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Listener Joseph Harry from Pittsburgh asks:
How do rock stars and movie stars get paid? For example, let’s say a popular actor made $15 million in one year on three different movies. Does the money automatically (electronically) go into a bank account? Maybe to a trusted financial adviser who takes care of it, and then disburses whatever amounts the star might want? Do the stars have debit cards, and go to an ATM to get cash out? This may sound silly, but I’ve always wondered.
Celebrities might get paid millions of dollars for a few months of work, but they go to the ATM just like everyone else.
“Some of them too much so,” said business manager Kristin Lee, laughing.
A celebrity with a $15 million payday will make headlines, but we often don’t talk about where exactly that money goes and how that celebrity accesses that money.
That’s where business managers come in. They help distribute the cash among the artist’s other representatives. They pay the bills. They make sure a celebrity has sufficient funds so there are no hiccups when they go to the ATM. And they help celebrities make savvy financial choices, even if they’re swipe-happy. We spoke to business managers who broke down where the money goes after the check gets signed and how they manage their clients’ finances.
Actors and musicians often utilize a loan-out corporation that’s taxed as an S corporation. Loan-out corporations allow artists to lend their services to studios or production companies, said Lee, the founder of KLBM, which provides business management services to actors, musicians, athletes and other high-net-worth clients.
Business managers may help clients incorporate themselves if they haven’t already, said business manager Carrie Malcolm, who founded the firm CRM Management and works with actors, directors, writers and musicians.
Malcolm collects her clients’ earnings then deposits them in a corporate bank account. Those earnings used to get mailed to her by check, but since the COVID-19 pandemic, it’s usually a wire transfer.
Afterwards, Malcolm will divide up some of her client’s earnings among representatives. Some artists have agents who first handle their earnings, then split it up among themselves, the manager and the lawyer before sending the money to the business manager, Malcolm added.
Business management is as much about understanding numbers as it is about understanding people, and balancing everyone’s interests. If an actor gets paid $1 million, Malcolm said she’ll pay everybody right away. Malcolm said “nobody wants to really wait,” especially smaller managers with payroll and other expenses.
Every team is different, but generally the artist’s agent and manager might get 10% each, while their lawyer and business manager will get 5% each, Malcolm said. Artists do not have to pay taxes on the money they give to their representation because those are considered business expenses, Malcolm said.
If an actor is getting smaller checks, maybe $7,500 once a week, Malcolm will wait until the end of the month to pay her client’s representatives. “I think, psychologically, if a client sees that all you’re doing everyday is writing checks to their representatives, it’s kind of disconcerting,” Malcolm said.
Business managers will also take care of a client’s everyday bills, Malcolm said. Her clients don’t always remember which credit card to use, and what expenses are tax deductible. When an actor gets their nails done? That’s a business expense, Malcolm said.
“If you go to a bookstore and get a bunch of art books, and you’re a director, that’s research. You’re getting ideas for shots and lighting and things like that. If you’re paying for Hulu every month, that’s research too,” Malcolm said.
When it comes to buying goods and services, every celebrity has their preferred method of payment.
“Some of them are really reliant on their credit cards and prefer the points. I’ve got super points-junkie clients,” Kristin Lee said. “But then some are just addicted to their debit cards and pull out cash constantly.”
Bigger-name clients might send an assistant to withdraw money for them, Lee said.
Matt Gallagher, a former business manager, said he would monitor artist’s bank accounts to ensure they always had funds to withdraw from.
“Let’s say celebrity A goes to an ATM and takes out $1,000. Part of the business manager’s job was to check those accounts on the daily and say, ‘Oh, there was a withdrawal. So I’m going to put it back to what the agreed upon amount is,’” he said.
Malcolm said her younger clients in particular like to use debit cards. “I have to kind of train them to use a credit card,” she said.
Sixty-nine percent of Gen Zers report daily or weekly debit card use, compared to 39% of Gen Zers who frequently use credit cards, according to a recent Ernst & Young survey. Younger generations might prefer debit cards because they want to “live within their means and avoid additional fees,” according to Ernst & Young.
As people’s financial habits change, business managers have to adapt. Artists use popular services like Venmo and Zelle, which means Malcolm’s bookkeepers will log into an artist’s accounts to track their expenses.
Business managers will also choose the artist’s bank. Malcolm and Lee work with the Los Angeles-based City National Bank, which has been very helpful to their clients.
“They’ll messenger cash to their apartments and not charge for messengers. They’ll cover overdrafts,” Malcolm said. “They’ll call me if something looks funny on the account.”
Most of Malcolm’s clients did not grow up wealthy, she said, so she helps them feel comfortable with their earnings and teaches them how to make savvy financial decisions. That’s because a friend might come to them with an investment opportunity.
But she’ll tell them they first need to discuss their next job, the amount of money they’ll need to maintain their lifestyle, and plans to buy a home. After all that’s settled, then they can talk about stocks.
Careers in the arts can be unpredictable. During the height of the pandemic and recent Hollywood strikes, acting gigs dried up and concerts were canceled, hindering artists’ ability to rake in a steady income.
So when it comes to finances, even famous people need to plan wisely.
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