The music industry is notorious for its creative accounting practices and for onerous contracts that can keep even some top-selling artists perpetually in debt to their record labels. In a typical recording contract, a record label advances an artist a certain sum of money against future earnings from royalties. But because the cost of things like studio time, marketing support and tour expenses must be "recouped" by the label before an artist earns any royalties, many artists who sign recording contracts never sell enough records to "earn out" their advance. Where this system truly breaks down is when a top-selling artist or group like TLC or Run-DMC finds itself deeply in debt to its record label despite having sold millions of records. Those are but two groups that have pursued a strategy made famous by Rock and Roll Hall of Fame member Tom Petty when he declared bankruptcy on this day in 1979 in an effort to free himself from his contract with Shelter Records.
At the time of Tom Petty's bankruptcy filing, he had little to show financially for the two hit albums already behind him: 1976's Tom Petty and The Heartbreakers (featuring the hit singles "Breakdown" and "American Girl") and 1978's You're Gonna Get It! Unhappy with the terms of his contract with Shelter Records, Petty seized upon the sale of Shelter by ABC to industry giant MCA as justification to declare himself, in effect, a free agent. In his own words, he would not be "bought and sold like a piece of meat." (Never mind the fact that the deal was actually a re-acquisition, since Shelter—and with it Petty's contract—had actually been owned by MCA before being acquired by ABC.) Petty refused to allow his next album to be released, even going so far as to bear the cost of recording it personally, leaving him some $500,000 in debt. This was when he filed for bankruptcy, hoping to gain leverage in the brewing legal dispute by having the bankruptcy court declare null and void an extremely unfavorable contract that Petty felt he had signed under duress.
Ultimately, MCA blinked, agreeing to release Petty from his existing contract but immediately re-signing him to a $3 million contract with a brand-new subsidiary label created especially for this purpose. The album that Petty had held back, Damn The Torpedoes (featuring the singles "Refugee" and "Don't Do Me Like That"), would go on to be certified Double Platinum and make Tom Petty and The Heartbreakers into true superstars. But if MCA thought that its squabbles with Petty were behind them at that point, they were sorely mistaken. In 1981, Petty once again threatened to withhold his new album, Hard Promises, when MCA announced its intention to sell it for $9.98—a full dollar more than the typical retail price at the time. Said Tom Petty at the time, "If we don't take a stand, one of these days records are going to be $20." And once again, MCA finally agreed, selling the album at retail for the then-customary $8.98