phillips.
NASIR: Bad news for me. I’m not trying out for American Idol now.
MATT: Well, I was saying bad news because he just has a bad name.
NASIR: Oh, exactly. By the way, I’ve dealt with this before because, when you’re working with celebrities or artists with your company, even when making other deals, you always have to be careful about encroaching on this territory because it’s kind of easy. The definition of procuring employment is a little vague so you never know which is, of course, again, bad for 19 Entertainment. But, again, I just have a feeling that somehow they’re going to wiggle themselves out of it.
MATT: Yeah, I would think. If not, then huge mistake there. But I guess we’ll see.
NASIR: All right. Well, thanks for joining us!
MATT: Keep it sound and keep it smart!
