Since B.A.P is really, REALY pissed, there have been a lot of details released about the reasoning behind their lawsuit. Fans have been doing a lot of translating, which is great. But what people are running into are the classic problems that come with translating specialized jargon: What does the Korean business jargon actually mean? Does it correlate exactly with the English business jargon? What is the correct English business jargon to use in this situation?
I know jack squat about Problems #1 and #2, but since I used to be a business reporter, I know a hell of a lot about Problem #3 (at least when it comes to American English).
You will be excited to learn that common, everyday phrases like “making money” or “I earned $50,000 last year” mean absolutely nothing in the business world!
THE IMPORTANT WORDS
Revenues (also called sales). Revenues means money in. Period. The money comes in, and that’s the end of the story as far as revenues are concerned. “I earned $50,000 last year”? If you’re talking about your annual salary before taxes, you’re not talking about your earnings. You’re talking about your revenues.
Revenues are great, but after the money comes in, you have to spend it on stuff. If you’re a person, you have to pay for food and housing. If you’re a K-Pop label, you have to pay for CD production and videos. Those are all called….
Expenses. Expenses means money out.
Do you have more money going out than you have coming in? Uh-oh! You are experiencing losses.
Do you have more money coming in than going out? Yippee! You have profits!
Are there catchall terms for profits or losses? Yes! Earnings or income.
That is very confusing for people because typically when they think of the money they earn, they’re thinking of revenues. But if you read in the Wall Street Journal that Company X earned $50 million last year, that means that is the company’s profit. If they earned -$50 million last year, that is their loss. Their revenues are some other number.
What does it mean to “make money”? TOTALLY DEPENDS! A person could just mean that they’re being paid, or they could mean that they’re turning a profit–if it matters to you for some reason, ask for clarification.
Normally, having big profits is considered a good thing. But not always. For instance, in the United States we have a federal tax on people’s personal incomes that gets higher the bigger that income is. So, someone might claim to have a really big income when trying to impress a date, and then turn right around and claim to have a really small income when paying taxes. To prevent rip-offs, the federal government has a whole bevy of rules regarding what you can claim as an expense when calculating your income for the purpose of paying taxes. (Dates, alas, have no such protection.)
Likewise, companies like to claim that they have a big income when they are trying to raise money from investors. But they will claim to have a small income when paying their taxes or calculating things like how much to pay their talent.
So, from a money perspective, what is B.A.P accusing their label, TS Entertainment, of doing?
One thing to remember with music contracts is that oftentimes the revenue or profit split between an artist and a label varies depending upon the activity. For example, according to B.A.P, their contract states that they get only 10% of the profits from merchandise sales, but 50% of the profits from performances.
What B.A.P is claiming is that TS undertook a systematic campaign to understate those profits from activities where B.A.P was supposed to get a bigger share. (Shifting reported revenues from a category where the artist gets a bigger share to a category where they get a smaller one is pretty much what Universal did to Eminem.)
Q3.What are the conditions of the contract between B.A.P and their company?
D. According to the contract ‘Dispatch’ has received, the division of profits was very big. Firstly, album earnings were divided 1 (B.A.P):9 (company). They were given 10% from characters and merchandise sales.
Q4. 10% of sales? Or 10% of profits?
D. Whatever was left over from the expenses of merchandise. Basically, 10% of net profit. For example, B.A.P sells the ‘Matoki’ dolls. If we say the net profit for a 20,000 won($20) doll was 6,000 won($6), B.A.P would get 10% of the net profit so they would receive 600 won(.60 cents). And you would further divide that ⅙. So each member would be getting 100 won(.10 cents).
Q5. Do the 1:9 contracts still exist nowadays?
D. It is possible. B.A.P has agreed on the profit tariff. But, starting from the third album the division has been raised to be 2:8 [i.e 20% to B.A.P]. B.A.P has released 11 albums so far. But they only have one official album. Basically, B.A.P still receives 10% of album profits.
So, first off, B.A.P is saying that TS claimed the group had only released one “official” album in spite of the group actually releasing 11 albums. Why? Because under the contract, B.A.P’s share of the profits from album sales would increase to 20% from 10% after the third album.
But this is pretty minor, they say, compared to what the company was doing with performance profits.
Q4. B.A.P is more famous overseas. What are the profits for oversea performances?
D. The profit division for concerts, events, and performances are 5:5 [i.e. 50% to B.A.P]. It is a higher division than album divisions. Commercial performance fees, magazine sales etc are also divided by half. However, we have no way of knowing if these sales have been properly calculated and recorded. B.A.P’s side argued that the profits from overseas performances were a trick.
Q5. What kind of tricks are present in oversea performance calculations?
D. The guarantee for oversea performances are definite profits. However, the company has recorded these profits as expenses. According to the statement that ‘Dispatch’ received, 1.2 billion won($1.2 million) payment for a Japanese performance was recorded as an expense. 140 million won($140,000) for magazine contract fees was also recorded as an expense[. . . .]
Q12. What is B.A.P questioning the most?
D. The 5:5 division of the performance profits. B.A.P is arguing that the japanese performance and CJ performance profits were not recorded properly. Firstly, a portion of the Japanese performance profits were recorded as an expense. CJ performance fees were different from what they had verified scale.
Even if they do believe in the company’s entire statement 100%, it is outside of common sense. If they gave up on the Japan performance profits and received the 5:5 division from the CJ performances…each member would have received at least 100 million won($100,000). No matter how you look at it, it is not understandable and doesn’t make sense as to how “it’s only $17,900”.
So, B.A.P is saying that TS booked revenues as expenses. Elsewhere in the article, they say that the company reported bogus expenses as well. All this was done in order to minimize reported profits in the “concert, events, and performances” category. Why? Because B.A.P. was supposed to get 50% of those profits.
In the article, B.A.P explicitly calls out TS’s $600,000 reported profit as bullshit, saying that profits from the CJ performances alone were more like $1.2 million. The group is saying that these accounting shenanigans were so extreme that TS was able to magically report that modest $600,000 profit (which triggered an even more modest payment to the group members) once their parents got a lawyer.
So what does this all mean for B.A.P’s lawsuit? The problem as far as I can see for B.A.P is that they went ahead and signed a really terrible contract. For all I know, the contract says, “TS Entertainment doesn’t have to follow generally accepted accounting principles and can do whatever they want when determining how to pay group members”–given some of the other provisions reportedly in that contract, I wouldn’t be surprised. In the United States, judges tend not to enforce contracts that are actually illegal, but first they have to decide that the contract is in fact illegal and not just really, really bad. A really, really bad contract is another thing altogether–judges are perfectly capable of telling you that it’s your fault for signing such a shitty contract in the first place.
Of course, Block B lost their lawsuit, and everything worked out for them. Again, I don’t think B.A.P is going to be at a loss for potential corporate partners–it’s just going to boil down to how expensive it’s going to be for them to part ways with TS.
Where this is going to get really exciting is if the label wasn’t just fooling around with its accounting to screw B.A.P–it would be interesting to see what their tax returns have been like the past few years.