What the Obamasā $65 million book advance actually means
By Constance Grady
constancegrady Mar 2, 2017, 1:10pm EST
Barack and Michelle Obama each just sold a book in a joint deal that appears to be bigger than any previous presidential book deal in history. Reportedly, they are making $65 million, which is an unprecedented amount of money for a presidential memoir.
Itās a move that signals the publishing industryās faith in the enduring value of a book from the Obamas ā and the belief that if Barack Obamaās memoir is good enough, it might become a genuine American classic.
The Obamas are reportedly earning more than $65 million in this deal. Thatās way more than the Clintons got.
Penguin Random House, which bought the two books, wonāt discuss the numbers, but the Financial Times reports that the bidding for world rights surpassed $65 million. That number well exceeds the industryās already-lofty expectations about the Obamasā literary earning power: This January, literary agents and publishers predicted to Forbes that Barack Obamaās memoirs might go for as much as $20 million, and a combined Barack/Michelle book deal might net as much as $45 million.
For comparison, trade publication Publishers Lunch reports that Bill Clinton secured a $15 million advance for his 2004 memoir My Life (a record-breaking advance at the time, and roughly $21 million in 2017 dollars), while Hillary Clinton got an advance of $11.5 million for her most recent memoir, 2014ās Hard Choices. That adds up to $36.5 million, just over half of the Obamasā advance ā or $42.5 million when adjusted for inflation, so about two-thirds of the Obamasā advance.
For Penguin Random House, which published My Life, and Simon & Schuster, which published Hard Choices, those high advances paid off. The Clintons both rapidly earned out (which Iāll explain below). But thatās not always the case.
Book advances are investments. They donāt always offer a good return for the publisher
When publishers buy a book from an author, they arenāt offering them strings-free money. Theyāre predicting how much money the book might accrue in royalties, and theyāre offering the author an advance payment of those royalties in a single lump sum. For the book to āearn out,ā as the Clintonsā books did, it has to sell so many copies that its royalties surpass the amount of the advance. Itās only after the book has earned out that the author starts to receive royalties on top of their advance.
Every publisher uses its own formula to calculate the magic number at which point a book will earn out. And the numbers depend on proprietary information, so I canāt tell you what Penguin Random Houseās acquisition formulas look like. But hereās a very rough, extremely simplified idea of how a publisher calculates how much to pay an author and still make money.
Imagine youāre an acquiring editor who wants to publish a new book. Based on the sales history of other, similar books, you feel confident that you can sell 10,000 copies of the new book. You figure you can set the price at $20, and youāre offering the author royalties of 10 percent of the bookās list price, so the author will receive $2 for every book sold.
That means itās safe for you to offer the author an advance of $20,000 when you acquire the book. The author receives that money upfront, and nothing else until the book has sold more than 10,000 copies, at which point the author has āearned out.ā The remaining $18 for every book sold are split between the publisher and the distributors to cover their own costs and contribute to their profit margin.
For the Obamas to earn out their $65 million advance, they will most likely need to sell at least several million copies all together. And in an industry where selling 100,000 copies of a title is enough to make it a respectable bestseller, thatās not chump change. For comparisonās sake, the third-best-selling book of 2014 sold 573,000 copies.
Theoretically, the advance doesnāt change how much money the author gets, it just changes when they get it. But in practice, itās not uncommon for books to fail to earn out. Sometimes, publishers overestimate how a book will sell, or they decide that an authorās prestige value is so high that itās worth keeping them around with a super high advance regardless of the potential earnings involved.
(Literary agents sometimes try to encourage that way of thinking. Andrew Wylie, an agent so ruthless heās known as āThe Jackal,ā is credited with the possibly apocryphal comment, āIf my clientās book earns out, I havenāt done my job.ā)
A really good Obama book has the potential to become a genuine classic
So we donāt know for sure that Penguin Random House really thinks the Obamas will earn out a $65 million advance ā but itās also a safe bet that the publisher is unlikely to have spent quite so much money if it didnāt expect to make at least a lot of it back. That suggests Penguin Random House believes the Obamasā books will sell really well, and keep on selling for a long time.
And a book that sells for a while is almost always more profitable than a book that blazes brightly for a year before disappearing. A book that sells 100,000 copies a year for one year and then fades into obscurity makes a little money, but a book that sells 80,000 copies a year for 50 years makes a lot of money.
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