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The Licensing Game

Vigilante

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A friend approached me a few months back with a good idea that would require a license agreement. She didn't know where to start. She had an idea for a new product to bring to retail in conjunction with a celebrity slogan. She hit a wall.

I laughed. Why do people make this so hard? Why do we throw up mental barriers, and fabricate obstacles that don't exist? I picked up the phone and called the agency that represented the celebrity. Within a day, I had her on the phone with the president of that agency. Within three/four days, the concept was approved by the celebrity, and was moving forward towards contracting. All I did for her was make the phone call she didn't think she could make on her own. I gave her a boost over the wall. She did the rest.

She came to my office yesterday, exuberant. She had the signed license agreement in hand, and was moving forward with first production of her product in Asia.

There's no magic to this, folks. I was 100% guaranteed a return call from this guy's agent. Why? I called and offered him money. I offered to manufacture money for this celebrity. 100% of the people on the receiving end of that call are receptive to that. If I called you today, and offered you money for doing nothing, would you call me back? Her next target is Donald Trump... and she now has not only a template to follow, but instant credibility as she has her first deal under her belt that she can show to the Donald as an example. Everyone is accessible when demonstrate an ability to manufacture money for them.

I've done license deals with NASCAR, Dale Earnhardt Jr., the brand Akai, the brand Nakamichi, and a few others.

Main takeaway from this experience? Make the phone call. Action fakers sit with ideas and action paralysis. Action takers... pick up the phone and make shit happen. The person on the other end of the phone --- NASCAR, Donald Trump or whoever --- are ALWAYS interested in how you can make them money.

I would be happy to field any questions about licensing that I can. I am not the world's greatest licensor, but there's a myth that this is harder than it is. Using someone else's household brand name is a short circuit towards the Fastlane where you can capitalize on someone else's equity, someone else's years of business development, and someone else's existing revenue stream.

Need - businesses that solve needs win. As long as your product fits this criteria, a license deal meets the commandment of need.

Entry - license deals may be the ultimate in difficulty of entry, from the standpoint that once you have the license agreement, nobody else can do what you do. You will have no direct competition, and you will capture a controlled market. You still have outside competitors, but nobody else can bring your product --- with your license --- to market.

Control - depends on your license agreement. Is it perpetual if you meet performance requirements? The brand is not yours, but you have an element of control. This may be the weakest fastlane commandment to follow in the licensing arena. The commandment of control can easily be violated with the wrong partner, wrong brand or wrong terms. Definitely something to look out for in the early phases. Awareness of this vulnerability can help you look at this weakness and shore it up.

Scale - The whole point of a license agreement is to ride in on the coat tails of something that has massive scale. When we did NASCAR, we gained access to NASCAR's estimated 75,000,000 fans. Our product wasn't limited to JUST NASCAR fans, but we had a built in base of people that would buy our product. We also inherited existing distributors, and retailers that would buy NASCAR branded product that would not have bought the identical merchandise without the NASCAR logo on it. We short circuited the entire sales process.

Time - Licensing eliminates almost 100% of the traditional time required to develop a brand and bring a product to market. You still need to build a platform that can run without you... the commandment of time is mindful of using automation and systems designed so that you can extract yourself from the requirements of day to day management. So, the license agreement itself will NOT solve the fastlane commandment of time consumption. You still need to integrate time extraction into your business model. Using existing brand distributors is one way to do that.
 
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wade1mil

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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?
 

Vigilante

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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.
 

Vigilante

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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.
 
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wade1mil

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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!
 

wade1mil

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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.
 
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Vigilante

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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.
 

Felix II

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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.
 

Vigilante

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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.
 
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Vigilante

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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.
 

JEdwards

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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..
 

andviv

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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...
 
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Likwid24

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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?
 

Vigilante

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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.
 

Likwid24

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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.
 
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MJ DeMarco

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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-J

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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!
 

CPisHere

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Any experience with just getting a celebrity/brand to endorse something without using their logo, etc?
 
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wade1mil

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Let's say I wanted to sell coffee mugs with cartoons of a few different celebrities, and their name in cartoon lettering. The manufacturing cost is $1.00 each and wholesale is $1.25 each, so the margins are low. Plus, there is also a chance that you don't sell very many mugs. Would you need a licensing agreement for a product like this?

If you pay, say, $5k up front, your break even is 20k units. If you pay 15% royalty, 20k units is only $750. This is completely hypothetical, but I'm curious as to what the options are in situation where the potential for profits of an individual product is meager, but for an entire set of mugs (say 12 variations) is large.
 

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Let's say I wanted to sell coffee mugs with cartoons of a few different celebrities, and their name in cartoon lettering. The manufacturing cost is $1.00 each and wholesale is $1.25 each, so the margins are low. Plus, there is also a chance that you don't sell very many mugs. Would you need a licensing agreement for a product like this?

If you pay, say, $5k up front, your break even is 20k units. If you pay 15% royalty, 20k units is only $750. This is completely hypothetical, but I'm curious as to what the options are in situation where the potential for profits of an individual product is meager, but for an entire set of mugs (say 12 variations) is large.

If you are going to use anyone's likeness or name, you would need their permission. Usually, that would come in the form of a license agreement. However, in this example since the margins and earning expectations are so low, I think you would struggle to get anyones interest/attention.
 
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wade1mil

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If you are going to use anyone's likeness or name, you would need their permission. Usually, that would come in the form of a license agreement. However, in this example since the margins and earning expectations are so low, I think you would struggle to get anyones interest/attention.

That's what I figured. Bummer.
 

johnny604

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Hi
When you call a company/celeb like "wade jr" (in your GPS example), how much light do you shed on the application-product to be used? How do you explain your affiliaton with the gps comanies? I assume you would ask for "exclusive rights" to place his name with a gps product for a period of time, right?
 
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Vigilante

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The first phone call is very short like 3 to 4 minutes… This is concept only and usually ends up with "we're interested... send us a proposal." Generally they don't care about affiliations. If you have the ability to get it done that's all they really care about.
 

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I was asking because...If its possible to establish an exclusive right to a specific use of a license (ex: Dale jr's brand for gps electronics application) for...say 3-6months written contract. Can't you just turn around and TRY TO SELL THE EXCLUSIVE RIGHTS to a willing and able gps company? This would be a one time sale on your part -- no royalties. Is this possible? is this a common practice?
 

Vigilante

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A friend of mine licensed the Curtis Mathis brand. He then assigned his exclusive license to Kmart Corporation. Kmart then under the license agreement made Curtis Mathis televisions. The guy did nothing but sit back and watch it happen. He made several million dollars over three years. The girl who was the subject of my original post is trying to sell her idea and her exclusive license now to a retailer.
 
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awkwardgenius

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Great post! I plan to use licensing as a way to scale my consulting business.

I had Need, Entry, Control, and Time pretty much wrapped up, but Scale had me a bit stumped.

It actually dawned on me while listening to a webinar on the way to work tonight, and that was I would be able to use licensing to create passive revenue, and allow my services to continue working for me after I'd wrapped up most of my work with a client. I'll probably make a post later on detailing what I have in mind here, but I think it's something that's gonna be absolute dynamite when I get it off the ground.
 

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