What happens when accountants decide to focus their practices on exciting fields like music, aviation, sports and forensic investigation? It can make client meetings a lot more interesting, for one thing.
In our new series, "Riches in Niches," we'll explore how these colorful niches indicate that concerns about commoditization and a narrow future for the profession may well be unfounded. As major hotel chains, musicians, sports stars and other untraditional customers continue to need professionals who understand their special talents and financial situations, accountants have more opportunities than ever to open their own practice in the field they're most passionate about.
As Navjeet Chahal of California-based Chahal & Associates says when he jokes with his clients, "Even the best players need a coach."
Future installments in the series will dive into firms that cater to professional athletes, victims of fraud and embezzlement, hotels and restaurants, and more. But the first entry covers a specialized firm that works with musicians, composers and performers to make sure they get what they deserve.
Inside the music industry
Accountants working at The Music CPA in Illinois make sure performers of all sizes collect everything they have earned from all their revenue sources, from royalties to performances. They also assist clients with taxes and other accounting needs, all while helping them enforce their media play rights, composers' rights, performers' rights and publishing rights.
Jerry Catalano has been helping performing artists navigate concert, touring, mileage and instrumentation costs for more than 50 years, but things can get more complicated when musicians write their own music. When performers have original material and recordings, music accountants must track royalty streams that come from sales of records, streaming revenue and other sources of income, as well as make sure they are properly copyrighted.
"The most impactful change for music composers has been the streaming services," said Catalano. "Streaming has transformed the industry because people used to buy CDs, vinyl records or cassettes, and the candidate would receive something called 'mechanical royalties' for every piece sold, which were different from performers' rights. But with streaming, no one buys music anymore and it's all about subscriptions."
Catalano explained that streaming platforms offer unsigned artists the opportunity to expose their music to the world, but it's seldom profitable. Most of the money now comes from live performances, and from licensing original compositions for TV, movies and commercials. With music labels losing money on 90% of the artists they sign, Catalano said they are even less willing to take risks.
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"I know how to relate to these people and my experience as a musician helps me understand what it means to be involved in this industry," said Catalano. "We don't necessarily take every small musician as a client because they really can't afford us, quite honestly, but we want to help everybody we can. So we've created this thing called the starter pack, which references different books and articles they should look at to protect themselves when entering the world of music."
The firm also works with attorneys from local pro bono organizations that support struggling artists, as well as actors, theaters, influencers and other clients in the entertainment industry.
When it comes to responsibilities, The Music CPA partner Dave Johnson frequently uses his business valuation skills to evaluate the portfolios of major music producers, whose role offers them a significant percentage of the sales on every album.
A few years ago, a famous client sold his producers' rights to another organization. However, a relative of the client's former wife reached out to The Music CPA to let them know she still held some rights through the music that her ex-husband made, and asked what their basis was in this deal. Johnson explained how they could inherit those producers' rights, as well as how to save a lot of money on taxes.
Catalano said that working closely with influential artists is one of the most exciting sides of the profession, with clients such as Duran Estevez, the lead singer of 1990s hitmakers Max-A-Million. The night the star came to the firm to discuss his financial situation, Catalano said most of the staff stayed late to take pictures with him and see their idol up close, but things are not always this carefree at the firm.
"We have a big problem with recruitment, and we have been much less involved on an international level because we are so short-staffed," said Catalano. "Accounting has that reputation of being boring when there are so many exciting areas to explore."
Outlets that owe royalties make it very complicated to track them, especially in rural areas, so no one can easily figure out what's going on. Catalano said it gets even more difficult when an American has their music sold and streamed all over the world, as each government has its own rules about foreign royalties. Another issue is the U.S. is one of the few countries in the world that hasn't signed the 1961 Rome Convention, which extended copyright protection to individuals beyond the author for the first time, meaning that U.S. performers do not receive royalties when their song is played on the radio overseas.
To partially resolve this issue, Congress designated SoundExchange, a nonprofit music rights management collective, as the only recognized organization allowed to collect and distribute digital performance royalties for sound recordings. As a result, composers and performers now receive payment for songs played on satellite and internet radio, but Catalano said it adds another layer of complexity for music accountants, who now need to make sure that artists have registered their work with SoundExchange.
Johnson said another difficulty is keeping track of how tax law varies from one state to another, especially with changing withholding and tax-filing requirements for out-of-state performers.
"The state of Minnesota has a specific entertainer tax, while Wisconsin has on their own tax regulations for entertainers that are from out of state," explained Johnson. "Some venues will collect sales tax for merchandise sales, others won't. We face compliance issues constantly, and between income and sales taxes, it can quickly get complicated."
Catalano recommends that artists be extremely wary of what music accountants call a "360 deal," or a contract that gives most of the sales revenue to their record label, even once they have stopped performing. The Music CPA tries to save people from this dishonest policy by connecting young artists with attorneys who can review their contracts and point out any red flags. This is what Catalano describes as a fight with industry "whores and thieves," between artists ready to sign anything to achieve their dreams and labels that don't hesitate to take advantage of their enthusiasm.
Despite these issues, Catalano indicated that the music industry is much more fair and transparent now than it was back in the 1960s. For example, legendary jazz trumpeter Chet Baker's songs are streamed by hundreds of millions of people on Spotify, but his family told The Music CPA they barely get anything from the massive amount of money the record label receives from his work. Since streaming services didn't exist back then, any sales from these platforms are not covered in older contracts, and Catalano said it's almost impossible to overturn contracts that were signed during that period.
"No matter how small they think the deal is, we tell our artists not to sign a contract unless a lawyer looks at it and, if you can't afford it, we'll find you one that provides services pro bono," said Catalano. "You can't accept something that you don't understand, and these record labels made it mysterious enough for only an accountant to understand. So let us have a look at the royalty rate, and it can save you a great deal of suffering."
