In a single week of publishing madness last month, 18-year-old Cambridge student Helen Oyeyemi was reported to have sold a children's fantasy novel to Bloomsbury for £400,000, while Greg Dyke was said to have plugged a surprise gap in his finances with a £500,000 advance from HarperCollins for his memoirs. Why do publishers spend such inordinate amounts of money on books? According to the American website Publisher's Lunch, only fees over $500,000 merit the description "major deal". A "nice deal" ranges from $1 to $100,000, a "good deal" from $101,000 to $250,000, and a "significant deal" from $251,000 to $500,000. In recent years, authors from Martin Amis to Nick Hornby have signed £1m-plus deals for their work.
But the headline-grabbing figures give a sadly unrealistic impression of the literary life. Few authors today earn enough to shop at Waitrose, let alone Harvey Nick's. According to the Society of Authors, only 5 per cent of authors earn more than £75,000, while 75 per cent earn under £20,000 a year, and the income gap between the bestsellers and the rest is widening every day.
Appearances of outrageous fortune can be deceptive. Magnus Mills was rumoured to have sold his first novel, The Restraint of Beasts, for £100,000, when in fact he received only £10,000. It was confidently stated across the press that Hari Kunzru's advance for The Impressionist exceeded £1m - an exaggeration "by a factor of 10", according to his publisher. And the £400,000 that Bloomsbury supposedly paid Helen Oyeyemi was soon revealed to have been a more modest five-figure sum, for which she is contracted to write two books.
£40,000 is still a lot of money, yet it is soon eroded by agent's fees of 10-15 per cent. And, given the five or six years it can take to write two books, even a £100,000 advance works out at an annual income of £15,000, before tax. The very term "advance" is a bit of a misnomer. Technically, it is an advance on predicted royalties, but in fact, only a third is received on signing; another third on delivery; a sixth on publication and the balance on paperback publication, by which time it is more of a retrospective fee.
Nonetheless, an advance is at least guaranteed income. The late super-agent, Giles Gordon, was known to proclaim that he'd failed in his job if a client of his earned a cent in royalties. With this in mind, he secured a staggering £1.4m advance for Vikram Seth's family memoir, Two Lives, due from Little, Brown in 2005.
Many publishers simply cannot afford this kind of money. Toby Mundy of Atlantic Books dispenses the occasional five-figure sum, but he believes that all first-time novelists should earn royalties: "Everyone comes away happy. The book trade's happy because they exceeded expectations; the house is happy because there's no unearned advance, and the author's happy."
Some authors actively avoid the bigger chequebooks. Paul Kingsnorth, deputy editor of The Ecologist, signed with Simon & Schuster for £75,000 despite interest from seven other publishers - "for sound ecological reasons".
All the same, some publishers undoubtedly use high-profile advances to command the respect of agents, authors and rival firms. Junior editors are notorious for using the size of an advance as leverage, not only in the industry at large, but also within their own company, where a big advance can convince the all-important marketing department that this book deserves their attention.
Since the cut-throat series of acquisitions and mergers which left British publishing in the hands of a few international conglomerates, publishers have followed an increasingly corporate marketing strategy. They know that 90 per cent of their sales are concentrated in 10 per cent of their stock, so they tend to invest heavily in a title which, they hope, will become that season's big hit. The result, according to some critics, is the squeezing out of mid-list authors on their fourth or fifth book in favour of teenagers on their first. And, according to some publishers: why not? They don't want to support the ailing career of an author who has only ever achieved moderate sales. In an industry which doesn't like risk, first-timers have the paradoxical advantage of being an unknown quantity, just as Greg Dyke has the obvious advantage of a high profile, and a story to tell.
Publishers are contractually sworn to secrecy about money; as one editor succinctly puts it: "Asking a publisher the size of an advance is like asking him the length of his dick." Nonetheless, the figures continue to emerge, often exaggerated by a rival house which has been outbid. And from the publicist's point of view, anything which puts a book on the map - especially one by a debut author - is good news.
Newspapers soak up these stories because they fuel controversy about the value of literature, just as stories about Tracey Emin get people excited about art. Scandalised pieces about outsize advances play on a widespread cultural ambivalence about what writers are worth. According to Amy Jenkins, whose own £600,000 advance from Hodder & Stoughton attracted widespread commentary: "People don't like writers to earn a lot of money. They don't mind if a banker earns £1m, but they think all writers should be struggling in garrets."
Jenkins's agent, Sarah Lutyens, explains that, in getting the best deal for a first-time author, "most agents are trying to balance the right money with a good editor." In Jenkins's case, Hodder got a good return on their investment, and were happy to commission two further books.
The fact that, like their counterparts in real estate, literary agents act on behalf of the vendor, not the buyer, doesn't mean they're only interested in money. When Andrew "the Jackal" Wylie sold W G Sebald to Penguin for £250,000, he lifted him from obscurity into the bestseller lists, without forfeiting any of his dark creative integrity. Austerlitz, part of a three-book deal, has now sold more than 100,000 copies under the impetus of Penguin's fearsome sales machine.
Simon Prosser, who bought the book for Penguin, firmly believes that there is a readership for great writing, and that it's worth paying for. He realised that Sebald was tapping into themes that made big Millennial box office - "at the end of the 20th century he was writing books which summed up and tried to interpret that whole terrible history" - and compares the success of Austerlitz with that of Antony Beevor's Stalingrad: both books which brought the Second World War to life for a generation (both books, one suspects, which are more often bought than read). In Sebald's case, high art wasn't incompatible with high sales.
Prosser points out that no other creative professionals arouse quite so much animosity as successful authors: "Look at the vast amounts a film actor is paid, when the writer of the original book may have made a few thousand pounds from film rights." He believes that "writers occupy a place on the mantelpiece of our culture that's marked 'noble, suffering, stoical'," and that they are routinely punished for daring to step down from it. As James McNeill Whistler told an incredulous barrister, he did not ask 200 guineas for two days' work "but for the knowledge of a lifetime".
Yet it is rarely the possessors of a lifetime's knowledge who get the big money. HarperCollins have just paid the traditional "five-figure sum" for a fantasy novel by French schoolgirl Flavia Bujor. Not megabucks, but Flavia has sold The Prophecy of the Jewels in 30 countries, with a film deal pending. The book reads like The Three Musketeers adapted by Enid Blyton as a Britney Spears video. Flavia's English publicist insists that money is all part of the fairytale: "People hear of her success and think, maybe I can do that..." Flavia charmingly describes writing the book to entertain her friends. She is "verrrrry excited" about its English publication: "I love this country!"
Having already experienced the hostility which even incorrect rumours of a big advance can generate, perhaps it's not surprising that Helen Oyeyemi has reservations about the writing life. "I don't think that many people can do that these days," she says. "I would quite like to be a literary agent." Her own agent, Robin Wade, boasts that he's about to take on another teenage girl who's written a fantasy novel: "I haven't sold it yet, of course, but I will do, and probably for a lot of money."
The relationship between an advance and a book's performance is not an exact art. Publishing is littered with overpaid first-timers who didn't make it. Conversely, it is full of success stories which were picked up in the bargain basement. Captain Corelli's Mandolin only cost £40,000, while Picador got Bridget Jones's Diary for £20,000. Notoriously, J K Rowling couldn't get Harry Potter arrested until Bloomsbury finally took him on for £1,500. Even then, their Managing Director thought £2,000 was a bit steep for the American rights, and passed on them. But it's not all smoke and mirrors. Sometimes, publishers get it gloriously right. Faber paid the future Booker prizewinner D B C Pierre £150,000 for two books. In the wry words of a rival editor: "That worked."