I would warn any new group to be aware of any company that wants you under a contract. This is agood way to get yourself hooked in with a real crappy product. As to the profit issue. Sometimes guys you got to sacrifice a little profit to get the best sound out.
Lets consider that the group makes their own recording.
It will cost them 2 to 3 thousand dollars to produce tapes and cds. Look at how many they have to sell before they begin to get their return. Tis is generally better than royalty payments because they are generally very small, dont come until the product is paid for, or just dont come at all. If you bargain for a continuous supply of tapes and cds, you always got travelling money. Some companies lure you in by offering jackets and all sorts of incentives but be aware.