The Madonna Deal: Truth or Ego

You’ve gotta hand it to Madonna.

That $60-million Time Warner contract she signed recently is pretty impressive, right?

So why are several top industry players calling it the biggest vanity deal in history--or at least since the Michael Jackson contract last year?

Like the self-proclaimed King of Pop, Madonna certainly got a sizable record deal, but a lot of the other provisions of the contract--those involving film and video projects--may be simply window dressing, observers suggest.

“The big numbers in these multimedia superstar contracts are just a bunch of smoke and mirrors,” says one insider. “The companies tweak the figures and pump them up to appeal to the vanity of the star and exploit the gullibility of the press.

“It’s not about music anymore. It’s like a big contest now with one star bragging to the other, ‘My appendage is bigger than your appendage.’ And you know how the media is. Man, they just eat it up.”

But Freddy DeMann, Madonna’s manager and partner in her new Time Warner-funded company, disagrees.

“This is no vanity deal,” DeMann says. “All the information I’ve read in the press about it is inaccurate. If anything, the dollar figures are estimated far too low.

“I can’t imagine why anybody would want to denigrate this deal. We’re going to become a major force in the entertainment industry--in records, film and television. We’re a real company. Give us a minute and we’ll prove it.”

Ever since Janet Jackson stunned the pop world in March, 1991, when she announced her estimated $40-million, three-album pact with Virgin Records, artists’ attorneys have been elbowing into record company boardrooms to get a piece of the contract pie.

Nine days later, her brother Michael consummated the next big deal--a $60-million, six-album agreement--with Sony Music officials, who five months later signed a $37-million, four-album agreement with Aerosmith.

Motley Crue secured a reported $35-million, five-album deal with Elektra Entertainment in September and the Rolling Stones signed a $42-million, three-album pact in November with Virgin. Barbra Streisand and Prince are both poised to sign megabuck deals this month.

Artists and companies, however, have gotten so caught up in trying to win the contract war, insiders say, they often fall prey to their own hype. Don’t forget: The original Sony press release pitched Jackson’s deal at a value of $1 billion to the entertainer.

Here’s why the word vanity is being bandied about.

Under the Time Warner deal, Madonna will reportedly receive between $2 million and $5 million a year to underwrite operating expenses for an entertainment company--a 50-50 partnership venture named Maverick that will include a record label, music publishing company and an office with television, film, book and merchandising divisions.

Time Warner, however, didn’t just sign a blank check for Maverick.

According to several industry sources, Madonna likely has about two years to test her strength as an entrepreneur. If she fails to lift Maverick out of the red by 1995, the speculation is that Time Warner reserves the right to pull the plug on the venture and retrieve its losses from money generated by Madonna’s personal record sales. That’s the way deals like this normally work. Sony reportedly maintains a similar two-year option regarding Michael Jackson’s Nation Records label.

Profit sharing was probably the biggest perk touted in both the Madonna-Time Warner and Jackson-Sony deals. But according to sources, the 50-50 partnership provisions apply only to music sold in the United States--which represents less than 35% of the global record retail market.

“Time Warner isn’t stupid,” said one insider. “No company as huge as that would legally maneuver themselves into a position where they wouldn’t be able to recoup losses they might suffer in this venture.”

MADONNA II: So how much cash did Madonna get to keep the day she signed the new pact? A lot less than $60 million--maybe as little as $10 million.

The pop siren is reportedly guaranteed a $5-million advance on each of her next seven albums, but that doesn’t mean she was given $35 million with no strings attached.

In the pop world, guaranteed doesn’t always mean what you might think. Typically, the cash advance for each album is like a separate, interest-free loan that the company will deduct from the entertainer’s share of the profits from the album’s sales.

The advance for each album is deducted from an artist’s royalties on the album until he or she sells enough records to pay back the $5 million, which means about 2.5 million copies in Madonna’s case--given her estimated 20% royalty rate.

If the album doesn’t sell the 2.5 million copies, Time Warner reportedly has the right to deduct the difference from royalties generated by all of her previous albums.

A similar royalty recoupment policy reportedly applies to Madonna’s estimated $2-million video budget per album, of which she is reportedly required to pay back about $1 million per release from record and video royalties.

Probably the most overblown feature of Madonna’s deal, however, is the cash potential of the video and film provisions. As in the Michael Jackson/Sony deal, Time Warner reserves the right to refuse any film project.

“The film portions of these contracts are nothing more than a pacifier,” says one official. “It means nothing at all. The company has to commit almost nothing financially but they puff it up on paper to massage the artist’s sense of self-importance.”

But Los Angeles attorney Lee Phillips, who is currently negotiating a deal for Barbra Streisand with Sony, disagrees.

“These deals aren’t about vanity, they’re about capitalism,” Phillips says. “This isn’t just money being tossed about to solve ego problems. History shows us that artists can evolve into other roles. Look at what happened with Herb Alpert, for instance. There’s a guy who started out as a trumpet player but ended up being the owner of a huge, successful record company. I think artists are entitled to go after whatever they can get.”

SO WHO’S NO. 1?: Madonna’s current personal recording contract is not the best deal in the business. Not by a long shot.

The consensus is that the honor still goes to Janet Jackson--who was a free agent when she negotiated her $40-million, three-album contract with Virgin Records. The reason she got such a good deal, insiders suggest, was because Virgin President Richard Branson was trying to spruce up his label with superstars to attract financial suitors.

But it’s a close race. Michael Jackson, Aerosmith and the Rolling Stones all get bigger advances and higher royalty rates than Madonna, sources say. Plus, the Stones and Aerosmith contracts allow them to deliver fewer albums than Madonna and to auction off their video, music publishing and merchandising rights to the highest bidder on the free market.

But many insiders still feel Janet Jackson has an edge over the competition.

“Nobody has ever inked a more artist-oriented deal than Janet,” said one insider. “In terms of freedom, Janet still wins the contest hands down.”

The 24-year-old pop star is not only guaranteed a $10-million advance per album plus a 22% royalty rate and substantial video funding, she also reportedly retains an unusual option that allows her to terminate the deal after delivering only two albums to Virgin.

In her case, the guarantee is closer to the usual understanding of the word because Jackson has no back catalogue at Virgin. If she doesn’t sell enough albums for the company to retrieve its advance on them, it can’t begin withholding royalty payments from earlier albums because those albums are owned by A&M; Records.

“Not all big contracts are vanity deals,” says one prominent music industry insider. “And even the vanity deals have some substance to them. There are so many fine points in the really great superstar deals, it’s rather difficult to tell who actually has the best one. It’s kind of like trying to distinguish which car provides the better drive: a Rolls-Royce or a Mercedes.”