Michael Jackson’s agreement with AEG – FRAUD IN THE ARTIST’S COMPENSATION. part 3

PART 3

We are analyzing the AEG ‘contract’ with Michael Jackson slowly and step by step. This part will be short but will give enough food for thought the way it is. But first let us remember what was said a couple of days ago.

In part 1 we discovered – in addition to Michael’s forged signature on the AEG  ‘contract” – that at the moment of signing it (January 26, 2009) the Artist was supposed to pre-approve 31 shows in the period of July 26 – September 30, 2009 or agree to a minimum of 18 shows in the first leg of the Tour.

Let me emphasize that as regards 31 shows the ‘contract’ was speaking of pre-approval only, and that the minimal 18 shows were not agreed, but only very strongly recommended by AEG for the first leg of the tour which was to be 10 weeks or so.

Eighteen is of course a bigger number than ten shows Michael Jackson spoke of but it is also much less than fifty shows for which AEG actually sold tickets.

The spread of shows within one leg was not too bad at that moment as it gave the Artist some time for recovery between the shows – if you divide 67 days (July 26-Sept.30) by the number of 18 you will get one show per 4,7 days.

However there is one thing which I completely overlooked when discussing all those things and it was the date when AEG expected to start the shows — July 26!

This date means that in winter 2009 when this ‘contract’ was allegedly signed AEG thought they would need 6 months for preparing the tour and would therefore start on July 26, but in spring  – when even the dancers were not yet selected for the show – they suddenly started selling tickets for July 8 which was almost three weeks earlier?

This is a highly surprising fact because firstly, the initial date of July 26 was fixed in their so-called ‘contract’ and secondly, the partners were terribly pressed for time and were not ready to start on July 8 or even July 13.  So AEG’s decision to move them to a much earlier date was simply insane as it made the situation even worse than it was – unless of course AEG Live and Randy Phillips wanted it that way and deliberately built up pressure on Michael by scheduling the first show that early.

Those three weeks were critical for making the show ready – all of us saw “This is it” documentary and the way it looked at the end of June the show was far from being ready even for dress rehearsals. And please note that they also needed time for moving all the equipment across the ocean and setting it up there!

Let us make a mental note of this strange change in AEG’s plans and move further.

In part 2  we made an astonishing discovery that all production costs were to be charged to Michael and that this crucial point was stated in some God-forsaken attachment (called Exhibit A) which didn’t have a date or signatures on it and could be therefore added to the main ‘contract’ at any time.

Production costs of a show and the party responsible for them are so crucial a matter to any tour agreement that they should be stated in capital letters and as one of the main clauses of the contract too.

If you and I were in the place of the Artist we would have immediately refused to enter into business with our partner if he had openly declared to us that all they would pay for was the venue, its staff, sale of tickets, some advertising and manufacture of show-related merchandise,  while we should pay for everything else – the equipment, production of the show, salaries to personnel, their food, accommodation, union dues, visas, trucking, bussing, freight, etc. – in short for everyone and everything in the arrangement of the show.

Knowing that Michael wouldn’t agree to it of his own free will, AEG employed a very dirty trick and stated this crucial matter not in their ‘contract’ (or whatever it was) but in their attachment to it called Exhibit A.

Let me repeat that the legality of this attachment is extremely dubious as it is a separate paper with nothing to prove that it is indeed an attachment to their ‘agreement’. Since there is no date or signature on it, there is a very high probability that the paper shown to Michael then was different from the one we see now. 

If Michael had seen it then he would have run away from it without looking back, especially since he had a proposal from a rival promoter at the time (AllGood Entertainment) with whom they had already signed a Letter of Intent.

Exhibit A carries no date and no signature. Point 3 defines The Artist’s Net Tour Income” as Contingent Compensation minus the sum of Production Costs”.

If you look at the attachment closely you will see that even inside its text AEG do not clearly indicate the party which is to pay for the production expenses – no, they do it in an indirect way, saying only:

• “Artist’s Net Tour Income” means the Contingent Compensation minus the sum of Production Costs.

The above indirectly implies that Production Costs (the enumeration of which is given in part 2 and is a complete knock-out as to its scope and range) are to be covered by the Artist.

Knowing how costly Michael’s show was I never doubt for a second that he would have never agreed to cover all production costs himself. Who needs a producer if you are to pay for everything yourself? Renting a stage and taking care of the tickets could have been done through a minor agent for a small fixed fee – you don’t need the AEG giant for that…

This is the only entry on the last page of Exhibit A. It does not carry a date or signatures of the parties. Is it valid at all?

The absence of Michael’s signature on this attachment and several other factors show that the horrible “present” prepared for him by AEG was not known to Michael at the time he signed this ‘contract’ and that the definitions contained there were most probably intentionally changed by AEG much later. Another factor which points to it is that the text of the ‘contract’ and text of the attachment contradict each other.

This becomes clear when we look at the next clause of the contract called Artist’s Compensation.

The first point of this clause says the following:

• 4.1. Contingent Compensation. Artist shall be entitled to receive ninety percent (90%) of the Net Pool Revenue on a fully cross-collateralized basis (“Contingent Compensation”). The Shows and all Pool Revenue and Pool Expenses shall be fully cross-collateralized.
• Within five business days thereafter, and subject to Promoter’s right to recoup Advances, Promoter shall pay Artistco an amount equivalent to ninety percent (90%) of the Contingent Compensation, if any, based on the applicable preliminary settlement.
• By no later than sixty (60) days after the final Show in the Term, Promoter shall prepare and deliver to Artistco a final settlement of all Pool Revenue and Pool Expenses, on a fully cross-collateralized basis. Within five (5) business days thereafter, Promoter shall pay Artistco any remaining Contingent Compensaiton owing. Promoter shall retain all other Net Pool Revenue.

First let us see what “Pool Revenue”, “Pool Expenses”, “Net Pool Revenue” and “Cross-collateralization” are all about.

Cross-collateralization is a rather difficult notion and depending on what you apply it to it can mean different things. The closest where it comes to our entertainment contracts is in the law governing publishing business and this is which lawyer Ivan Hoffman says about it:

• “When a publisher and author enter into an agreement, whether for one book or a series of books, there is a clause that deals with cross-collateralization that should be negotiated. This term refers to the provision that allows the publisher to recoup, recover, any unearned advances paid the author from book 1 against royalties or monies coming due from book 2. Or vice versa.  Or any such other combination of books depending upon the nature of how the clause is structured.”  http://www.ivanhoffman.com/cross.html

Since AEG wanted to arrange several legs of Michael’s show this cross-collateralization evidently referred to those legs of the tour in the same way the publisher refers to different books of one author and recouping some unearned advances for one leg from the money collected from another leg.

If we don’t pay much attention to this rather complicated issue all the rest in the formula suggested by AEG for the Artist’s compensation seems clear enough:

• Pool Expenses are to be deducted from the full Pool Revenue collected and the resulting Balance (called Net pool revenue) is to be divided 90%-10% in favor of the Artist.

The 90% due to the Artist is actually the sum of Contingent Compensation. This arrangement could be perfectly fair –  but only if it weren’t for those costly production expenses which the Artist later found (from the attachment to this ‘contract’) placed on his shoulders . So apart from those expenses everything in this text looks okay at the moment…

As the word “pool” is crucial here I double checked it in the dictionary to see what it means. The dictionary defined it as follows:

• A grouping of resources for the common advantage of the participants
• An available supply, the use of which is shared by a group
• A fund containing all the money bet in a game of chance or on the outcome of an event.

So just as I expected “pool” meant “grouping together the resources of the partners”, and the idea behind “pool expenses” is that both the Artist and AEG were to invest their funds in the show. Well,  as regards the producer of the show this is no surprising news – a producer is called a producer because he either invests his finances in the show or finds sponsors to do the same. But what about the Artist?

It turns out that investing some funds in the show by the Artist is not very much surprising either– information about Standard Live Performance Contracts cited earlier says that musicians are required and even prefer to bring their own instruments and have them insured themselves. In addition to that the budget of the show cannot be limitless and since the creative fantasy of the Artist can sometime bring about very costly production decisions I would even understand why AEG would expect Michael to pay for some of his most extravagant ideas if they went beyond the budget agreed between the parties.

So the general impression about “pool expenses” in clause 4.1 is that all of us – the Artist, we and the dictionary – read the expression “pool expenses” as joint expenses of both parties.

But over here a really big surprise is awaiting us. The attachment added by AEG to this ‘contract’ shows that they are of a different opinion about this word and they even give a different interpretation of “pool” depending on what they are talking about!

Let us read the definitions they provide in their Attachment (Exhibit A) mentioned in clause 1 of their so-called contract. At first the definitions coincide:

Point 5 (see the above photo) expresses the same idea which we saw in the ‘contract’ – all the money they jointly collect minus all joint expenses make up the net revenue (to be divided 90%-10% in the Artist’s favor):

• “Net Pool Revenue means Pool Revenue generated during the Term less Pool Expenses incurred during the Term, on a fully cross-collateralized basis”.

Point 6  defines the Pool Revenue in the way we understood it from the ‘contract” – it enumerates all the sums collected by Promoter, Artistco and Artist from the tickets, merchandise, sponsors’ contributions, money brought by recordings of the show and other various sources.

And it is only the interpretation of “Pool Expenses” which is different here.

Point 7 says that in the opinion of AEG “Pool Expenses” means the following:

• Customary and mutually–approved show costs incurred by Promoter in connection with any and all Shows (e.g. venue rentals, net advertising, marketing material, public liability insurance, security, ticketing costs, local stuff, venue staff, power, venue expenses related to pre-rigs, roof rental relating to outdoor shows, etc)…
• The cost of mutually-approved support talent, if any, at any Show
• Mutually agreeable expenses associated with secondary ticketing activities and anciallary ticketing activities in connection with the Shows; [let the words “mutually agreeable” not mislead you – secondary ticketing activities were a wholly Promoter’s business]
• Cancellation insurance covering the risk of loss of Pool Expenses (inclusive of mutually-approved advertising, venue rent and other direct show costs) on Shows throughout the Territory, if any, provided that the cancellation insurance shall be placed through customary channels; [Out of two cancellation insurances in this contract this is a cancellation insurance covering Promoter’s expenses. Who is to obtain it is not clear – the contract says it “may be obtained” by the Promoter, while the attachment includes it into the list of Production Costs to be covered by the Artistco!]
• Mutually agreeable expenses required by mutually-approved tour rider in connection with any and all Shows;
• Mutually-agreeable costs incurred by Promoter in connection with the manufacture and sale of Artist Merchandise;
• Ad mat and advertising materials (e.g. radio spot, print ads, television, etc.) associated with the Shows; [wholly Promoter’s business]
• Sponsorship commissions (including commissions owing to either party’s affiliates) and related fulfillment expenses;
• 3rd party ticket sales commissions and related expenses, and [wholly Promoter’s business again]
• Other customary documented mutually-approved tour pool expenses. 

Well, the first thing we see is that the Promoter’s expenses are laughable in comparison with the Production expenses placed solely on the Artist’s shoulders.

Secondly, ….wait a minute…… why do they speak here of Promoter’s expenses only? Didn’t they declare them as Pool expenses earlier and why do they all of a sudden call them Their expenses now?

This is where a big, very big fraud comes in.

What the ‘contract’  called POOL expenses – the universal understanding of which is JOINT expenses – this ‘attachment’ now calls THEIR expenses only.

You think, what difference does it make – joint or theirs? Isn’t it only just a word which cannot mean that much? Okay, let us make a couple of calculations and see what difference in the world it makes:

• If pool expenses are joint expenses then Net profit will be all the money collected minus the expenses of Both parties. The balance will be divided 90%-10%.
• But if pool expenses are only AEG’s expenses then Net profit will be all the money collected minus AEG’s small expenses only. This leaves them with a huge balance and it is out of this sum that AEG gets its 10%. The remaining part (Contingent Compensation) is to be given to the Artist but please remember that this sum still includes the Artist’s production expenses which may be gigantic and when he deducts them from it, only God knows whether anything will remain there at all.
• In addition to that AEG is not going to pay full Contingent Compensation at once. No, it will first only pay 90% of it and two months after the last show they will make some more deductions from the remaining 10% because of all that cross-collateralization! (“Promoter shall pay Artistco an amount equivalent to ninety percent (90%) of the Contingent Compensation,  if any. By no later than sixty (60) days after the final Show in the Term, Promoter shall prepare and deliver to Artistco a final settlement of all Pool Revenue and Pool Expenses, on a fully cross-collateralized basis. Within five (5) business days thereafter, Promoter shall pay Artistco any remaining Contingent Compensaiton owing. Promoter shall retain all other Net Pool Revenue).

You probably realize now that the real purpose of this ‘agreement’ becomes clear only after you see the full package of documents attached to it. If Michael saw them separately (first the ‘contract’ and then Exhibit A where the crucial terms were actually defined) there was no way for him to know in which crazy way this AEG swindler would calculate their money.

What everyone defines as joint expenses AEG defines as theirs only – and this crazy definition is not even given in the body of the ‘contract’ but in some later attachment the origin of which is very much questionable too.

This makes me doubt more than ever that the attachment Michael originally saw as Exhibit A is the same document we see now. No wonder it doesn’t carry his signature on it and does not provide the date when it was made…

It is a great pity that the general public has read only the Radaronline redacted version of the AEG ‘contract’ . Without studying the whole package of AEG documents you cannot grasp the real intentions of AEG behind this fraudulent deal.

But I see that the abstract idea of their scheme has not made you fully aware of the appalling fraud AEG prepared for the Artist – so let us try and translate it into concrete figures then:

Let us assume the tour brings them $101 mln. and that AEG spent only $1 mln. on those laughable services (like roof rentals of their own arena) while the Artist spent $30 mln. on production of the show.

• $101 mln minus $1 mln (AEG expenses) makes $100 mln.  AEG takes their 10% out of it, which is $10 mln.
• the remaining $90 mln. go to the Artist, however since he spent $30 mln. on production costs, the balance remaining after he deducts his expenses will be $60 mln. only.
• Now, according to clause 4.1 it is from these $60 mln. that AEG will pay the Artist only 90% as they are going to make further deductions from the remaining 10%. This gives AEG another 10%  ($6 mln.) and leaves the Artist with the remaining $54 mln.
• And please remember that after all “cross-collateralization” of the advances given to the Artist (for producing this show, by the way) the Artist may stay with next to nothing or nothing at all…. This is the reason why AEG says “payment, if any”

So AEG gets the first $10 mln. + the second $6 mln. + plus at least $30 mln as compensation for production expenses returned to them by the Artist (*info added on 16.03.12) which makes at least half of the initial sum both parties collected! And please do not forget that ‘cross-collateralization’ is still to be made after that!

Does it look like the initial 90%-10% division which we earlier saw in that ‘contract’? And if “cross-collateralization” is to be added too? Oh my God…

However there is another top important aspect to all these calculations.

Up till now we have completely overlooked it but in terms of Michael Jackson’s death it might be regarded as a decisive and most sickening factor. Look at what this money-division formula means in terms of the number of shows:

• No matter how big the production costs are, AEG is to receive their guaranteed 10% of all the money collected.
•  First they receive their share of money and then the Artist is to pay the production costs.  Therefore the sum spent on the show does not affect AEG and shouldn’t worry them a bit.
• No matter how big the Production costs are AEG’s share depends only on the overall sum they collect from the shows and this makes Randy Phillips’s public complaints about their high expenses highly hypocritical and totally false.
• But there is a much more important thing. If you come to think of it all AEG’s share depends on is ... the number of shows!  The more the number of shows is, the more tickets they sell and the bigger the overall sum they collect. And the more they collect the bigger their 10% is. 
• But the bigger the number of the shows is the higher the production expenses are and the lower the share of the Artist is.

Yes, a bigger number of shows is damaging ONLY to the Artist. Not only does it mean a more strenuous itinerary for him but it also involves more production costs as each new show means additional expenses on the wages of the artists, their feed, accommodation, etc.

Each new added show REDUCES the Artist’s share and simultaneously INCREASES the share of AEG! Doesn’t it explain why they so easily increased the number of shows to 50 without asking the Artist and paying attention to his protests?

Please remember that all these incredible transformations occurred only because of a difference in interpretation of one word (“pool” expenses) in the contract and the attachment to it! And this cannot be a chance mistake – this discrepancy was inserted into these papers on purpose!

Now you do understand why it is so important to agree about every definition before you sign anything?

Now you see that all definitions should be stated in the main text of the contract and not in some God-forsaken attachment which doesn’t not carry a date or signature on it, don’t you?

Now you realize that AEG could easily state one thing in the original variant of the attachment (which the Artist has seen and probably signed) and later replace it with another thing in a different version of the attachment (which the Artist hasn’t seen and hasn’t signed)?

So what word shall we find for this type of behavior of AEG company headed by a devout Christian at that? I think the word “fraud” applies here very well. “Malicious intent” is also a nice word suiting the situation in an admirable way. Legal experts will probably find more precise qualifications for the above actions on the part of AEG and let us hope that one day this is will indeed be done.

In the meantime all musicians, artists, performers, singers, dancers and everybody else – BEWARE!

The above is the type of thing you will have to deal with if you go into business with a partner like AEG….