Profits, revenues, expenses–a refresher on why they matter

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So, Juniel mentioned that, under her contract, she does not get paid unless her label turns a profit–which means that, given the accounting practices common in K-Pop (and many other entertainment fields), she does not get paid, and indeed only goes further into debt.

I thought the netizen response was interesting, because there was actually a clueful one (!!!), by someone claiming to be a lawyer:

16. [+39, -8] I’m a lawyer and rarely ever write internet comments but all this misinformation about contracts is frustrating me so here I go. Juniel is the one who signed the wrong contract in this situation. She signed a contract dividing net profit when she should’ve signed one that divided her sales.

A fair contract would be one where the company agrees to invest their money and the artist agrees to invest their talents together to create sales which are then divided between them. Agreeing to divide net profit instead means that the celebrity won’t receive anything until the company is paid back on their investment.

Both sides need to account for their risks. The company needs to risk their monetary investment not being made back and the celebrity needs to risk the time they’re spending using their talents and not turning a sale for it…..

Greetings, fellow adult! Of course, this comment was not nearly as popular as the one written by Clueless McGee:

11. [+61, -17] Well she doesn’t have to pay for her dorm, food, cosmetic maintenance, and gets free plastic surgery. She has no popularity so the company isn’t turning a profit on her. Isn’t it obvious why she hasn’t been making money yet?

Like, OMG–FREE PLASTIC SURGERY!!!!! I bet Juniel just LOVES all the FREE PLASTIC SURGERY she is forced to undergo, and wouldn’t rather have the money instead, which she could then spend as she sees fit. Clueless McGee forgot to mention that Juniel also does not have to pay for transportation, which of course is always top-notch and totally safe, just like her food and housing most assuredly is. Of course, Juniel will eventually have to pay back her ever-growing debt to the label, so all this FREE!!! stuff isn’t actually free at all, but temporality confounds Clueless McGee.

I’ve talked before about the difference between revenues/sales and profits/earnings, and you see a lot of Clueless McGees out there in regard to this. And that isn’t an accident–you often get stories like this one about how big a particular group or label’s revenues are (and all the fans just pee their pants in delight).

The problem is, there’s a big difference between the top line (revenues or sales, which are calculated before expenses) and the bottom line (profits or earnings, which are calculated after expenses). When a company wants you to focus on the top line, that’s typically because they don’t want you to pay attention to the bottom line.

Let’s say I run the K-Pop label Sajaegi Entertainment. I issue a press release noting that my label made 200 billion won last year! Wow!

But what I don’t tell you is that I spent 300 billion won to make that 200 billion won (sajaegi is expensive). I am now 100 billion won in the hole, and my creditors are coming after me with bloodhounds and shotguns.

Or, you know, I run SM Entertainment, and I issue press releases about how one group alone made 22 billion won, and about how my company made 287 billion won last year. But I leave out the bit about how my company only had a profit of 6 billion won last year, which is a profit margin of 2 percent, which blows.

In other words, let’s all hope the ladies of Girls’ Generation didn’t make Juniel’s mistake and didn’t contract for a share of the profits instead of a share of the revenues.

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11 responses »

    • Thanks!

      I feel like there’s such a huge gulf between the lawyer’s perspective and the label-worshipping, “She doesn’t deserve to be upset!” fangirl. I guess it’s the notion that performers are real people who actually have rights. Plus kids just tend to be much more accepting of authority, probably because they haven’t experienced the workplace much.

      • Even as a lawyer, I didn’t think about this difference in how the money was to be divided since I don’t deal with these sorts of comments. I’m glad for posts like this, and the comment this person left, because I was reminded of something that is a basic in regular business (I’m in regulatory work).

        • Yeah, it was interesting for me to see it put into such philosophical terms. Having been in the trenches, my attitude is that if I’m going to enter into a business agreement, it needs to be worth my while (in an up-front and non-risky sort of way), otherwise you’re asking for charity, and that’s not something I give to for-profit operations. This idea that somewhere, somehow, down the line, if all the stars align, THEN you’ll get paid is not how workers operate outside of the arts, and the people asking you to work in exchange for a promise (and there are a lot of them) are invariably people who would never, ever accept such terms themselves.

          So, yeah, it’s about fairness, but his take is definitely more abstract and less personal. I just get mad about it.

            • Yeah, there’s definitely the belief that companies can just magically generate hits. You combine that with the fact that many people who go into the arts often simply aren’t that sophisticated about the business world, and it’s a recipe for exploitation.

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