Thread: The Licensing Game

Great post! This translates to a whole lot more than just licensing. I'm not too familiar with licensing nor do I have a product to license, but now I'm curious...

Is it typical with licensing contracts that a minimum performance is required, or guaranteed fee be paid regardless of performance? I could understand some hesitancy if in the contract included a guaranteed payment of, say, $25k for a new product idea. I would assume the celebrity (or at least the agency) would want some sort of guarantee that what they're is doing is going to be worth their time. And that begs the question are there typically any contingencies protecting her in case manufacturing costs turn out to be too much, celebrity ruins their image, etc.

I'm also curious as to how far along the development process she was with her new product idea before she (meaning you) called the agency to discuss licensing. It sounds like she pitched the idea, and upon signing the agreement, took her product into production. Did she have a prototype that you know of?

A few follow up points from Wade's post.

A typical license deal, simplified, will have the following components :
1. the royalty percentage - ranges from 2% to 15% of the wholesale (invoice) price, paid quarterly
2. a minimum annual guarantee
3. a performance based renewal clause
4. An upfront, prepaid amount that counts towards the minimum annual guarantee

In her case, they were willing to literally go with NO minimum annual guarantee. This was the first time I had ever seen this done with no baseline annual royalty guarantee. I may never see that again in my lifetime! I think that because she was honest that this was a startup, and because she fell backwards into a business dealing with some great people, she got a sweetheart deal. She did put what I would consider to be a nominal amount up front...

From a product development standpoint, the product she is going with is an existing concept, so it was not difficult to find a manufacturer overseas. She spent exactly $0 in product development. They (the licensor) didn't even require a sample (we sent them extremely rough handmade drawings) but because she is using a known commodity, it was easy for them to immediately understand what the proposal, and the product were.

When we did Akai, we used existing televisions that Samsung had already developed. We essentially stuck an Akai badge on a Samsung manufactured television. Again, $0 in product development, and short circuited the fastlane commandment of (development) time.

With her celebrity deal, all she needed was artwork on his "slogan" and a few other existing pieces of intellectual property. His time commitment required was -0-, so it literally is straight gravy for the celebrity in this example. Straight shot to return on zero investment.

The licensee's job is to get the minimum annual commitment below the threshold that makes it a no brainer. Also, as long as it includes no PERSONAL guarantee, and the business is conducted between the licensor and a corporate entity, the minimum annual guarantee is negotiated to never be a deal killer.

Originally Posted by wade1mil

And that begs the question are there typically any contingencies protecting her in case manufacturing costs turn out to be too much, celebrity ruins their image, etc.

You can negotiate stuff like this into the contract. She didn't. Manufacturing costs were known ahead of time, and her product could absorb a significant cost increase without really destroying the concept. The agreement will be reviewed 18 months from now, and if manufacturing costs increase, it presents a great opportunity to negotiate for license % decreases.

The "celebrity destruction clause" would have been worthwhile and interesting. She (and I) never thought of that, and I didn't spend much time with her on the contract. However, that would have been a good idea. Since they required no annual minimum from her though, if the celebrity self destructs she's out only her on hand inventory and a few other expenses. Great point, though. All those ideas can go into the framework of a license deal. If they required an annual guarantee, your idea of a celebrity destruction clause would have made all the sense in the world. I may mention that to her on the one she is working on with Donald Trump.

Originally Posted by Vigilante

You can negotiate stuff like this into the contract. She didn't. Manufacturing costs were known ahead of time, and her product could absorb a significant cost increase without really destroying the concept. The agreement will be reviewed 18 months from now, and if manufacturing costs increase, it presents a great opportunity to negotiate for license % decreases.

Absolutely. You make a great point with the NASCAR example of acquiring 75m customers through licensing. An already existing product concept, great execution, and a licensing deal. A lot going through my head at the moment and more questions to come, I presume. Excellent info!

Here was the NASCAR/Dale Jr. GPS that we did.

Rightway Spotter GPS Navigator Dale Jr. Edition - YouTube

Dale Jr. GPS can navigate your next trip - YouTube

Originally Posted by Vigilante

Here was the NASCAR/Dale Jr. GPS that we did.

Rightway Spotter GPS Navigator Dale Jr. Edition - YouTube

Dale Jr. GPS can navigate your next trip - YouTube

That is awesome. Genius. How well has that product done? Did the licensing do as much as you anticipated? This whole conversation has given me an amazing business idea. An existing business concept with potential for a licensing deal. I'm not even sure if a licensing deal would be required. I may be in contact with you later this week.

The Dale JR. GPS did ok. I was a quick fad/flash in the pan. The whole Personal Navigation Device (PND) GPS business is on a sharp decline. We had a fantastic launch with QVC, had placement for about a year and a half with most major national retailers, and it spawned a second (Tony Stewart) GPS that was less successful. It was a blast, and a good (quick) run, which is what we knew it would be.

Originally Posted by Vigilante

I picked up the phone and called the agency that represented the celebrity.

Vigilante, where/how do you find the contact info for the people you need to get a hold of?

Not just for a celebrity (or just for licensing), but any business in general? Since I have no sales experience I am still trying to figure this part out.

Felix. Start at the top.

If I wanted to get a hold of an executive at Staples, I might call or send a proposal to the president of Staples. NOT because I think he will be the guy (or gal) to help me, but he will always, 100% of the time, get me to the highest ranking executive at the company with direct oversight for my inquiry. If you start at the bottom, there are mechanisms in place to stop you, screen you, and refuse you. When you start at the top, not only are those same mechanisms not in place, but the doors open. "My name is Vigilante, and Mr. Big's office asked that I speak with you directly about an idea that we have to ..."

Publicly held companies are EASY, because simply looking at their stock listing will give you the names of their senior level executives, and corporate contact information. Private companies are somewhat harder to research. LinkedIn is another great avenue to research prospective contacts.

There are a couple of other good threads here on the topic of how to penetrate sales contacts. Search around a bit here in the forum and you will find some great pointers from a lot of posters here about how to get to the right person.

Example
AMZN Profile | Amazon.com, Inc. Stock - Yahoo! Finance

Here we can see that Jeff Wilke is the SVP of Consumer Business at Amazon. You can reach him through the switchboard of Amazon at 206-266-1000 simply by asking for him by name.

Here's his bio that I might read before I called him :
Amazon.com Investor Relations: Biography

From other sources I have at Amazon, there's a 90% chance that his email address is jwilke@amazon.com

If for any reason I struck out reaching him, I would look at the bottom of any one of Amazon's press releases, for a media contact. I might send an email to the media contact and ask that they forward it to Mr. Wilke.

I could get ahold of Mr. Wilke. So could you.

Depending on the product and the shelf life.

I for one might hope the celeb blows up.. when celebs blow up, people google them. when people google them, your product might show up..

I might add to this, that if you get the run around play the shareholder card.. I have, on several occasions. Just say What do you mean he cannot speak to me? I am a shareholder, what is the investor relations phone number? Usually that works.


This is one of the best threads on this site.. Hats off to you.. Vig..

Originally Posted by JackEdwards

This is one of the best threads on this site.. Hats off to you.. Vig..

I concur.

Rep ++ Vigilante.

A couple of other great posts and this one will become sticky pretty soon...

I agree 100% Rep++++

What about if you have a product that you created and you wanted a celebrity endorsement. Do you have any experience with that? Would it work the same way as licensing as stated above, except in reverse. By that I mean, would you give them somewhere between 2-15% of your wholesale price if they put their name on it?

Hopefully someone will come along with celebrity endorsement experience. I do not. However, I think you could work it the same way.

For your product, though, you might be better off saving the money to participate in what the retailers will call "co-op" advertising. You will have the opportunity to pay a % to Lowes, Home Depot, Sherwin Williams, etc... to be in their Sunday circular. You also may end up paying to be featured on "endcaps" within the stores, or on "clip strips" near the paint brush display(s).

Count on an accrual of about 5% of retail invoice cost for "co-op" advertising, or what they might call MDF (Market Development Funds). Same thing.

I don't think it would be good for this product. Maybe for a few others I have in mind.

We did design the packaging though, so that it could easily be clipped on the clip strips. We are also in the process of designing display cases, both for counter top, and stand up. Hopefully we'll get to see it on the shelf of major chain stores in the future.

Great post, just shared to the TMF wall and tweeted. Speed+, Thanks+, plus personal thanks for great stories that teach the value of action.

The stupid thing wouldn't let me give you more speed.

Thanks for the inspiration. Now I know what my next step is! Great stuff!

Any experience with just getting a celebrity/brand to endorse something without using their logo, etc?