#IEBA2017 Recap: Terms & Conditions – Getting to Mutually Agreeable


Panelists:

Jason Bernstein, AEG Presents

Brent Daughrity, Anderson Benson Insurance

Tim Epstein, Duggan Bertsch, LLC

Berkeley Reinhold, Attorney at Law

 

Moderated by Pam Matthews, IEBA

 

 

Matthews welcomed returning panelists Brent Daughrity and Jason Bernstein. In his role as Senior Counsel for AEG Presents, Bernstein deals with artist and venue agreements, and is on both sides of venue agreements for dates at AEG’s clubs and theaters. For tours like Taylor Swift or Ed Sheeran, Bernstein reviews all arena and stadium deals. Bernstein added, “When we have a show on Friday, and someone decides there’s a problem on Wednesday, I am usually the guy they call in.”

 

Matthews welcomed attorneys Berkeley Reinhold and Tim Epstein, who were new to the panel this year. As an introduction, Reinhold said, “I walked into the William Morris agency back in 1996 and was there for 20 years. When I left in 2015, I was running business affairs for the music department. I am now general counsel for Lollapalooza, LLC. I have clients all over the space: venues, artists, agencies, promoters, and all types of things. I see all sides of the deal. And, now that I see all sides, deals get done a lot faster.”

 

Tim Epstein is an attorney with Duggan Bertsch, LLC in Chicago. He teaches sports entertainment law at Loyola Law School in Chicago and regularly lectures at other law schools. He represents about two dozen promoters and a number of festivals including BottleRock Napa Valley, Life is Beautiful, Pitchfork, and Riot Fest. Most of his work, on the entertainment side, is focused on the promoter, the talent buyer, and the venue. He reviews contracts with artists, vendors, sponsors, venues, risk management, insurance, and “pretty much everything.”

 

Making an Offer

Matthews opened this session with the question: “What constitutes an offer?” Bernstein replied, “An offer is an invitation for someone to accept it. If they accept, you have a contract. It doesn’t need to be in writing. More frequently these days, we’ll get a contract signed and executed before the show. That wasn’t always the case. But, even if the contract isn’t signed, if the artist shows up and performs that constitutes acceptance.  It’s called acceptance by performance.”

 

Reinhold added, “When you are a promoter submitting an offer to an agency, be very specific – is this a proposal or a firm offer?” Epstein elaborated: “Try to make your offer as detailed as possible. I say let’s do a template offer that might be eight pages long. And I want my client to tell me what’s really important – e.g., a sponsorship deal on a festival with a live stream of 2 out of 3 headliners plus 70% of the second-tier acts and 80% of the third-tier acts – and make sure that’s in the offer in bold, all caps. Make sure any terms that might be a little unusual are in the offer. The agent will know if an artist will not agree to a live stream, and that this is a deal-breaker.” These deal-breaker terms can include meet & greets, autograph sessions, VIP acoustic sessions, and artists’ names on a festival shirt. Bernstein agreed, “Don’t hide terms from the artist.”

 

Reinhold offered this real-world scenario: “The promoter will submit an offer and it will have those terms in it. The date is confirmed and it goes on sale. Everything is great. The agency doesn’t issue the artist contract until a month before the show. The contract is issued with no exclusivity, no meet & greet, and no streaming. The question is: what is that? A counter offer? It’s already on sale and you have a confirmed deal but you don’t have two sides agreeing on the same terms. I would say, when that offer is submitted with all those terms, call the promoter at that point, and discuss what’s agreeable. Don’t just sit on it, confirm the deal, and issue the contract later.”

 

Epstein referenced the festival rider instituted by WME and Paradigm. With evergreen terms, these riders save time, money, and aggravation. “There’s still a lot on the face of the contract, and it is going to be different deal to deal. But let’s try to avoid the Crayola fights.”

 

Allocation of Risk, Indemnification, and Additionally Insured

Matthews began by asking about the relationship between parties who don’t have a contractual agreement, as with artist and venue. Daughrity answered, “Everyone is indemnifying everyone down the line. The artist is in contract with the promoter. The promoter is in contract with the venue. The venue is in contract with security.  Each party is named additionally insured.”

 

“Security is the biggest issue,” said Bernstein. “The artist may say ‘you will guarantee our safety at all times.’ I wish I could, but I can’t. Sometimes the promoter hires the security; sometimes the venue does. The party contracting the security company should require them to indemnify and list the other parties as additionally insured. So, we’ll say ‘accept with regard to the security that is provided by the promoter or the artist.’ The venue is going to implement a security plan. They will hire ushers and t-shirt security. At no time, and under no circumstance, am I (the promoter) responsible for their security. We’ve required the venue to indemnify and we’ve required them to get the security company to list us all as additionally insured. There is some nuance to it. But really spell it out. As the promoter, I have the relationship with the building and I have the relationship with the artist. I am a pipeline. Here is the artist’s head of security. Here is the venue’s head of security. I don’t need to add myself to the mix as a promoter.”

 

Daughrity drilled down by clarifying that “listing” means listing as an additional insured. “We are really talking about commercial general liability policies, CGL policies. Most of you probably have a blanket written contract endorsement on your policies that says whenever you get into a written contract with someone, and they require you to name them as an additional insured, your insurer will automatically name that person as an additional insured. Make note: a contract needs to be written and signed. Then, the broker is going to issue a certificate of insurance. Point of practice, most states will not honor that certificate of insurance as a proof of insurance that you can rely on for coverage.”

 

“You need the full endorsement,” added Epstein. “The certificate is just a snapshot at the time it was sent. It doesn’t mean shit. After you have the written contract, you want something from the insurer, not from the broker. It is an additional insured endorsement. You’ll get a copy of the blanket or, if you don’t have that blanket as part of your policy, you’ll get a special additional insured endorsement that specifically names that person you are in contract with.”

 

Bernstein: “We have had conversations with all the agencies. There are always little typos and mistakes in the certificate itself. So we don’t even worry about those on the festivals because I’d be issuing 300 – 400, with all the corrections back and forth. It is in the contract between the artist and us. That gets signed and I don’t even worry about the actual certificate.”

 

“You do need the certificate for workers compensation these days,” Daughrity cautioned. “Carriers have been auditing on the backend. If you haven’t been audited yet, it’s going to happen. If you cannot prove that workers compensation insurance is in place for vendors and artists on site, they’re going to charge you back at 3.08%. You’ve just got to get it. Collect those certificates, if just for the comp audit.”

 

Reinhold explained the reason you want to be named as an additionally insured: “If I am an additional insured under your policy, I can tender the claim to you to the extent that the additional insured language covers what that claim is. In other words, if I am named as an additional insured with respect to a promoter’s negligence, I can tender that claim to you if I am sued for something that is potentially due to your negligence, as opposed to going to my own insurance carrier. If I go to my own carrier, I have to deal with it and I might not be covered. You can negotiate what the additional insured coverage is for. Jason may only give me additional insured with respect to his negligence or his sole negligence. Somebody else may agree to additional insured coverage for anything that relates to the event. You can finesse that depending how much leverage you have.”

 

“Insurance is the backstop for indemnity,” said Daughrity. “When you are indemnifying something, you’re taking responsibility for the oh-shit moments. Everybody is indemnifying each other because everybody is pushing that responsibility. You really have to read your indemnification clause and make sure it makes sense. The usual language you want is ‘defend, indemnify, and hold harmless.’ ‘Defend’ gives you a lawyer to defend the claim or an insurance adjuster at the insurance company to talk to the plaintiff’s lawyer to work through that claim. Your insurance policy provides counsel. The conversation starts the moment a claim comes in. We will hire the counsel. A lot of people get scared. They think they’re going to have to hire attorneys and pay a lot of money to defend themselves whether they were negligent or not. But that is what your policy is for.”

 

Bernstein asked, “’What if I haven’t hit my deductible?’ That is everyone’s question to me. Does the insurance company cover the legal fees and then another $25,000 of damages?” Daughrity replied, “Basically, you would be responsible for that $25,000 in some way, form, or fashion. That is my final conversation – ‘we defended this and you owe $25,000.’ It will come off at some point – off the settlement or somewhere along the line.”

 

“Most of you probably don’t have a liability deductible – meaning you have dollar one coverage,” said Epstein. “If you are a big promoter or a big venue, then you might self-insure up to a certain limit ($25,000 or $50,000) because you are willing to take on this amount of risk to lower your overall premium. The real question here – who is going to be defending you? You are going to get an insurance defense lawyer to defend you. You are not going to get me and you aren’t going to get Berkeley. That doesn’t necessarily mean you are getting a bad lawyer. That just means that lawyer’s primarily relationship is with the insurance company. It is not going to be with you.

 

“An insurance company has three options. Option #1: They decline to cover and say we aren’t handling this. Option #2: They accept and say ‘no problem.’ You will just show up for the deposition and sign the discovery. Option #3: They accept it with a reservation of rights. When they reserve their rights, they can pull defense at any point. At any point, depending on the state you are in, they can charge you back for what you have racked up in legal fees. That is rare. Actually, there is an Option #4, depending on the state you are in. The insurance company could file a lawsuit against you and that is called the declaratory judgment action. Usually, that isn’t going to happen unless you have a pretty high-profile claim. The insurance company may want to take a stance – this is not something that we are going to cover, not for you and not for someone else down the line. They’re looking to get some good case law so they don’t have clients asking for that insurance coverage.”

 

Reinhold added, “When you are talking about indemnity and insurance, you have to understand that even if the claim is not for a lot of money, the attorney fees can be substantial. It is super important that you have general liability policies, whether you are an artist, promoter, or a vendor. It’s so important to have high limits – maybe you have an umbrella – because you could drown in attorney’s fees.”

 

Matthews asked if the phrase “to the extent permitted by law” carries any weight and the panelists agreed that it does not, with Daughrity appending, “But keep in mind, there are some jurisdictions where the court will rewrite the contract to make it make sense – a blue pencil state. And then there are other states that say ‘no, you screwed up, you wrote a bad deal, live with it.’”

 

Bernstein noted the savings clause (also known as the severability clause) which states that if any clause is determined to be unenforceable, the remainder of the contract will remain intact and enforceable. “In some jurisdictions, if you don’t have that language and there is an unenforceable or an illegal provision, it voids the entire contract. None of us want that. You’d rather get rid of the one part.”

 

Force Majeure

Reinhold began, “Force majeure is a reason you don’t have to perform your obligations. If some event or situation occurs beyond your control, you are not in breach of contract. The key part of a force majeure provision – what you really need to negotiate upfront in the offer – is do you get paid? If you are an artist who gets canceled for weather or an earthquake or terrorism or whatever, are you getting paid? If you’re a vendor and you deliver the staging to the show and the show is canceled, are you getting paid? And that is really a deal point. That is not a legal point. That is a business decision both parties decide.”

 

Epstein shared his take, “I like to keep my force majeure language consistent with vendors and with sponsors. Where the force majeure language changes is with the venue and with the artist. It changes with the venue because suppose a force majeure event could prevent you from putting on the show, the venue otherwise could have had a different promoter come in or a different artist play. There is an opportunity lost. Similarly with an artist. If it is an issue that would prevent anyone from playing at the venue, then it is more of a mutual walk-away type of situation. If it is a force majeure issue that just affects the promoter, then why does the venue care? Arguably, the venue could have had someone else performing there. Similarly with an artist. If something prevents the event from happening at that venue, the artist could have arguably played somewhere else. What does that mean? Does that mean I have to pay you if the force majeure event happens after you’re already on site? What if you’ve already started travel to the site? What if the force majeure event happened two months before the performance? These are the negotiation points that you would get into relative to the artist and relative to the venue if you are the promoter.”

 

“The bigger the show, the more mutual it becomes,” said Bernstein. “If you are going into a small performing arts center, they’re not going to give you a lot of leeway. If I’ve got a major, global A-list headliner and the venue says they want to get paid if anything happens to the artist or to the tour bus or if a flight is delayed or, God forbid, if someone dies, I am going to make my money at a different venue.”

 

Epstein floated the statement: “If the artist ready, willing, and able to perform their duties, they’re getting paid.” Some panelists disagreed. Matthews proposed a scenario where there is 5’ of sewer water in the arena floor. Epstein replied, “That is probably more of a breach.” Matthews countered, “Just because the artist is willing to play in toilet water doesn’t mean that we can have a show.”

 

Bernstein chimed in, “Right. And on festivals, the argument has become this: you have 30 bands playing and there is a torrential downpour for two hours. Those bands don’t go on but you resume the show. If you are not refunding the patrons, the bands ought to be paid. That was a big argument that Marc Geiger made. I disagreed with parts of the argument, but I understood some of it. I said ‘look, you are getting a greater guarantee to play the festival. You can buy cancelation insurance for 1 or 1.5% and insure that huge guarantee. Oh my goodness, you are only making 98.5% of what I offered.’”

 

Reinhold responded, “This is a hot topic and there are varied points of views on whether an artist should get paid if cancelation is due to force majeure weather. It is super important to negotiate this up front. Don’t leave it in your boilerplate because one of you is taking the risk. It is either going to be the promoter or it is going to be the artist. And whoever it is can actually cover that risk by getting cancelation insurance. Cancelation insurance would cover a cancelation that affects the event, like a storm. A nonappearance policy affects the artist, if the artist gets sick for instance. So both parties need to know who is going to bear that risk.”

 

“Legally, the general idea with force majeure is that no party can control what is happening,” said Epstein. “But here are issues I’ve seen creep into artist contracts: the artist got sick or they got arrested, the instruments got damaged or were left somewhere. Technically and legally, that is not force majeure.  But that can be a negotiated point in a separate paragraph called excuse of performance. And we can talk about how we are going to mitigate.”

 

Bernstein pointed out, “I don’t know if anybody else has noticed, but years ago force majeure was this weird concept that never came up. Especially with global touring, it’s been creeping up lately.  A year or two ago, there was a coup d’état in Bangkok and Taylor Swift was going there. We decided that was an act of war. That same summer, Mick Jagger’s girlfriend committed suicide. He wasn’t in a condition to perform. Paul McCartney got the flu. That had ramifications because now insurers are looking at the age of the artist. These things are becoming more and more common, and it’s not just about rain and earthquakes.” The panelists agreed.

 

Bankruptcy

Matthews asked if there is any contractual protection from bankruptcy and its fallout. Epstein answered, “Currently, there is no insurance product that will insure against bankruptcy. Once you go into bankruptcy, no one can touch you for anything. We are not going to get in the weeds here about creditor’s rights and whether you have a secured interest or not, but secured interest is one way you can potentially move around some obligations. Let’s say you are an agent and you want to get involved with a first-year promoter and you don’t know who they are. You don’t know these guys but they want to do something in the Caribbean. It’s going to be called Fyre Festival. Sounds great, right? If you’re an agency, you have a more aggressive deposit schedule. You have a higher guarantee. You make sure there are terms that say ‘if you go into financial disrepair or into bankruptcy or into receivership, this is a material breach of this agreement.’ Here is the problem: collecting. How do you get around that? Not only is this person (the promoter) signing on as the LLC, but maybe you get a personal guarantee, whatever that’s worth. Or you have some other type of secured interest. Maybe you get a lien on their house. You can ask for all of these things. If I am advising the promoter, I would say don’t ever sign that. But, those are the types of things you explore, if you are worried about bankruptcy. But, frankly, those guys – if they are an unknown commodity – are the ones you hit with the higher guarantees and the more aggressive deposit schedules. Hey, you have to have some risk to if you’re an agency.”

 

“And if you’re an agent,” Bernstein added, “Please make sure your diligence consists of more than just how much is the guarantee. And if the promoter needs the cash flow in order to pay the guarantee, run.” “As in getting a weekly check from the ticketing agency to pay for the deposits?” asked Matthews. “Yeah,” Bernstein answered. “I think it’s nuts that there are ticketing companies that will swipe credit cards and, at the end of each week, push the money to the promoter before the show plays.”

 

Reinhold shared, “I am not a bankruptcy attorney, but this has become such a hot topic lately that I actually went out and got some information. There are four points that are super important to know if you’re an agent. The first thing is that bankruptcy law will supersede anything that is in your contract. It is federal law and no matter what you say, if it conflicts with the bankruptcy law, you lose. Number two: the promoter, or the person going bankrupt, can terminate your contract. They have that right under bankruptcy law. There are certain things that are whatever but, generally speaking, they probably can. Number three: even with terms that state if the other party doesn’t have the financial ability to pay or you don’t think they do or they are insolvent, once they declare bankruptcy, the artist may not be able to terminate that contract. The reason: the trustee of the bankrupt company needs to get as much money into that company as possible. And if you cancel that contract, they might not be able to continue selling tickets for that show. So you have to go to court and you have to get something called adequate assurances. But you may be locked in to that contract. The fourth and most important thing: if your artist got a deposit, can you keep that deposit? And the answer is that trustee for the bankrupt promoter may sue you to get the money back. And they may get it back because there is something called a 90-day clawback. And if they paid that deposit within 90-days of filing for bankruptcy, they can take it back and use it to pay their other creditors. That’s super important. You don’t want to get into business with a promoter you don’t think can fulfill their obligations because, even if you are paid, they might be able to take the money back.”

 

Weather and Different Types of Insurance

Matthews circled back to the topic of weather and invited Andrew “Ringo” Thompson to join the panel.  Thompson is with Miller in London and holds a seat on the floor of Lloyds of London. He underwrites and binds most of the cancellation insurance in entertainment around the world. Matthews began, “One of the things Berkeley really wanted to talk about on this panel is changing weather patterns and global climate change and how these are becoming an issue with cancelation.” Reinhold continued, “Yes. Has it become much more expensive to secure cancelation insurance policy because of weather patterns?”

 

 

Thompson answered, “I think it depends on the location of your event. You have an event in September or October on the East coast, it is going to cost you more than if you held the event in March or April. Your insurer may look at the risk and at the historical weather stats. They’ll want you to look at cover 10-days prior to the start of the event. If you have an event in Florida, they may add a specific windstorm exclusion. But your broker can get you terms to include the windstorm or the hurricane exposure. If it is specifically excluded, you have the option to buy that from the underwriters.”

 

Epstein offered additional information: “When you have an exclusion on a policy, do a couple things. You can endorse over it. You can pay for that, or they may give it to you for free which is nice. Say you are late on getting the cancelation bound and you are within a 2-week window and there is a storm forming off the coast. Once they name that storm, these guys will probably exclude that named storm.” “Yes, because it is a known existence,” said Thompson. “Your cancelation insurance is for the unknown. So buy in advance, don’t wait until the week of the show when it looks like we may have a problem. As an event organizer, you must budget for how much weather is going to cost you. Not just a cancelation but also for a partial closure.”

 

Reinhold posed the last question of the session: “Can you explain to everybody the difference between nonappearance insurance and cancelation insurance?” Thompson answered, “The main difference between nonappearance and a cancelation is purely the death, accident, or illness of an act that is insured.” Daughrity added, “For those of you considering it as the talent buyer, it is much more difficult to get nonappearance insurance that will stick. Good luck getting everything the underwriter wants to know for a nonappearance policy! Complying is very difficult from the buyer’s side.”

 

“It’s an issue when we do tours,” Bernstein said. “Depending on the stature of the artist, no one wants to disclose their personal medical history. Certain artists will include a provision that says they will or they will not submit to a medical exam. There is confidentiality with doctors and, for some artists, this is a very sensitive issue. With some of our Vegas performers in residency at The Coliseum, we just anticipate there are going to be x number of missed shows over the run. There is no medical excuse. And there may be a two-or three-show deductible before the insurance kicks in.”

 

When time ran out for this popular session, Matthews closed with a blanket statement: “None of this should be construed as legal advice. These are just some expert opinions.”

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