Vicki Hinze © 2003-2011
What is basket accounting? Is it good or bad? Important?
Basket accounting is pooling income on several books, typically two or more books being contracted simultaneously. The practice was a lot more popular a few years ago than it is now, though it does still exist—and not just in new authors’ contracts. Often it’s in the “big kid’s” contracts, too.
Let me explain by giving an example.
Author gets a three-book contract from Publisher for $75K. Publisher defines payments to the author in the contract. (NOTE: Usually, but not always, basket-accounting contracts are drawn together—on one form—rather than in separate contracts. So that’s a tip-off: request separate contracts for each book.)
Back to the defined payments in the contract. Let’s say the breakdown reads like this:
* $25,000 for Book #1. Author gets $10K on signing the contract, $5K on acceptance of the proposal of a synopsis and the first three chapters, and $10K on acceptance of the manuscript. More often than not, there’s an additional stipulation that says Book #1 must be completed and accepted, before Author can submit proposals on Books 2 or 3.
(NOTE: That’s not always done (think trilogies) but on unrelated books, it’s pretty standard. Just as it’s pretty standard on a single book contract that a proposal sent in to the Publisher BEFORE the contracted book is accepted does NOT count as the option book. Only after acceptance of the contracted book is a new submission considered to be fulfilling the option agreement.)
* $25,000 for Book #2: Same breakdown as Book 1.
* $25,000 for Book #3: Same breakdown as Book 1.
Okay, say Book 1 is accepted and published and selling. Your royalty statement comes in and Book 1 has earned $30,000. Now, you were paid $25K in an advance on Book #1 so you have earned an additional $5K on it.
BUT you have basket accounting.
That means you’ve already been paid: $25K on Book #1, $10K on Book 2, and $10K on Book 3. That’s $45K in advances you’ve received. So you don’t get the $5K on Book 1 until royalties are earned covering the entire $45K advance on all three books.
As you work through writing the books, this gets more complex, because you’ll have debits and credits on multiple books and the third book to carry. So essentially, what you’ve got is this: you pay back all advances on all the books before you earn any additional royalties whatsoever.
(Understand too that most publishers issue royalty statements twice a year, and when they start counting your royalties depends on your publication date. So even when you have “earned out” on a book and have royalty payments due to you, you might have to wait a fair length of time before getting them.
Example: your book comes out in July. Royalty period (established in the contract) is January to June. So because your book was published early in the cycle, you’ll likely get a royalty statement on the period from July-December–which would probably arrive in your hands sometime in February or March. [Tabulation time granted in the contract.] But say you had a December release date. That’s at the end of the cycle and so you’re very unlikely to get a statement until the end of the next cycle, which would be June, with a receipt to you date of August or September. Add to this that the publisher holds reserves generally for up to four royalty periods–that’s two years–and you can see it could take a while for the royalties to actually get to you.)
Now, imagine that you have three books being basket accounted. Do you see the span of time that could pass before you’d see any additional income?
Basket Accounting should always seem like a bad idea, right? Well, typically for us normal writers, it is. But there are exceptions, particularly for some of the really big kids–or those nearly big kids.
They’ll get a $1M contract. Sounds good, right? Makes news and everyone’s talking about this $1M author. What the publisher or author isn’t hyping is that it’s a contract for four books and basket accounting is definitely in the contract. This maximizes exposure for the publisher and author, and splits the payments over a long period of time, which can be great for the publisher (restricted bottom line investment with less time between outlay and intake of funds on the projects) and the author (control on taxes).
The most important thing to remember is nothing is all right or wrong or good or bad. There are situations where what is wrong for one author saves another author’s backside. That makes it vital that we educate and assist each other on topics such as these so each of us knows what we’re doing before we agree to contract terms and we feel confident that what we are doing is right for us at this juncture of our career.
If in doubt, consult with your agent, your CPA or financial advisor prior to agreeing to or opposing basket accounting.*
2007 ADDENDUM: It’s worth noting that the higher up you get in terms of commercial sales, the more apt your publisher is to insist on basket accounting. It’s very common at those levels. It is suggested that you discuss the matter with your literary agent and/or literary attorney before contracting so that you fully understand the process and agreement.*