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Help with Structuring Licensing Deal

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I'm in the middle of negotiating a licensing deal where I will gain merchandising rights to someone else's IP and use it to make a product.

I'm seeking ways to make an attractive offer without exposing myself to too much risk, and I'm getting hung up in the details of the minimum guarantee. I have offered a 15% royalty, with a $12k MG, but my worry is that there isn't enough demand for the product to support that MG. It's a high-end product, with a high price-tag (mid $100s).

I have created a 3D mockup of the product and created a facebook group that is generating some buzz, but not the level of interest that would give me 100% confidence in the products success. Further, the licensor asked me to remove all of the photos until an official agreement is signed, so I am unable to continue to create/gauge interest unfortunately.

My current offer is to put $2,000 down, which would allow me to make a prototype and pre-sell the product. If there is enough demand, measured by the number of pre-orders over a specific time, then we would move forward with the agreement, and another $10,000 would be owed on the MG. This offers me protection, but it's not very appealing to the licensor since they pretty much lose their guarantee. Long story short, they're not showing a lot of enthusiasm for these terms.

Are there other ways to protect myself from being on the hook for $10k for a product that might flop?

@Vigilante
 

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Vigilante

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I'm in the middle of negotiating a licensing deal where I will gain merchandising rights to someone else's IP and use it to make a product.

I'm seeking ways to make an attractive offer without exposing myself to too much risk, and I'm getting hung up in the details of the minimum guarantee. I have offered a 15% royalty, with a $12k MG, but my worry is that there isn't enough demand for the product to support that MG. It's a high-end product, with a high price-tag (mid $100s).

I have created a 3D mockup of the product and created a facebook group that is generating some buzz, but not the level of interest that would give me 100% confidence in the products success. Further, the licensor asked me to remove all of the photos until an official agreement is signed, so I am unable to continue to create/gauge interest unfortunately.

My current offer is to put $2,000 down, which would allow me to make a prototype and pre-sell the product. If there is enough demand, measured by the number of pre-orders over a specific time, then we would move forward with the agreement, and another $10,000 would be owed on the MG. This offers me protection, but it's not very appealing to the licensor since they pretty much lose their guarantee. Long story short, they're not showing a lot of enthusiasm for these terms.

Are there other ways to protect myself from being on the hook for $10k for a product that might flop?

@Vigilante

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Vigilante

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Some things for the rest of you to think about :

1. The deal I am doing currently has a minimum guarantee, but since I put in a 6 month development window and then the first YEAR for the minimum guarantee, the guarantee doesn't require payment until 18 months from the deals inception
2. A lot happens in 18 months
3. If a lot doesn't happen in 18 months, then you face that problem THEN, not NOW
4. No PERSONAL guarantee accompanies a minimum guarantee (read between the lines on what I just said there)
5. Achieving the minimum annual guarantee can be a trigger for an auto renewal
6. The best deal I did for a speculative product had NO minimum annual guarantee (but then a high license %).
7. I always want the minimum annual guarantee to be a no-brainer and/or something I could cover without breaking the bank

DO NOT LET RISK GET IN THE WAY OF MAKING SOMETHING HAPPEN. Risk is inherent in almost any great deal.

::end of soap box::
 

Owner2Millions

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So, question.....which side usually has the better end of the deal? The licensee or licensor?
 

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So, question.....which side usually has the better end of the deal? The licensee or licensor?
A licensing arrangement is kind of like a partnership in that both sides want success. It should be structured as a win-win.

In general, the licensee should be receiving more profits overall since they’re doing all of the work. The licensor will receive a relatively small royalty for an extremely small amount of work, if any.
 

Owner2Millions

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A licensing arrangement is kind of like a partnership in that both sides want success. It should be structured as a win-win.

In general, the licensee should be receiving more profits overall since they’re doing all of the work. The licensor will receive a relatively small royalty for an extremely small amount of work, if any.

Well that was my bit of confusion. Because to
Me in my opinion. I thought the licensor got paid a little more since they own the Intellectual property. I know the licensee does more
Work. But it’s just how my mind wondered. I haven’t done any licensing deal so I wouldn’t know thanks.


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