Your Favorite Rapper is Poor: The 360 Deal Edition

(Note: This is part of an ongoing series breaking down the truth behind hip-hop's smoke and mirrors financial game. For previous entries, click here.)

As we've been winding out way through the house or smoke and mirrors that is the world of hip-hop finance I've received a lot of requests from people asking to explain what the hell a "360 deal" is, a term that's (unfortunately) become pretty damn common lately. Your wish is my command.

In short, if a rapper signs a 360 deal with a label the label is entitled to a cut of anything the artist earns in any medium. Concert sales? The label takes a cut. Merchandise? Your kid sets up a lemonade stand? The label will take that too. While every rapper's deal differs in the specifics, for our purposes all you need to know is that if the rapper is breathing and makes money, the label makes money too. They're involved in 360 degrees of the rappers income. (Get it?)

For the uninitiated that may not seem particularly remarkable, but it's crucial to realize although they're now more common than a Kat Stacks STD, even ten years ago 360 deals were almost entirely unheard of. For decades artists, or at least the smart ones, were careful to make sure that labels only got a cut of projects the label was directly involved in. Here's a look at how a 360 deal would have gone down in 1995:

Label: "We've invented a new thing called a 360 deal. Sign with us and we'll take a percentage of everything you make."
Rapper: "Get the fuck out of here. I've got no problem with you taking the majority of the cash that comes in via my album, you did make and distribute it, but why would I let you take money I make from touring?"
Label: "Um..."
Rapper: "In fact, since concerts and appearances increase album sales, in effect I'd be paying you for marketing that I'm doing myself, and that will make you even more money. That's got to be the fucking dumbest thing I've ever heard."
Label: "You're right, we apologize."

So what changed? For years labels were making so much money off album sales they weren't willing to slug it out with artists over a 360 deal, but with album sales sinking faster than a Louisiana oil rig they feel like they have no choice but to push for it, and incredibly, it's been working. Rappers are so in love with the idea of signing to a major label that they're getting snared by 360 deals left and right, including, most notably, Drake. Yep, that's right. Cash Money's pockets are getting lined every time that Sprite commercial comes on.

The affect of these 360 deals on rappers' bank accounts has been immediate and drastic. The truth was that most artists never made much money off their albums and singles (click here for a look at the percentages) and depended primarily on secondary income like touring, merchandise, etc. to make the bulk of their money. No longer.

So why would a rapper sign a 360 deal? Because like most of us, they confuse fame and money. They think that the label will make them famous, fame is just a front. You can be a household name, but once the label's through picking 360 degrees of your pockets, you might not be making any more money than your average middle class man.

The truth is, most rappers would be financially better off staying independent, becoming established in their region and clearing 90% of the money that comes in, but only a small few are smart and/or educated enough to figure that out. The promise of fame can be blinding, and by the time your vision clears up, all you'll be able to see is an empty bank account.