Considerations around changing a Classic Profit Share deal to a Flexible Profit Share deal

When changing a Classic Profit Share deal to a Flexible or Royalty style deal, there are three considerations that need to be made. A first one is whether there is an outstanding loss on the Contract, a second is whether there are outstanding Reserves Released on the Contract. A third is, once you have made the change, to not reprocess any statements that were previously processed as a Classic Profit Share, but are now set up as a Flexible Profit Share or Royalty style deal.

Outstanding loss

A Classic Profit Share, Flexible Profit Share and Royalty style deal all hold a positive balance at the artist share. Thus when the balance is positive, no further considerations are to be made. The main consideration is that the negative balance of a Classic Profit Share is held at the full loss, whereas in a Flexible or Royalty style deal this balance would have been held at the artist share of a negative balance. Therefore, when changing the deal type from Classic to Flexible or Royalty, a change needs to be made to the negative balance.

For example

• a negative profit balance of -100 in a 50% profit share deal would be equal to a -50 balance in a Royalty or Flexible equivalent deal. So when changing the deal type an adjustment of +50 would need to be made.
• a negative profit balance of -500 in a 30% profit share deal would be equal to a -150 balance in a Royalty or Flexible equivalent deal. So when changing the deal type an adjustment of +350 would need to be made.

When creating an adjustment Transaction for this purpose, it needs to be created with a Date before the Start Date of the first Period in which this Contract will get a Flexible or Royalty style setup. This so that the change is considered in the Opening Balance of the new statement, and not seen as a transaction that would be fully added to the artist share of the balance in the Flexible or Royalty style deal. Adding this transaction as either an Other, Royalty or Payment type does the trick. The Other type is probably the best applicable option.

An advance is always recouped entirely from the artist share in either a Classic, Flexible or Royalty style deal. So an unrecouped advance of -500 in a Classic deal would still equal an unrecouped advance of -500 in a Flexible or Royalty deal. So these do not need to be considered. But be careful that you don’t mistake an advance for an outstanding loss when adding the adjustment transaction in the above step.

Reserves

Reserves are considered before the Profit Share % is applied in both a Classic and Flexible Profit Share deal. There are thus no further considerations that need to be made as far as reserves are concerned when changing a Classic Profit Share into a Flexible Profit Share.

When changing a Classic/Flexible Profit Share to a Royalty style deal however, this will all of a sudden display the reserve transactions on the Transactions tab and cause havoc to the totals. In this scenario, the better solution is to make the existing Profit Share contract inactive and instead create a new Royalty style contract for the artist.

Reprocessing Statements

Once a change has been made to a Contract, please make sure to not reprocess any existing statements for that Contract, as this would have a different outcome with the adjusted deal type. Unless of course, adequate action has been taken as per above, to make sure reprocessing the statement with a different deal type will give the correct results.