Pub Rants

Category: royalty statements

Financial Literacy for Authors

by Kristin Nelson

Money, so they say, is a taboo subject, so don’t expect fellow writers to spill financial details.

Until now. Hats off to Heather Demetrios for pulling back the curtain and being brave enough to share her mistakes in the article “How to Lose a Third of a Million Dollars Without Really Trying.” It’s considered gauche to talk about money in this industry, yet it’s probably one of the most important topics authors should be discussing.

Agents are often in a weird position when it comes to talking to our clients about money management. On one hand, we are the author’s business partner; on the other hand, we aren’t their parent. We don’t want to make assumptions about an author’s financial responsibility (or irresponsibility).

Over the years, when I have a debut author who has landed a big advance, I have asked for permission to put on my mom hat and give counsel. If the author says yes, I offer these four pieces of advice:

  1. When the advance comes in, don’t wait. Cut a check for 25% of the total that has come in and mail that check to the IRS right then and there. I’ve heard too many horror stories of authors finding themselves in real trouble when April 15 rolled around and the money was already spent.
  2. Ever heard of the adage “pay yourself first”? Most people don’t know exactly what that means. Well, in investing terms, it means immediately placing the maximum percentage allowed by the IRS for that particular tax year into a retirement account (i.e., a Roth IRA, IRA, Vanguard S&P 500 fund, or similar).
  3. If you have a mortgage your advance can pay down (or, better yet, pay off), that is worth considering. Owning your home outright can create a lot of financial freedom. If you have student loans or other debts, consider eliminating them.
  4. Connect with a financial advisor who only charges by the hour rather than taking a percentage of your investments. This is a way to gain expert advice on reasonable terms—especially for authors who feel lost in the weeds about this whole investing and saving-for-retirement thing. Garrett Planning Network is a good resource that can hook you up with a fee-only certified financial planner.

In the end, the best way to think about your advance is to take that amount and divide it by, say, three years. What would the author’s annual salary then be? For example, if an author is lucky enough to get a $150,000 as an advance (sounds fab, right?), that’s $150,000 minus 25% in taxes, which equals only $37,500 a year for three years. If that’s your sole income for those three years, that might be a bit sobering.

My client Courtney Milan once told me that a blog article I wrote a lifetime ago on authors and retirement really made a difference in how she managed her money. I wish I could find that original blog post, but chances are good the info would be outdated anyway. For more up-to-date info, here are my recommendations for retirement planning:

So thank you, Heather, for getting the ball rolling for authors to talk about money. Mentorship tends to be a key factor for success in publishing. So let’s not be shy about discussing this topic.

 

Creative Commons Credit: Ben Taylor

Coronavirus Hits Publishing

by Kristin Nelson

(This article originally appeared in the NLA Newsletter on February 14, 2020. Stay tuned on Wednesday 4/1/2020 for a follow up article.)

It rather cracks me up that according to USA Today, Google searches for Corona beer have surged recently. A good portion of Americans are searching “beer virus” to find information about the epidemic currently sweeping China and threatening to go global. For the record, the coronavirus (now renamed COVID-19) has nothing to do with the refreshing beer you can stick a lime in. And if you want more info on the origin of the name, wikipedia might be a good source. 

But it’s no laughing matter when something far across the Pacific impacts publishing right here on American shores. And once again, China is back in the spotlight. In September 2019’s newsletter, I talked about how the trade war between the US and China is impacting foreign-rights licensing. Now it’s a virus causing disruption. I fear it’s going to be a lean year for sales in that part of the world. 

NLA partners with a terrific foreign-rights co-agent in Asia—a partner who keeps us in the loop with detailed updates. Normally, we’d be catching up with him at the book fairs in Bologna and London, but, sadly, not this year. International travel is risky right now, so to be safe, they’ve canceled. I one-hundred percent support health over attending. 

Here’s how the epidemic is affecting publishing in China:

  • Chinese companies are having employees work remotely so as to minimize contact. In publishing, this will significantly impact contracts, royalties, and payments. I actually have a big deal happening in China. Luckily we received the on-signing payment back in September, but I have a sense that other payments will be a lot slower to come in. Luckily, most of our authors don’t rely on foreign advances when doing their annual financial planning. Still, it’s tough news.
  • In good news, publishers are still reading manuscripts. But unless a title is super hot, offers will not be as forthcoming.
  • The big rights fair of the year, The Beijing Book Fair, normally happens in September. That might be canceled. Lots of deals happen at that fair, so cancelation will be a blow.
  • Printers, physical bookstores, and banks remain closed. Yep, I’m sure you can extrapolate how that impacts so many things in this biz.

In this global publishing world, Asia’s problem is our problem. And all of it affects an author’s bottom line.

I won’t raise a beer to that. Or stick a lime in it. 

Creative Commons Photo Credit: eFile989

Former Egmont Authors: Check Your Royalty Statements

by Kristin Nelson

Publishing is a complex business with a lot of moving parts. Every contract is unique, and most errors we find on royalty statements are caused by data-entry mishaps that occur when contract terms are incorrectly keyed into publishers’ accounting systems.

In other words, human error is often the culprit.

So I’m going to give Lerner the benefit of the doubt and assume that such a scenario is currently at play here.

A recap of history for context: In January 2016, news hit the wires that Egmont USA children’s publisher was closing up shop due to its failure to find a buyer.

This created a lot of consternation, as more than 100 titles that were going to be published were now suddenly in limbo and contracts would most likely be canceled.

Good news was just around the corner, though, in the shape of Lerner, who bought out the titles and committed to honoring the contracts. Authors would live happily ever after!

Until their royalty statements arrived.

On the surface, everything looks normal. Royalty rates appear to be the same as they were under Egmont—except for one very crucial difference. Egmont contracts specified that author royalties would be calculated based on list price. But when the Lerner statements arrived, royalties are now being calculated based on net amounts received.

Not the same thing.

How do they differ? Let’s do some easy math: 10% of list price = approximately 20% of net amounts received. If this in play, the author will earn approximately the same amount of money, regardless of whether the calculation is done based on list price or based on net amounts received.

So not a big deal. The problem occurs if the number “10” stays the same, but how it was calculated changes.

Here’s why: 10% of net amounts receive is one-half (1/2) the royalty money earned in comparison to 10% of list price.

That’s a significant drop for the author.

It’s pretty easy to see how this might simply be a data-entry mistake. Either way, I feel compelled to alert writers might have been unagented when they signed contracts with Egmont and, thus, probably didn’t catch this accounting error—especially if they are unfamiliar with deciphering royalty statements.

It is also possible that a fair amount of literary agents have also missed it—especially if they haven’t yet audited the Lerner statements.

So former Egmont authors, check your contract, and then check your royalty statements. Make sure you’re getting paid everything you’re contractually owed!

Photo Credit: Ano Lobb

Authors, Do You Know Where Your Money Is?

by Angie Hodapp

(Just a note, this post is from our archives. Some references and links may be from past years.)

Every six months, you get an envelope from your agent. You tear it open, take out the enclosed check and royalty statement, and glance at the numbers on both. You shrug and mutter, “Guess that looks about right.” Then you toss the statement on your to-be-filed pile at the back of your closet, endorse the check, and head to the bank.

Sound familiar?

I can’t even begin to tell you how many published authors I’ve talked to at conferences who don’t give their royalty statements much of a glance. Why? Because they don’t know what they’re looking at. “Dammit, Jim, I’m a writer, not an accountant,” they say (or something along those lines). “Besides, isn’t that what I pay my agent to manage for me?”

News flash! Like you, many agents consider themselves word people—not numbers people—and your royalty statements are just as baffling to them as they are to you.

This means that the buck, quite literally, stops with you. Have a conversation with your agent about the level of support he or she is providing when it comes to combing through your statements and making sure you’re getting paid everything you’re owed.

More importantly, educate yourself. Learn how to audit your own statements.

Every year, we at Nelson Literary Agency recover thousands—sometimes tens of thousands—of unpaid dollars on behalf of our clients, simply because we audit their royalty statements.

Does this mean that publishers are nefarious, knowingly cheating authors out of a few bucks here and there to improve their own bottom lines? In our experience, no. (In fact, not all errors we find are made in the publisher’s favor!) Every error we’ve called to a publisher’s attention has immediately resulted in the issuing of a corrected statement and, when called for, a check covering the difference.

Without naming names, here are some examples of errors we’ve recently found on our clients’ royalty statements:

1. Unpaid royalties of approximately $5,000 because the publisher had applied a $10,000 advance against the author’s earnings when the actual contracted and paid advance had been only $5,000. This means the author had actually earned out—though the statement said otherwise—and was now owed nearly $5,000 in earned royalties.

2. Unpaid royalties of approximately $4,200 because the publisher’s accounting department missed the fact the author’s contract contained a royalties escalator. What’s that? A royalties escalator increases the author’s royalty rate in steps, based on units sold. For instance, a contract might specify that the author will earn 10% for the first 5,000 copies sold, 12.5% for the next 5,000 copies sold, and 15% for all copies sold thereafter. In this case, the author had sold about 12,500 copies of a hardcover edition priced at $16.99, but she had earned only 10% for all of those copies. Not one, but two escalators had been missed.

3. Unpaid royalties of approximately $7,300 because the publisher sold nearly 6,500 copies of a $17.99 hardcover edition at “high discount,” even though Agent Kristin had ensured that the author’s contract limited the number of copies the publisher was allowed to sell at high discount. What does that mean? When publishers sell copies of your book at higher-than-usual discounts, it’s common that the author’s contract will specify that she will earn “one-half the prevailing royalty rate” on those copies. Because Agent Kristin had limited the publisher’s high-discount sales, this author should have earned 12.5% on those particular 6,500 copies, but she earned only 6.25%, and we were able to recover the difference. (By the way, does your agent understand this and negotiate your contract’s high-discount clause in your favor?)

Dear Authors, the only way to protect your assets is to do the math. Join me July 30, from 6:00 pm to 8:30 pm, for my Royalty Statements Auditing Workshop, a live webinar sponsored by Nelson Literary Agency. Hope to see you then!

Like Finding Loose Change in the Sofa – Kind of

by Kristin Nelson

So just this week, we received an outstanding Australian royalty statement for one of our clients that had been missing. Because we actually track, review, and audit our statements, even foreign ones (and let me tell you what a nifty trick it is to do the Japanese statements…) we immediately spotted one rather large problem.

Oddly, there were no ebook sales listed anywhere on statement. Dating back since 2013. Not a single ebook sale in the last 2 years is a bit hard to believe, so we pinged the publisher.

Sure enough, the ebook ISBN wasn’t linked to this title in their accounting system. It was there but floating out in the ether with no title to attach to. Once it was appropriately linked, voila, almost $1000.00 was owed to the author.

And as my client so aptly replied to me, like finding loose change in the sofa!

Kind of. 😊

Even if the publisher controls the World Rights, we ask for the statements so we can review. Because I’m pretty certain that given the deluge of statements the internal publishing rights team receive, they aren’t paying super close attention.

Want to know how to audit royalty statements for yourself? We start you off easy by tackling U.S. royalty statements first. Our contracts and royalty guru Angie Hodapp is showing you how on July 30, 2015. Be a smart and savvy author. Auditing royalty statements. Only a couple slots left as there is a cap on attendance.

Photo credit: Branko Collin

Article 5: Good Agents Audit Royalty Statements

by Kristin Nelson

Over the last decade, I really wish I had tracked how much money NLA has recovered by carefully auditing our royalty statements every accounting period. Because of some big errors found a couple of years ago, it’s probably to the tune of over $600,000 recovered at this point, and it wouldn’t surprise me if that total was actually more. Even now, nary an accounting period goes by that we don’t recover at least $500 to $3,000 owed to a client.

On rare occasions, we have even found errors in the Publisher’s favor—and yes, we do notify them to highlight the correction. Luckily, those have only amounted to several hundred dollars at any given time. And to be clear, Publishers aren’t being nefarious or deliberately cheating the author (with the exception of a few publishers, which will remain unnamed).

Most errors we catch are human errors. In other words, the Publisher’s in-house royalty management staff simply keyed incorrect information into their accounting system. Also, “accounting departments” at some mid-sized publishers and small presses are staffed by English majors. Mistakes will be made.

These mistakes need to be found and corrected and the monies paid to the author client. Here is the jaw-dropping fact: A good percentage of agents do not audit their clients’ royalty statements.

Let me repeat that. Even though authors hire literary agents to guide their careers and most importantly, manage their business publishing interests (royalties being a huge component of this), many agents do not actively audit or even read client royalty statements. This leaves authors to fend for themselves regarding reading and understanding their statements.

So for me, good literary agents audit royalty statements. When I was newer to this business, I did the time-consuming auditing and analysis myself, every accounting period, and shared my comments with my client. Every accounting period. I even hired a professional book royalty auditor to mentor and read behind me to assess my competence and capability. Then I hired and trained our amazing Contracts & Royalties Manager Angie Hodapp to handle this at NLA.

And Angie took it to a level that leaves me in awe every accounting period. I imagine our clients are often in awe as well when every six months, she sends a detailed letter with my comments as well as her analysis of the statement and what questions we had to track down and if extra monies are owed.

A lot of the larger agencies will have staff in-house to handle this (or I hope they do….I don’t actually know as I’ve not worked in a big agency), but I’m willing to guess that most of the smaller, boutique agencies don’t. This means that the author relies on his/her agent to analyze the statements.

So ask yourself. Is your agent doing this? If you don’t know, ask. It’s part of the agenting job. Recently, Angie has been giving workshops at local writing conferences to teach authors how to audit their own royalty statements. Even if your agent does this on your behalf, it’s not a bad idea to also be checking them. Human errors can happen on our end as well!

So with her permission, and worth its weight in gold, a handy list.

How to Audit Your Own Royalty Statements by Angie Hodapp

Keep an excel spreadsheet for each title, and add the following when each statement arrives:

• Track copies sold and royalty rates applied to each edition. Do the percentages match the contract?

• If you have a royalty escalator, make sure you’re watching units sold so you can see if the escalator is triggered at the right time.

• Track royalty earnings for each edition. Add them all up and subtract them from the advance. Make sure your math matches the math on the statement.

• Check for continuity from the last statement’s bottom line (ending balance) to the current statement’s starting balance.

• If the royalty is based on net receipts, then make sure the net amount received by Publisher is reported on the statement, along with number of copies sold. Do the division. How much is the publisher claiming to have received for each unit? Is it a reasonable amount based on the retail price?

• Look at the number of copies reported sold as “high discount” or “over discount” or “special sales.” Publishers love to sell most copies under these terms, which means smaller royalties for you. Make sure your contract limits the number of copies publishers can sell under these terms!

• Watch reserves. Your contract should specify how much the publisher can hold in reserves, and for how many accounting periods after initial publication. You can ask the publisher to release reserves once returns taper off. That’s more money passing through to you, or applying toward your advance.

• Watch returns. Publishers adjust reserves up and down from period to period based on actual and projected returns.

• Watch subrights licenses. Know the terms of all subrights deals, which may include audio, large print, book club (either a stock-buy or a special printing), or other special editions.

• Watch and track foreign right deals. If your publisher holds world rights and is actively selling your work into foreign territories, ask them each accounting period to give you:

—Details of any new foreign-rights deals, including: advance, royalties split, term of license, publication date or planned publication date, and reporting schedule. (Note that most, but not all, foreign publishers report annually, not bi-annually.)

—Copies of the licensing agreements. Even if they’re in languages you don’t understand, it’s within your best interests to have such things in your physical records.

—Note that foreign monies can take from a year to 18 months to pass through the publisher’s subrights department and show up on your statements.

If you want a more in-depth royalty statement auditing experience, join Angie for her upcoming Royalty Statements Auditing Workshop, scheduled for July 30, 2015.  This Webinar is open to the first twenty attendees to sign up.

*********

The genesis: In January 2015, Backspace co-founder Karen Dionne and I had a conversation in which she mentioned that writers sometimes want representation so badly they are willing to sign with an average or even a below-average agent. Trust me, not all agents are equal. I replied, “Well, writers don’t know what they don’t know.”

In that moment, a lightbulb went on for both of us. Writers don’t know what a good agent does. How could you if (1) you’ve never experienced it and (2) you’ve only ever had one agent and no way to assess just how strong he or she might be at the job?

Thus, this series of articles was born.

*********

Archive:

February 2015 Newsletter – Article #1: Agent As Savvy Business Manager

March 2015 Newsletter – Article #2: Commanding Authority: An Agent’s Negotiation Edge.

April 2015 Newsletter – Article #3: Fearless Negotiation: An Agent’s Most Important Role for an Author

May 2015 Newsletter – Article #4: Negotiation Tactics of Good Agents

Article 5: Authors – Are You Auditing Your Royalty Statements? by Karen Dionne

by Kristin Nelson

After I read Kristin’s June article in her “What Makes a Good Agent” series and learned that publishers’ royalty statements sometimes contain significant errors, I took an informal survey. I wanted to know how many of my author friends’ agents audit their statements, and how many of these authors also audit their own.

The authors are split between midlist authors and bestsellers. Almost all said they read their royalty statements carefully. But nearly half don’t audit their statements—mainly because they don’t know how.

Two of the 15 authors were reasonably certain their agents audited their royalty statements before sending them on, while only 3 of the 15 reported their agent took the initiative to help them understand them—suggesting this is a conversation agents and authors should be having more frequently.

Here are the questions and results:

  1. Does your agent actively audit royalty statements?

YES – 2

I THINK SO – 5

NO – 8

 

  1. Do you audit and/or read your own statements? 

YES – 6

READ ONLY – 7

NO – 2

 

  1. Do you know how? 

YES – 6

SOMEWHAT – 3

NO – 6

 

  1. Has your agent ever walked you through a statement? 

YES – 3

ON REQUEST – 2

NO – 10

Royalty statements are difficult to understand. Some of the authors who responded admit they “never learned how to read a royalty statement,”or they “read them, but have a hard time understanding what everything means.”

One author I surveyed believes auditing is the agent’s responsibility. “I don’t audit. That’s her job. If I had to, I’d get an accountant to do it. But I figure that’s why I have an agent. She would walk me through it if I wanted, but that’s one less piece of business I have to do.”

Others take a more active role. “I read my statements multiple times. First, just to review them and make sure everything looks right and complete. Then I go through them page by page and compare to the last statement to see if there is something wonky (good or bad), then I write up a memo to my agent with any questions or concerns, or if there is something odd. We then discuss.”

“I noticed in my last statement, there were line items for Returns for a couple of books that had been released years ago. That seemed illogical, so I asked my agent, and she passed the question on to my editor. Also, I know that a number of my books have been released as audio books as much as a year ago, but I have seen no accounting for sales of those. So I asked my agent, and she asked my editor. Nobody has explained it yet, but I have done payment estimates based on the statements, and our calculations match.” Not surprisingly, this last author adds, “Not only do I know how to read the statements, friends often ask me to interpret theirs.”

Sometimes authors who audit their statements find mistakes. “I once found a $700.00 error on my royalty statement from my publisher that I noticed after scouring the numbers. My publisher apologized and said it was obviously an error and quickly corrected it, but would he have noticed if I hadn’t looked carefully?”

“For two consecutive royalty periods, I had statements passed on to me from a publisher that had gone through the agency’s business department and past my agent that had a glaring error on the first page. Each time, it amounted to an error in my favor of mid four figures. One year the amount totaled approximately $11,000. This was not something anyone should have missed, and certainly not twice. The agent/agency did not catch the error, even after it happened the first time. I did, both times.”

“It’s important for authors to know that even if you have a representative you trust, nothing replaces arming yourself with all the knowledge you can,” my author friend Lauren Baratz-Logsted wisely says, who not coincidentally, zealously reads and audits her royalty statements. Thanks to Kristin’s article and her contract manager’s generous how-to, I’ll be doing the same.

*******

Karen Dionne is an internationally published thriller author, co-founder of the online writers discussion forum Backspace, and organizer of the Salt Cay Writers Retreat and the Neverending Online Backspace Writers Conference. She is represented by Jeff Kleinman of Folio Literary Management. 

Self Publishing? Excel Is Your Friend

by Kristin Nelson

I’ve discovered that in general, authors are not numbers people. They tend to have vague idea of sales and revenue earned. In fact, most authors probably don’t scrutinize their royalty statements like they should (with a few exceptions of course). And I get it. Authors are creative folks. Math uses the other side of the brain. But if you are digitally self-publishing, then you are your own publisher. And given that, you should be generating your own royalty statements in an excel spreadsheet. Here’s what you should track and why.

TO TRACK:

1) All Price Points – sales especially

2) All editions — including audio/shorter works

3) Copies given away for free

4) All distribution venues where editions are available

5) Percentage splits/royalty

6) Cumulative totals

 

WHY:

If you later want to partner with an agent, that person will need a fully transparent and detailed record of all sales to represent you fully.

At DBW, fellow agent and panelist Steve Axelrod made a good point about how agents are using new metrics to sell an author to editors, to film, to foreign. We are using FB and twitter followers. Visibility on big e-Sites like Wired and Boing Boing. Actual digital sales clearly outlined.

Especially for film and foreign sales. If there isn’t a big publishing deal to start the buzz abroad and in Hollywood (which was the traditional path), well, presenting the facts can make a difference in convincing these two realms to pay attention to the title and license unexploited rights. Keep in mind that electronic book adoption and sales abroad are easily 3 years behind what is going on in the U.S. Foreign publishers must be convinced to license rights to a digital-only title.

But actual sales and documentation of that data speaks volumes – at least that’s what we are finding here at NLA.

So, are you tracking your sales? If not, get started.

 

 

 

 

Should Dorchester Remain on Probation? Yes.

by Kristin Nelson

STATUS: Was all set to potentially launch something cool on Friday and lo and behold, ice storm in Seattle. Trust me, this makes sense because we are based in Denver but our tech person, who manages all things digital, is in Seattle. She had no electricity or internet for 3 days. Shudders.

What’s playing on the XM or iPod right now? FREE by Graffiti6

Last week, the Vice President of the Science Fiction and Fantasy Writers of America reached out to SFWA members about Dorchester Publishing.

Dorchester’s probationary period is scheduled to end on January 31, 2012 and SFWA would like to evaluate their progress in meeting the benchmarks SFWA set for them.

By their request, members could contact them with any information that the Board should consider.

Well, let me tell you, I was happy to oblige. I wrote a letter clearly outlining my stance that that Dorchester should remain on probation or be delisted altogether based on not making any progress whatsoever on benchmark 1: That it fulfills its contractual and financial obligations to the authors it has already published, including full and accurate accounting of royalties per contract, with scheduled payment of any royalties outstanding.

Despite repeated requests for updated accountings and the thousands of dollars still owed in back royalties to NLA authors who used to be with Dorchester, we’ve received excuses, delays, and no good faith efforts to resolve their obligations.

And I have no problem making my sentiment on the situation public.

Random House Gets A Clean Bill Of Health

by Kristin Nelson

STATUS: Leaving the office at 5 p.m. That never happens!

What’s playing on the XM or iPod right now? YOU AND I by Wilco

In good news, we’ve now gone through all our Random House statements from the spring with a fine tooth comb and I’m delighted to report that RH is not doing a wholesale change to their electronic book royalty rate on existing contracts; there was simply an error that was resolved promptly.

Contracts that have the royalty rate of 25% of retail will still have 25% of retail. Now, I have heard that they want to change any 15% of retail to 25% of net (which is actually to an author’s advantage per my previous blog entry) but I have not personally seen that so as far as I’m concerned, that’s simply a rumor for now.

As RH royalty statements are my fav in the biz and because they always resolve issues quickly, I’m back to happy.