What the Obamas’ $65 million book advance actually means

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.

It’s a move that signals the publishing industry’s faith in the enduring value of a book from the Obamas — and the belief that if Barack Obama’s memoir is good enough, it might become a genuine American classic.

Penguin Random House, which bought the two books, won’t discuss the numbers, but the Financial Times reports that the bidding for world rights surpassed $65 million. That number well exceeds the industry’s already-lofty expectations about the Obamas’ literary earning power: This January, literary agents and publishers predicted to Forbes that Barack Obama’s 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, 2014’s Hard Choices. That adds up to $36.5 million, just over half of the Obamas’ advance — or $42.5 million when adjusted for inflation, so about two-thirds of the Obamas’ 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 I’ll explain below). But that’s not always the case.

When publishers buy a book from an author, they aren’t offering them strings-free money. They’re predicting how much money the book might accrue in royalties, and they’re offering the author an advance payment of those royalties in a single lump sum. For the book to “earn out,” as the Clintons’ books did, it has to sell so many copies that its royalties surpass the amount of the advance. It’s 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 can’t tell you what Penguin Random House’s acquisition formulas look like. But here’s a very rough, extremely simplified idea of how a publisher calculates how much to pay an author and still make money.

Imagine you’re 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 you’re offering the author royalties of 10 percent of the book’s list price, so the author will receive $2 for every book sold.

That means it’s 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 “earned out.” 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, that’s not chump change. For comparison’s sake, the third-best-selling book of 2014 sold 573,000 copies.

Theoretically, the advance doesn’t change how much money the author gets, it just changes when they get it. But in practice, it’s not uncommon for books to fail to earn out. Sometimes, publishers overestimate how a book will sell, or they decide that an author’s prestige value is so high that it’s 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 he’s known as “The Jackal,” is credited with the possibly apocryphal comment, “If my client’s book earns out, I haven’t done my job.”)

So we don’t know for sure that Penguin Random House really thinks the Obamas will earn out a $65 million advance — but it’s also a safe bet that the publisher is unlikely to have spent quite so much money if it didn’t expect to make at least a lot of it back. That suggests Penguin Random House believes the Obamas’ 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.

There’s good reason to think the Obamas might sell for a good long while. Michelle Obama is less of a known quantity as an author than Barack Obama. (Her only title thus far, American Grown, is a coffee table book that didn’t have the opportunity to pull off any literary pyrotechnics.) But she remains extremely popular and could easily sell a respectable number of books on her own. And before Barack Obama became president, his books Dreams from My Father and The Audacity of Hope cemented his place as not just a politician who sells books on the side, but as an author of genuine literary merit.

It’s not just that Barack Obama’s books sold well — although they did, with Dreams from My Father easily out-earning its $40,000 advance — but that they were widely considered to be well-written. New York Times book critic Michiko Kakutani deemed him “that rare politician who can actually write,” with “an elastic, personable voice that is capable of accommodating everything from dense discussions of foreign policy to streetwise reminiscences, incisive comments on constitutional law to New-Agey personal asides.”

That means a book by Barack Obama isn’t only a presidential memoir like Bill Clinton’s. It isn’t only a presidential memoir by an extremely popular ex-president during a time when nostalgia for his administration is increasing. It isn’t even only a presidential memoir by our first black president. It’s a presidential memoir that actually stands a chance of being a good book, with both historical and literary merit. And those are the kinds of books that become classics.