Business Musings: Sneaky Money Grabs (Contracts/Dealbreakers)

I’ve been emailing back and forth with Nate Hoffelder of The Digital Reader all day about Booktrope, the “team publishing” or “hybrid publishing” company that got $1.2 million seed money a year ago to help writers publish books. Booktrope announced very suddenly at the end of April that it would completely shut down on May 31. According to the original announcement, Booktrope said it would remove all published books for sale by May 31, 2016, and it would return all rights to the writers.

Writers are caught in a bigger mess, though. Nate covered this well at Digital Reader Wednesday.  Essentially, because of a contract clause, writers whose books were published believe they are still supposed to pay their “team”—the editors, cover designers, and anyone else whose fingers have touched the published book. Or rather, the now unpublished book. Unless the book was in special programs, like Amazon Encore, the book is no longer available.

Nate helped me find the sample contracts that Booktrope once used to entice writers. (Thank you, Nate!!!!) Booktrope did try to be aboveboard—it had all this stuff on its website.

And like most of these companies that purport to help writers avoid doing the publishing work themselves without going to a traditional publisher, Booktrope was 100% buyer beware.

I was going to write a blog on why you never hire people for a percentage of your sales for the life of the project. I wrote a different version of that blog in August of 2011, before indie publishing really took off.

Back then, the problems were your agent or your best friend’s neighbor who happened to be good with computers. Both the agent and the best friend’s neighbor promised to do the work for you for a percentage. In those gold rush days, you both were learning what it meant to indie publish a book—just how hard covers were, why copy editors were necessary, and how exactly do you upload a file to turn it into an ebook.

I knew then that those arrangements would dissolve into icky, awful, nightmares. I also knew that if the writing gold rush followed every other gold rush in human history, it would only be a matter of time before Big Money came in with bigger frauds.

Well, fast forward to spring of 2015. Booktrope appears, and hits the news when it gets $1.2 million of the $2.5 million seed money it believes it needs to run a successful business.

Booktrope did an SEC filing, which meant that it had actual accounting behind it, a good business plan, and something that would entice investors besides some pie-in-the-sky ideas. I remembered looking at that, and wondering vaguely where the promised revenue to the big investors was.

I found the promises. Today, as I looked through the contract.

My initial goal was to look through the contract to see if the writers are actually tied to their “teams.” There are two groups getting screwed here: writers who signed on with Booktrope, and the copy editors, graphic designers, artists, and others who provided the “book publishing services.” In fact, the teams probably got screwed worse, because they signed work-for-hire agreements and, generally, never saw a dime for all the work they did.

I scanned the agreements—there are two that are linked—and frankly, it’ll take a lot more investigating on my part to figure out what really is the case here. Because these agreements are badly written. They look like pieces were cobbled together from other contracts, some traditional publishing contracts, and some from work-for-hire agreements found on the web.

You’d think with $1.2 million in seed money, Booktrope could afford lawyers. Apparently, they didn’t think they needed any—or worse, they hired really bad ones.

I know that the writers think they’re in hell right now, and I know they’re worried about whether or not they have to pay their “creative teams” for the rest of the book’s life. I have no idea. I’m not a lawyer.

I suggest that anyone who has this worry hire an attorney to vet these really bad contracts and see if they hold anyone to anything. On her website, Laura Resnick has a list of literary lawyers.

I know, I know. A lot of these writers are broke and don’t know where the next dime will come from. But usually the first consultation with a lawyer is free, and lawyers often set up payment plans for impoverished clients. A consult on a contract like this one shouldn’t take more than an hour or two tops, and it’s going to be well worth the money spent, particularly considering that most of the writers involved with Booktrope are looking at paying a percentage to other people for years.

A one-time fee to get yourself out of that or to negotiate a settlement if one is needed is much better than sucking it up and paying money you might not have to pay.

Okay.

I was going to expand on that, and look at some of the contract terms that writers should be wary of, from companies like Booktrope, companies that still exist.

And then I choked on a big gigantic paragraph in the Booktrope sample author agreement. This big gigantic paragraph is the one thing that allowed Booktrope to raise millions of dollars.

And, my fellow readers, “hundreds of authors”  signed this agreement.

Hundreds.

Think about that as we go through this little nugget of pure nastiness.

This was on page four of a six-page contract, under Clause 7 “Accounting and Reports; payments for subsidiary and derivative rights.”

Part A in Clause 7 deals with payments of royalties to the author. Okay. There’s some stuff in that which is…bizarre. But fine.

It’s Part B that made me shout out loud and change the direction of this blog. I’m going to give you Part B in chunks. By the end of this, you’ll see all of Part B. But I can’t stomach doing it as one big lump, because it’s just so very ugly.

Wade through the legalese, people, because you’ll see the problem soon enough.

Ready? Brace yourselves.

Here goes:

(b) Revenue from subsidiary rights: Author agrees to pay Publisher the following share of any net proceeds in excess of $2500 received by Author from third parties based on sale or license of subsidiary rights in the Work or from derivative works:

ten percent (10%) for any sales or licenses arranged after the first publication date of a Booktrope edition by author or author’s agents independently of Publisher during the term of this agreement, or

twenty percent (20%) if such sales originate with the purchaser or the purchaser’s agent contacting the Publisher directly or if Publisher arranges for the sale on behalf of the author. Author authorizes Publisher to negotiate sales of derivative or secondary rights in the Work (such as film, TV, recording, or other dramatic media) anywhere in the world and to receive payments on Author’s behalf on any sales of such rights arranged by Publisher, provided that Publisher will not enter into such an agreement unless the Author approves it.

(Okay. Breathe, Kris. Breathe. The company went out of business.)

Here’s where the multimillions that the investors hoped for came in. What Booktrope did, through the guise of being a service that “helped” writers by publishing their works and putting them up online, was grab a percentage of all sales of subsidiary rights and other derivative works, the moment the book got published by Booktrope.

For example, let’s say that the author and/or the author’s agent (and this does not mean literary agent. It means anyone acting on behalf of the author—the true meaning of agent) licenses, say, a movie independently of Booktrope. And let’s say that the movie deal was being talked about before Booktrope published the book, but the deal was put on paper after Booktrope published the book, Booktrope would get 10% of the net proceeds after the first $2500.

That means proceeds to the author. Authors generally don’t practice Hollywood accounting, so authors would have paid their agent, then subtracted $2500, and paid Booktrope 10% of the rest.

Here’s how it would have worked:

Say Really Good Book ends up with a $50,000 option with Hollywood Company, negotiated by Tough Broad Hollywood Lawyer who charged the writer $1,000 for her services.

The writer would end up with $49,000. Subtract $2500 from that (per this contract), and the writer has $46,500. And, according to this contract, she now owes Booktrope $4,650 of that money.

Booktrope did nothing. It would get nearly $5,000 for nothing. And it would get ten times that or more if the movie actually got made. For doing nothing.

The second part of the clause is just as bad. Booktrope could negotiate on behalf of the author, undercutting any deal that was in the works or superseding it.

Booktrope—and their investors—were not book people. They said so in a bunch of interviews. (That was part of their hype.)

And because they were not book people, they were subject to the same misconceptions that the general public has about books: things like all books sell lots of copies; It’s easy to get a movie deal; Subsidiary rights like gaming rights will bring in tons of money.

And so on and so forth.

Lucky for the authors that Booktrope vanished. Because guaranteed in that mass of books that Booktrope kept publishing, there would be a few books that would sell really really well. Those books would garner subsidiary rights attention, and they would end up with hundreds of thousands of dollars in the bank. It’s the law of averages.

And then what would happen? Well, in addition to all that stuff above, there’s this ugly honking paragraph, that’s part of Clause 7 (b). It follows right after the 20% paragraph.

Examples would include movies, TV shows or other productions based on the work or payments for use of characters, features, sales of foreign rights or excerpts from the work. Author shall pay Publisher within sixty (60) days of receipt of such payments; if publisher receives payments on author’s behalf; publisher shall pay Author any amounts due within sixty (60) days of receipt of such payments. This paragraph applies to any revenues from subsidiary rights, where Author was contacted by the buyer or licensor of such rights during the term of this agreement. Author’s obligation to Publisher under this paragraph shall continue as long as this agreement remains in force or for five (5) years from the date on which Author first receives revenues from sale or license covered by this paragraph, which ever is later. Payments to Booktrope based on subsidiary or derivative rights under this section 7(b) shall not be included in “net revenue” under the creative team agreement and shall not be shared by Publisher with author.

By the way, all the typos and inconsistencies in these passages are in the actual sample document, which is only one way I know that no lawyer drew this up. Lawyers are taught to be anal in law school. One misplaced comma and an entire document changes meaning.

Which is why I’m not exactly 100% certain, but I’m like 99.99% certain that the last line of this honking paragraph means what it says: that if the Publisher negotiates a big movie deal, then the writer gets some percentage of that deal—maybe 80%, we hope, kinda sorta, but the “creative team” gets nothing on those pass-through royalties for book sales.

But I could argue, if I had a law degree, which I do not, that the wording of that last sentence means Booktrope didn’t have to pay the author anything if Booktrope brokered a subrights deal. All the monies could have gone to Booktrope, and there might have been some fun litigation to get those monies out of Booktrope.

All of which is theoretical. As of this week, Booktrope is no more.

Even if you were part of it, do not mourn it. It tried to shuffle big money away from writers into the pockets of big investors and its owners, and it failed.

Yes, writers are having to deal with some pretty serious problems for them. But had they actually read the agreements they signed…well, they wouldn’t have signed on with Booktrope in the first place.

This is why you hire lawyers to vet contracts for you, people. All contracts. You can’t eyeball this stuff and think you know what it means.

Why am I telling you about a company that no longer exists?

Because Booktrope is symptomatic of a dozen other companies I could name and won’t. These rights and money grab clauses are common. I’m seeing them everywhere these days.

What’s really disturbing to me is that they’re not just in traditional publishing contracts. They’re in contracts that are essentially service contracts.

Hire a company to print your book on a web press, and you might encounter one of these clauses.

Hire a tech company to digitize and upload your book to various sites, and you might encounter one of these clauses.

Hire a marketing company to publicize your book, and you might encounter one of these clauses.

Seriously, people, these clauses are everywhere.

You have to learn this stuff. And you can’t blindly sign your rights and your future revenue away. For any reason.

Please, please, educate yourselves. And think before you sign anything.

Then hire a lawyer to explain the contract to you.

And then believe in yourself. Walk away if there is anything bad that happens to be non-negotiable.

What non-negotiable means, in real world terms, is that the party you’re negotiating with is walking away if you don’t agree. They’re playing hardball.

You need to as well.

Indies, I know you think you’re immune to this stuff. You’re not. No one is.

The only person who can watch out for you in the real world of business is you. The only way you can protect yourself is to educate yourself.

Part of that education is learning contracts and copyrights. These blogs I’m doing are just a start. Keep reading, keep digging, and keep questioning.

And never, ever, sign a contract out of desperation. Because believe me, the people on the other side of that contract will see you coming. They’ll take advantage of your desperation.

You think it doesn’t happen? It did to hundreds of writers who signed on with Booktrope. Fortunately for those writers, Booktrope is gone. It (in theory) reverted the rights and canceled contracts and now its writers are free to republish their works, once they figure out their relationships with their “teams.”

But I can guarantee that other companies are filling the void right now. And who knows what evil lurks in the hearts of their contracts?

The slime, it was deep today. I’m still icked out by that Booktrope contract. This was the very thing that prevented me from updating the Dealbreakers book in the first place. Now that I’m deep into the project, I’m glad I’m doing it, although I feel like I need to shower after each paragraph.

I’m getting a lot of help, as you can see from my mention of Nate Hoffelder, above. Lots of people have sent (icky awful) contracts. Others have given advice. Still more have shared these blogs. And some have donated enough money to help me pay my hot water bill to keep the slime off my person while I write these.

Thank you all.

If you’re finding anything of use in these posts, please consider donating to keep me blogging about these topics. You can leave a tip here: paypal.me/kristinekathrynrusch.

And one other matter:

Throughout these contracts and dealbreakers posts, I talk about negotiating your own contracts. I know many of you don’t like to negotiate. I wrote blog posts about negotiation that I made into a book: How To Negotiate Anything. The posts are still free, but if you want a copy of the book, then hurry to Storybundle right now. The book’s part of a bundle with nine other great writing business books, chockfull of information you need to keep learning business and craft. The bundle goes away forever on June 16, so get your copy soon.

Thanks!

“Business Musings: Sneaky Money Grabs,” copyright © 2016 by Kristine Kathryn Rusch. Image at the top of the blog copyright © 2016 by Canstock Photo/ Kenishirotie.