The Licensing Game

[Eskil]

Vigilante; Can you please clarify the difference (if there is any) between endorsement deals, and what you refer to here as licensing?

Isn't it pretty much the same thing in this context - with regards to celebrities? Whenever I read licensing I think of patents, royalties, and licensing a patent out to a manufacturer.

Pardon my ignorance..

 

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[JasonR]

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.

What stops Kmart from going directly to Curtis Mathis?

 

[BostonH]

What stops Kmart from going directly to Curtis Mathis?

I believe his friend had acquired exclusive license with Curtis Mathis, so Kmart could not have gone to him directly.

 

[Vigilante]

Made a second call for her today... this time to the license agent for NASCAR. He in turn turned us on to a LARGE deal for her with the Mandalay Bay resorts. Never would have happened if we didn't just MAKE THE CALL.

This was easy. Almost too easy.

This is a pretty simple statement: When you offer to make money for people, most of the time you will find them receptive to taking your phone call.

I propose to the group that if you have a solid idea, and a basic understanding of licensing, you can become a player in a SHORT amount of time simply by ... taking action.

Make the call.

 

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[wade1mil]

That is awesome. Keep us informed, I'd like to see how it turns out for her.

 

[Vigilante]

She'll do OK. Her biggest problem is that she is in love with her merchandise. Never fall in love with your merchandise... it blinds you AND it has you put stars in your eyes in terms of your true $$ potential. What she has is good... but she thinks it's the next iPhone (and it's not.)

I don't care what I am selling half as much as I care about my formula for selling it. The product can change over time.

 

[Vigilante]

I believe his friend had acquired exclusive license with Curtis Mathis, so Kmart could not have gone to him directly.

correct

 

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[Vigilante]

Vigilante; Can you please clarify the difference (if there is any) between endorsement deals, and what you refer to here as licensing?

Isn't it pretty much the same thing in this context - with regards to celebrities? Whenever I read licensing I think of patents, royalties, and licensing a patent out to a manufacturer.

Pardon my ignorance..

Endorsement is a celeb lends his name to a project. People buy the product because the celeb vouches for it. Compare that to a license deal.

My deal with NASCAR and Dale Jr. was a LICENSE DEAL, not an endorsement deal. In a license deal, I got to use Dale's logo, signature, images, some digital content. My merchandise was branded as Dale Jr. merchandise.

Contrast that to an endorsement deal, where Katie Perry might be a spokesperson for Diet Coke. Diet Coke is still the brand, Katie just endorses it, and her fans buy it because they think she drinks it.

 

[Eskil]

That makes sense now.. Thanks!

 

[kahem89]

Great post Vigilante, this definitely sounds interesting.

So let me get this stright. You basicly take your Product/"idea" patent it and license it to big companys? Pricing on patenting in the us?

another question, dont know if you know this.

How hard is this to do for an over sea guy like myself. I live in a country with 4,5 mill ppl, would be great if i could license products to the U.S and suddenly have a 300+ million population to work with

 

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[Yussef]

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.

Wow how did I miss this post. Vig is killing it.

 

[SIcmart]

Thank you Vigilante for this great post. It provides some great insights!

From your experience, instead of "making the call," would a letter to the right person do? I'm worried I'll probably sound like a nervous wreck on the phone.

Thanks again!

 

[PatrickP]

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.

Vig, do the following feelings make sense?

A major concern that perhaps the performance level is not met and then I lose the entire deal after having sunk a ton of time and money. They then go on to sell the exact same product keeping 100% of the profit.

For me I would be very concerned that I promise to do 100K in sales and end up doing 90K and then lose the contract.

As opposed to building my own brand and getting 90K but deciding to keep going to try and grow the company more.

Seriously looking for your input on this.

Thanks

 

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[Vigilante]

Thank you Vigilante for this great post. It provides some great insights!

From your experience, instead of "making the call," would a letter to the right person do? I'm worried I'll probably sound like a nervous wreck on the phone.

Thanks again!

I would make the personal call over sending a letter 100 out of 100 times.

Why?

1. Chances are you won't get the exact right person on the first call.
2. Similarly, chances are your letter won't fall into the right hands. The person who opens the mail is NOT who you want.
3. If you get stopped at the gate keeper (on the phone OR via. the mail) you just wasted your time.
4. On the phone, you can react, respond, and rephrase. With a letter, it's not a discussion.
5. You know how easy emails are to be misunderstood? So are letters.

There's zero reason to be nervous. These are people, just like you are. If you have something of value to offer to them, they want you to call them. If I called you and offered you money, would you want to take my call? Of course.

Nervousness is natural. However, athletes turn nervousness into performance. Actors turn nervousness into performance. Salespeople need to learn how to harness nervousness, and turn it into performance.

Make the call. You will find out it's not that hard. What's the worst that can happen? They're not interested. (unlikely, but possible). If that happened, and the call was over, would the nervousness that you allowed to become fear instead of performance been worth it? Nope.

Letters are for chickens, and chickens don't do well in license deals. Make the call. If your idea is good enough, they will want what you are selling.

 

[Vigilante]

Vig, do the following feelings make sense?

A major concern that perhaps the performance level is not met and then I lose the entire deal after having sunk a ton of time and money. They then go on to sell the exact same product keeping 100% of the profit.

For me I would be very concerned that I promise to do 100K in sales and end up doing 90K and then lose the contract.

As opposed to building my own brand and getting 90K but deciding to keep going to try and grow the company more.

Seriously looking for your input on this.

Thanks

That's why you want your commitment to be achievable. Can it happen? Yes. Is it likely, if you are kicking a$$? No. For the most part, you are bringing them into an arena they are not in, and do not have expertise in. It's unlikely they want to go it alone, Patrick. Meet that thought with the same skepticism that people on this forum have when they arrive with "I have the greatest idea ever... I just can't share it right now."

If you can't be successful with your license idea, most would assume that someone NOT as familiar with what you do could be. For example, we had 0% concern that Dale Earnhardt Jr. would have done a GPS without us. Why? We knew more about GPS than he did. He doesn't want to manufacture GPS. He wants to drive race cars. Assume eventually everyone will get greedy, but that may be several years into a deal. Realistically, most license deals have a life of 4-5 years. Markets change, trends change, popularity changes. Even if you are tremendously successful, you are going to harvest during the harvest. It is very rare for a license deal to be a decade long... but don't kid yourself. We don't want to work that long anyway!

Don't assign your entrepreneurial ideas, your drive, your sourcing knowledge, and your distribution strategy to people outside of your universe. Part of the reason they should do a deal with you is that you bring as much if not more to the table than they do.

It's valid and worthwhile to consider the worst case scenarios when considering a license deal. It helps you structure a contract. However, as you would know... analysis paralysis is not a reason not to move forward. The bottom line is if the deal works it likely works for everyone, and if the deal doesn't work it likely works for nobody.

 

[Vigilante]

Great post Vigilante, this definitely sounds interesting.

So let me get this stright. You basicly take your Product/"idea" patent it and license it to big companys? Pricing on patenting in the us?

another question, dont know if you know this.

How hard is this to do for an over sea guy like myself. I live in a country with 4,5 mill ppl, would be great if i could license products to the U.S and suddenly have a 300+ million population to work with

Way too many generalities in this post for me to unpack it. I don't think your paraphrase is good, but that might just be a language barrier. However, if you aren't already successful marketing something in the United States, a license agreement is not an answer for you on how to access the United States market.

 

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[Vigilante]

Thank you Vigilante for this great post. It provides some great insights!

From your experience, instead of "making the call," would a letter to the right person do? I'm worried I'll probably sound like a nervous wreck on the phone.

Thanks again!

Once you had a KILLER presentation, a well vetted idea, and a rehearsed call... I am sure you could find someone from this forum to take a practice call with you if that would be of any help. However, you would want to have everything nailed down before then... so that you could hang up the phone from your practice call and make the real one.

 

[Vigilante]

Vig, do the following feelings make sense?

A major concern that perhaps the performance level is not met and then I lose the entire deal after having sunk a ton of time and money. They then go on to sell the exact same product keeping 100% of the profit.

For me I would be very concerned that I promise to do 100K in sales and end up doing 90K and then lose the contract.

As opposed to building my own brand and getting 90K but deciding to keep going to try and grow the company more.

Seriously looking for your input on this.

Thanks

Footnote : if we think the first year potential is $100k in license revenue, we agree to $20k in license revenue as a minimum guarantee (or what ever the smallest # is that we can commit to and not kill the deal...)

 

[PatrickP]

ah ok thanks!

I know quite a few people do well with this way of doing business.

I think I would be concerned that I was building a brand without the sort of control I would like.

Did you run into anything with losing the contract or the person's popularity fading out making the brand worth much less or even worthless?

 

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[Vigilante]

ah ok thanks!

I know quite a few people do well with this way of doing business.

I think I would be concerned that I was building a brand without the sort of control I would like.

Did you run into anything with losing the contract or the person's popularity fading out making the brand worth much less or even worthless?

We had one where the brand holder tried to do what you proposed in your initial post... by taking "their brand" back.

It was after we had already done several hundred million in sales, so my clients were happy.

And, the "brand" subsequently took US sales from $100m to $0 in less than a year.

Which made my clients even more happy!

Again, this happened after 4+ years of harvesting, so we were OK.

But yes... it happens.

 

[Vigilante]

And... licensing might violate one of MJ's commandments... the commandment of control.

What happens if you did a deal with a celebrity, and the guy turns out to be a pedophile?

I like license deals with known brands better than individual celebrities. We knew going in the Dale Jr. deal would be somewhat short lived due to the technology, so the risk of a celebrity burn out was somewhat mitigated by our short term (2 years) expectations.

 

[Vigilante]

ah ok thanks!

I know quite a few people do well with this way of doing business.

I think I would be concerned that I was building a brand without the sort of control I would like.

Did you run into anything with losing the contract or the person's popularity fading out making the brand worth much less or even worthless?

you

don't

want

to

work

too

long

anyway...

 

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[Vigilante]

If I give you two years with the right license deal at the right time with the right product and the right distribution strategy, I can guarantee you will never have to work again the rest of your life. The reason I still "work" is that all of my license deals I have done on behalf of clients --- i.e. I have done them for someone else using their money. Our license deals have made tens of millions of dollars for the licensees and the licensors.

However, an 18 year old kid can never pull that off. It stems from knowledge of an industry before you begin. You have to know what would work. You can't "test" a license agreement. It's not a game for the feint of heart.

By the way, nobody has asked yet but the Dale Jr./NASCAR one wasn't that successful. NASCAR fans like beer more than GPS units, apparently.

 

[SIcmart]

Once you had a KILLER presentation, a well vetted idea, and a rehearsed call... I am sure you could find someone from this forum to take a practice call with you if that would be of any help. However, you would want to have everything nailed down before then... so that you could hang up the phone from your practice call and make the real one.

Thanks for both replies. This is a great idea! I actually have someone in mind I can practice with.

Now I have a couple more questions for you. Please let me know if you'd rather me PM you. I just figured it would be better this way, to maybe help viewers of this thread in the future.

So here goes:

Let's say I have an idea for a new type of hat.


I contact some celebrities agents for logos I want on the hat, say the Foo Fighters, or some other musicians. And


hopefully I would get a licensing agreement with them.


Then, I would go to a well known hat company/brand, who would make the hats and maybe combine their logos, and I


would collect royalties for every hat they sell.


However, I am still a bit confused about the Curtis Mathis example:


Let's say I then wanted to go to a K-Mart to get the hat sold exclusively there. Where would this step fit into this


rough outline?






Also, what books do you suggest I read, besides Stephen Key's "One Simple Idea". I'm already reading that and it's a


great read so far.






Thanks again.

 

[PatrickP]

If I give you two years with the right license deal at the right time with the right product and the right distribution strategy, I can guarantee you will never have to work again the rest of your life. The reason I still "work" is that all of my license deals I have done on behalf of clients --- i.e. I have done them for someone else using their money. Our license deals have made tens of millions of dollars for the licensees and the licensors.

However, an 18 year old kid can never pull that off. It stems from knowledge of an industry before you begin. You have to know what would work. You can't "test" a license agreement. It's not a game for the feint of heart.

By the way, nobody has asked yet but the Dale Jr./NASCAR one wasn't that successful. NASCAR fans like beer more than GPS units, apparently.

I would have asked but I was afraid jr made a lot of money and that would not make me happy lol

Ok so I am guessing you need a BIG chunk of money to make it worthwhile to have a big name brand?

To be used for marketing, promotion etc.

I have an opportunity to take a patented product into 7 Elevens as the person who owns the patent already has serious interest BUT it will cost a minimum of 400K to start marketing the product. errrrrr I made it sound like I am special, actually ANYONE who has the 400K could do it lol

The guy with the patent doesn't have the experience nor the money, nor the will to get loans for the 400K.

Bigger thinkers, risk takers would probably jump at this. I on the other hand don't like having loans for anything.

 

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[theBiz]

I think getting celebrities on board is possible. I think creating the product is possible. I think protecting yourself legally is difficult and/or might just take an expensive lawyer to handle it all for you.

BUT i would pay money to sit in front of you and tell me all about distribution strategies and how to get products in the proper sales channels as fast as possible. Im sure you can just go through your cell phone at this point, but this is what i wanted to do at a young age, what an amazing and exciting business to be in.

Think about when a reality show star is rising.... you can just go find them, or email them on facebook, or connect with them on twitter, obviously presentation is important but im sure you can have some home runs getting lucky with the right people. One of my old teachers used to create products in china and then sell to Disney and always bitched about how his margins were so bad, how long it took to get patents and all sorts of things, really shied me away from the industry.

 

[Rawr]

Can manufacturers be convinced to put up the product on value of the licensing deal before hand? Or is this wishful thinking?


Just trying to think of ways to do this with least own money possible

 

[Vigilante]

Thanks for both replies. This is a great idea! I actually have someone in mind I can practice with.

Now I have a couple more questions for you. Please let me know if you'd rather me PM you. I just figured it would be better this way, to maybe help viewers of this thread in the future.

So here goes:

Let's say I have an idea for a new type of hat.


I contact some celebrities agents for logos I want on the hat, say the Foo Fighters, or some other musicians. And


hopefully I would get a licensing agreement with them.


Then, I would go to a well known hat company/brand, who would make the hats and maybe combine their logos, and I


would collect royalties for every hat they sell.


However, I am still a bit confused about the Curtis Mathis example:


Let's say I then wanted to go to a K-Mart to get the hat sold exclusively there. Where would this step fit into this


rough outline?






Also, what books do you suggest I read, besides Stephen Key's "One Simple Idea". I'm already reading that and it's a


great read so far.






Thanks again.

The Curtis Mathes example works only if you want to be extracted from the situation, sit on the sidelines, and collect a %.

Here's what you would do in that case.

1. Get the supply side manufacturing agreement done with the factory, so you know what the cost is. Lets say the hats will cost you @3.00

2. Get the license agreement done with the Foo Fighters for a % of dealer cost. For arguments, lets use a 10% royalty.

3. Let's pretend your dealer cost would be $6.00. If Wal-Mart wanted to buy them from you, their cost would be $6.00 (and they might retail them for $9.99), and they could not go around you as you had the license agreement done already. If Wal-Mart paid you $6.00, then you would pay the licensor $.60 for every unit sold.

Now here's where the answer to your question comes in. What if you would rather just sit on the beach? What if instead of paying you $6.00 per unit, Wal-Mart paid you $.50 per unit and Wal-Mart did everything else? That's NOT a common component of license agreements, but that is what happened in the Curtis Mathes example with K-Mart. It only works if your license agreement is IRON CLAD. That typically is NOT the goal of most license deals, but it is a possible end game. The retailer does it because it increases their gross margin per unit significantly, gives them control over the process, and guarantees exclusivity. However, that type of deal is VERY uncommon. I am not proposing that this is the best model, as it is far more difficult to achieve than just a typical license agreement.

More traditionally, you would just sell to Wal-Mart at a dealer cost, like a real company.

 

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[Vigilante]

I would have asked but I was afraid jr made a lot of money and that would not make me happy lol

Ok so I am guessing you need a BIG chunk of money to make it worthwhile to have a big name brand?

To be used for marketing, promotion etc.

I have an opportunity to take a patented product into 7 Elevens as the person who owns the patent already has serious interest BUT it will cost a minimum of 400K to start marketing the product. errrrrr I made it sound like I am special, actually ANYONE who has the 400K could do it lol

The guy with the patent doesn't have the experience nor the money, nor the will to get loans for the 400K.

Bigger thinkers, risk takers would probably jump at this. I on the other hand don't like having loans for anything.

In the examples I have worked with, the opposite has been true.

The BEST one we did was Samsung CCTV. I worked with a Dallas based distributor who had the ability to put the Samsung brand onto CCTV (video surveillance). Samsung was not in the business on the consumer side, so they allowed us to source merchandise, brand it as Samsung, and sell it through Sam's Club. Because Samsung spent literally hundreds of millions of dollars on branding, our marketing required budget was exactly 0%. We put the Samsung brand on it, put it on the retail shelves, and it sold. No advertising, no consumer perception marketing. Our only marketing expense was displays. The reverse was true in the case of Samsung... they are so particular about their brand that we weren't allowed to do much of anything in that regard.

Same with Daewoo. We did a license deal with Daewoo, and the whole reason we were willing to spend money on them was because that meant we would not need to spend $$ on building a brand. If I do a license deal, I am doing it to buy a household name. I am doing it, knowing I am going to pay the license a %, but knowing that it will short circuit my need to develop brand awareness. I should have to spend LESS, not MORE. I am licensing the brand because they have already built the brand. If I have to pay to build brand awareness, I licensed the wrong brand.

I want to be able to put their brand on my product, and have my product sell because it has their brand on it. Then, I can work with the retailers to get it in their circulars.

 

[Vigilante]

Can manufacturers be convinced to put up the product on value of the licensing deal before hand? Or is this wishful thinking?


Just trying to think of ways to do this with least own money possible

Anything is possible. You are only limited by your own imagination, and your own balls.