04 February 2004

More Snorting and Kersnuffling…

but this time about advances. It appears that Jack Welch, the former chairman of GE, has gotten himself another book contract. According to the story,

The book, which will be called Winning, did not quite fetch the advance of Jack: Straight From the Gut, which he sold in 2000 without any written proposal for an extraordinary advance of $7.1 million. But the $4 million HarperCollins is said to be paying is still a hefty sum for a business book, or any book for that matter.

*  *  *

When Mr. Welch got $7.1 million for his memoirs in 2000, with Time Warner Trade Publishing winning a frenzied bidding war with rivals including HarperCollins, the Doubleday unit of Bertelsmann and the Simon & Schuster unit of Viacom, the price was one of the highest for a work of nonfiction. Since then Bill Clinton and Hillary Rodham Clinton have each sold books for larger amounts. Sales of Straight From the Gut were, however, somewhat disappointing, industry executives said, partly because it went on sale on Sept. 11, 2001. (Time Warner executives have said the book was profitable.) Still, HarperCollins is willing to bet a hefty advance that Mr. Welch's imprimatur is powerful enough to propel sales of a business how-to book.

Hugo Lindgren, "Welch Makes Another Major Book Deal," New York Times (04 Feb 04) (typography corrected and fake paragraphing removed for clarity).

What I find most interesting about this is the implicit admission of deception and dodgy accounting practices behind Straight From the Gut. I know it's a bit early, with no caffeine and all, but let's do a little math. (Caveat: the following is based upon industry-standard practices, and the exact results might well be different—although I think not the conclusion.)

  1. Under standard industry practices for a casebound book, royalties would have been around 12% of cover price up to 20,000 or so copies, then 15% of cover price beyond that. Because a lot more than 20,000 copies were sold, for simplicity we'll just treat this as a 15% royalty on the whole print run.
  2. Publishers typically claim that earn-out of the advance represents the break-even point for both the author and the publisher. (As we'll see below, this assumption is hogwash.)
  3. At a cover price of $29.95, each book earned $4.4925.
  4. With an advance of $7.1 million, and excluding support for multi-city book tours and signings, earn-out of the advance would occur, if all books were sold at retail (because royalties on book-club books are significantly less, when they are even offered—most book-club deals are flat-rate payments, of which the author gets 25-50%), would be $7,100,000 / $4.4925 = a hair over 1.58 million copies.
  5. Although it is impossible to state with any real certainty exactly how many copies were sold, sales were termed "disappointing." Analysis of those general figures available indicates sales in the 600,000-800,000 range (a range, one might ad, that would cause terminal mania for 99% or more of all published authors). Thus, at the high end, half the advance remained unearned, and probably more than that.
  6. The publisher now claims that the book was "profitable."
Even a complete maroon would understand that the math leading to item 6 contradicts item 2. It in fact leads to the advance for this newest book of about $4 million—an achievable target on comparable sales with a slightly higher cover price, since it's highly doubtful that the book would be available this year and unlikely for next year. We're thus looking into 2006.

Now, with due respect to Mr. Welch, the last book deserved even fewer sales than it garnered. The advice in it was warmed over and obvious to anyone who even managed or commanded a logistics-based unit in the U.S. military, among other places. It was poorly written, self-aggrandizing, misleadingly organized, and overpromising. (No, I didn't buy a copy; I borrowed it from the library.) The conclusions that one can draw about this, when compared to the $5,000 advances offered to first novelists who are not themselves celebrities, should give one pause. And more than that.