The Business Rusch: Agents and Money
Do you know anyone who has audited their literary agent?
When I put “literary agent” and “audit” into search engines from Google to Duckduckgo.com, I get thousands—and I do mean thousands—of hits. These hits always involve literary agents auditing publishers (or threatening to) on behalf of writers.
When I put “literary agent” and “lawsuit” into search engines, I mostly get links to the Martha Grimes case of a few years ago, although I also found some very scary things, most of them already adjudicated cases on FindLaw.
I have yet to see anything about an author auditing her agent.
And why not? After all, literary agents handle writers’ money. In fact, the agent gets the money first and funnels it to the writer, even though it’s the writer’s money. You’d think that someone would have audited an agent, just to make sure the books are being well-kept.
Well…there are so many problems here that I can barely begin to examine them.
First of all, no one has the right to go into another business and demand to see their books, even if that business owes that person money. There are only two ways you can audit the books of a business that owes you money. The first way is contractual. The second is for cause.
Let’s deal with the contracts first. Agents proudly mention on their websites that they routinely force publishers to include audit clauses, and that the agents themselves will then “audit” the royalty statements to make sure they’re accurate.
However, I have never ever ever ever seen an agency agreement that allows the writer the same rights that the agent negotiated on the writer’s behalf with the publisher. The writer does not have the right to audit a literary agent, even though most agents get all of the writer’s money from the publishing house. Those agents then cut a check—15% for the agent, and 85% for the writer.
Think about this for a moment. The agent gets all the money and all the paperwork associated with that money. This almost always is part of the contractual agreement the writer has with the agent. Inside a publishing contract, the agent has the publisher slip in an “agency clause” which essentially says that the agent will receive the money and that receipt will mark the end of the publisher’s obligation under that agreement.
Now remember this: literary agents aren’t bonded or licensed or certified. They do not have an organization with teeth that can fine them or sue them or disbar them if they behave improperly. Nor are they publically traded corporations, like some parent companies of publishing houses, so there’s no way to audit on behalf of the shareholders or any other reason.
In other words, the only one watching the store—the only one with the right to watch the store—is the agent herself. Writer J. Steven York has made his cat into a literary agent to show how ridiculously easy it is to become a literary agent. The cat has her own website, and even though she calls herself “Bad Agent Sydney,” satire-challenged writers have—quite seriously—written to her and asked for representation.
Most writers never vet their agent. They don’t check with the local Better Business Bureau or the state attorney general to see if someone has filed complaints against the agent. They don’t run a credit check to see if the agent can handle her own money, let alone theirs.
I know of so many agent stories about financial mismanagement, most of them because the agent was a sole proprietor and used client funds to pay personal rent or, in the case of one very famous agent, to buy cocaine.
Most agency agreements between the writer and the agent are so one-sided in the agent’s favor that they terrify me. I’ve written blog posts listing the many reasons why you should not sign one of these documents. Of course, you can write your own agreement with an agent, and if you do, make sure it has an audit clause. You might even want to base that audit clause on the one for publishers that agents so happily tout on their blogs.
So, without a contractual agreement allowing it, how can you audit your agent? You can only audit if a court determines that you have cause.
Cause is a dicey thing. You need to have enough evidence that financial mismanagement is going on that you can get a court order to hire a forensic accountant to go in and examine another business’s books. In other words, you need proof.
If someone is deliberately stealing from you and is good at it, you won’t have proof. You might have suspicions, but you’ll never have proof.
I had suspicions for years that one of the agencies I used to work with had a problem with its foreign rights department. Years before I hired this agency, which I will call Boutique Agency, I had hired a sole proprietor agent, whom I will call Solo Agent.
Solo Agent embezzled from his clients routinely. When a client caught him and sued, that client had to sign a confidentiality agreement to get a settlement. This is one of the many reasons that I never found any reference to audits of Solo Agent in my Google searches, even though those audits happened and the court cases got settled. (Makes me wonder how many other agents insisted on—and got—confidentiality agreements in exchange for a settlement instead of a lawsuit.)
Solo Agent embezzled with foreign contracts. He never let his clients see the contracts, claiming they weren’t in English (not true: the contracts are always translated into the language of the writer). I’m convinced he underpaid the foreign advances, and he claimed those books never ever earned out. I’m sure he pocketed the extra advance and the royalties, but I can’t prove it in my case, since I didn’t sue him.
How do I know this then? Well, people close to me sued Solo Agent and got the settlement. And others have—well, not exactly broken their confidentiality agreements, but have let me know that going with Solo Agent as an agent isn’t a good idea because of something to do with foreign rights. Oh, and when I switched agents years later, all of my foreign editions with the same companies that had published previous editions paid me higher advances, and royalties after those advances earned out. One foreign publisher told me that I had always earned out for his company. Always. Even with Solo Agent was my agent.
Anyway, long story short, I’m very sensitive about my foreign payments because of Solo Agent. So when I became a client of Boutique Agency, I watched my payments like a hawk. Fast forward several years. I fired Boutique Agency (for reasons unrelated to money) and moved to another agency. And suddenly, my foreign royalties from the Boutique Agency started to look weird.
They got paid late, or not at all. In my series novels, the foreign publishers would pay royalties on Books 2 and 4 but not on Books 1 and 3. Sometimes those royalties would show up years later.
I complained, but no longer had clout. The money still funneled through that agency because I hadn’t gone through the nightmare of segregating funds. I had dozens of books which would have had to go through that process.
Instead, I simply made sure my rights reverted on those books as soon as possible, something that benefitted me years later when indie publishing started. Only I got my rights reverted to easily (and cheaply) get Boutique Agency off my back.
Foreign money still trickled in weirdly and inexplicably. But it wasn’t foreign money that gave me the obvious cause. It was tie-in novels.
A lot of writers wrote tie-ins in those years, and often for the same editor at the same franchise in the same publishing company. The royalties statements would come bundled and packaged from that publishing company. You’d have to read those statements closely to realize that TV Franchise Novel: The Awakening was a different novel from Movie Franchise Novel: The Awakening.
The Boutique Agency started to send me royalty statements for other writers who had written similarly titled books. I complained and mentioned it to Boutique Agency. Nothing happened.
And then I got the super large payment that made my eyebrows go up.
I always read my royalty statements. Always.
And as I examined that royalty statement for that really big check, I saw another royalty statement attached. A royalty statement for a completely separate writer, whose novel had a similar title. A royalty statement for said writer, who deserved all but about $5 of the money that had been sent to me.
Fortunately, I had not deposited that check because, among other things, Boutique Agency had stopped getting my company name right, so the check needed to go into an account I kept open only because of Boutique Agency’s incompetence.
I photocopied everything, then sent Boutique Agency a scathing letter, reminding them that they had fiduciary responsibility to me, and they had violated it.
Said fiduciary responsibility, by the way, comes from agency law. Please remember that I am not an attorney and I don’t play one on TV. But a literary agent fits into the broad category of agents—like real estate agents—who exist under the law, and they are subject to a general thing called agency law.
The obligations that an agent—any agent, from a real estate agent to a literary agent—has to the principal (that’s you) under agency law include:
- To act within the confines of the law
- To act with reasonable care
- To maintain loyalty to the principal
- To disclose any material information to the principal
Some of these terms, such as acting with “reasonable care” are legal terms in and of themselves and have specific meanings. There are a lot of other things that are involved in this side of the relationship, some of which you can find in the definition of fiduciary duties in the Free Online Law Dictionary.
One of the many responsibilities is privacy between the agent and the client. Just by sending me the other client’s royalty statements, the Boutique Agency was in breach of general agency law. But sending me another client’s money, well, that was an obvious breach and one that would have easily given me enough cause to get a judge to grant me the right to audit the Boutique Agency’s books.
It’s expensive to hire forensic accountants, even with the court’s permission. I was ready, though. Before I went to court, however, I decided to give Boutique Agency one last chance. I wrote a letter, citing all of the breaches, demanding a full accounting of my books, and reminding them of their fiduciary responsibilities to me.
The Boutique Agency not only terminated the remaining parts of our relationship the next day, they willingly wrote to all of my publishers that week, informing them to send me 85% of what was owed, and to cut a separate check for 15% for the agency. (This is called splitting checks).
Except the Boutique Agency’s foreign agent balked at doing her part. She refused to contact the foreign publishers. She thought my request “insulting.” I had to write a series of letters to get action there. Finally, when I told Boutique Agency to stop worrying about writing those letters to my foreign publishers; I would do it myself. And guess what? Two days later, I got copies of letters sent to all of my foreign publishers.
Occasionally, I muse as to why Boutique Agency’s foreign rights person didn’t want to write those letters and wonder if I should have simply gone to court. I probably wouldn’t have made much money on this (if any), but I could have blogged about the whole experience, and it might have caused a major upheaval.
You see, some really well known New York Times bestsellers—with series and movie franchises and all kinds of foreign rights—funnel all their money through Boutique Agency. Hundreds of millions of dollars flow through that place. At best, Boutique Agency’s accounting department sucks. At worse, someone(s) at Boutique Agency has very sticky fingers.
By the way, because I’m completest, let me add this: in a fiduciary relationship, you (the principal) have obligations as well. They are, generally speaking:
- pay the agent
- reimburse the agent for reasonable expenses
Nowhere does it say that you must let the agent get the money and disburse it to you. In fact, it’s really, really, really rare outside of publishing for someone who is called an agent to get the money in his own account, and then disburse it to the client.
For example, when you sell your house, your real estate agent does not get the check for the house, put it in his account, take his commission, and give the rest to you. If you have an insurance claim that pays out, the money does not go to your individual agent first for her to remove her commission and then give the remainder to you. You get your check separately, usually in the mail, from your insurance company. If the check has to be hand-delivered, it is not a check from your insurance agent minus his fees, but a check from the insurance company itself, drawn from the corporate account that it has for this very kind of pay out.
Writers are so used to the literary agent system that we don’t question it at all. And yet, when Dean and I showed an attorney friend who specializes in corporate law (not intellectual property) a book contract, he freaked out. Not just at the jargon—he admitted he didn’t understand that—but at the agent clause. He thought it was a joke. He couldn’t believe how agents got paid. Or rather that writers, who had not checked an agent’s financial credentials, let that agent handle their funds.
In hindsight, I don’t understand it either. Yet I did it several times with different agents and different agencies. I could claim youthful ignorance—I got my first agent at the age of 28—but I had already been a business reporter for years, and I knew about all kinds of scams. I just didn’t even consider how rife the agent/author relationship was for mismanagement until…well, until I encountered Solo Agent. Even then, Solo Agent didn’t stop me from hiring the Boutique Agency without vetting them. I vetted later agents, but didn’t ask for split payments, even though I should have.
And so should you.
If you have an agent, you should make sure that your payments get split. If the publishing company refuses to do that, then have the money come to you directly and you live up to your side of the fiduciary relationship: pay your agent the moment the big check arrives.
If your agent balks at that—if he doesn’t trust you to pay him his 15%—then why should you trust him to pay you 85%?
If you don’t have an agent and believe you need one, then make sure you have an agent agreement that you draw up, not the agent. And in that agreement (which you need to draw up with the help of an IP attorney), add an audit clause so that you can audit the agent.
A lot of you indie writers believe you need an agent to sell foreign rights (you don’t) or movie rights (you don’t) or other subsidiary rights (you don’t), so you hire someone to handle your books when you and an intellectual property attorney could do so much better on your own.
Think long and hard before you hire an agent to handle your work for you. The business model no longer works in today’s new publishing environment so most agents are moving to dicey practices that, in fact, violate the fiduciary duties listed above.
Investigate anyone you hire, but before you do, question the assumption that you need to use a 20th century model (the agent) for a 21st century business.
If you think you need an agent, then research the hell out of the person you hire. Ask to check the firm’s credit, get recommendations, and write your own agent agreement with an audit clause. Split payments or have payments come directly to you.
Just because a firm is “reputable” doesn’t mean it can handle its books. That Boutique Agency has one of the best reputations in the business—and no, I won’t tell you who it is. I’m telling you to be cautious no matter who you hire to handle your business affairs.
This is a writer beware situation, and a very serious one.
You don’t want to be in the position where you believe you know that someone is mismanaging your funds, but you can’t prove it. You don’t want to get to the stage where you actually have cause, because that means something horrible has broken down somewhere.
You want the money you’re owed—all of it—to come to you. You want your business relationships to remain aboveboard and honest.
Are there good agents in the world? Yes. I partner with one on occasion when I need to, which is rarely these days.
But are there bad agents? Infinitely more bad agents than good. And honestly, I know of a few good agents who work in that Boutique Agency. Because they partner with that business, I’d never hire them, because that agency has some serious flaws in its accounting department.
Do your homework, take care of yourself, and make sure you’re never in a position where you need to audit anyone because you suspect something is wrong.
This blog comes from the school of hard knocks or, as I sometimes say to my students, the do-what-I-say-not-what-I-did school of publishing. I am older and wiser now, but I’m still learning and, I’m sure, still making mistakes. I just try not to make the same mistake twice.
I also want you to learn from my mistakes so you don’t have to take those hard knocks like I did. Believe me, they’re painful. And that’s where this week’s blog came from.
However, this blog does need to be self-sustaining because I could always use the extra 3,000 words for whatever fiction project I’m working on. So, if you get anything of value from my work on The Business Rusch, please leave a tip on the way out.
“The Business Rusch: “Agents and Money,” copyright © 2012 by Kristine Kathryn Rusch.