This Slideshare presentation is a partial preview of the full business document. To view and download the full document, please go here: http://flevy.com/browse/business-document/negotiating-brand-licensing-deal-terms-1602 DOCUMENT DESCRIPTION This 50 page module will walk you through standard licensing deal terms that will be included in the contract. These terms include rights to territories, channels, covered products and trademarks, work product, quality assurance standards, the licensing approval process, manufacturing facility approval, royalty rates, minimum guaranteed royalties, sales requirements, etc. These are also guidelines that the licensee must comply with throughout the term of the agreement. This manual will ensure you know the deal terms and your contractual obligations before the agreement is signed. Terms of Conditions: In using this document you are agreeing to these terms and conditions. This document may be used by the purchaser for his or her use only. You are authorized to use parts of the documents for reference but agree not to share or transfer the entire document. Additional copies require an additional purchase. Moreover, you may not use our products for any illegal or unauthorized purpose nor may you, in the use of the Service, violate any laws in your jurisdiction (including but not limited to copyright laws). This document may contain certain historical information. Historical information, necessarily, is not current and is provided for your reference only. We reserve the right to modify the contents of this document at any time, but we have no obligation to update any information in our document.

1. NEGOTIATING LICENSING DEAL TERMS 1© 2011 Licensing Brands, Inc. All Rights Reserved.
A STANDARD
LICENSING DEAL
APPROVAL PROCESSS
© 2009 Licensing Brands, Inc. All Rights Reserved.
Brand Licensing Expert
Pete Canalichio

2. NEGOTIATING LICENSING DEAL TERMS 4© 2011 Licensing Brands, Inc. All Rights Reserved.
THE 5-STAGE LICENSING CONTRACT NEGOTIATION PROCESS
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+"(%*1&%4*'*.&7"()""2*E"*1&..*%'0"*>$:*%45$:#4*%4"*8'5&$:)*)%'#")*$9*,:"*,&.&#"(7"*'(,*%4"*%$$.)*
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%4"*-5$7"))2**
Stage 1: Understanding the Deal Terms
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)&#(&(#*%4"*'#5""+"(%2**K$5"$8"5<*'*#$$,*:(,"5)%'(,&(#*1&..*"():5"*%4'%*($*+$(">*&)*."9%*$(*%4"*
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'9%"5*&%*&)*)&#(",2***
Important Deal Terms
Brand/Trademarks Advance
Covered Products Minimum Guarantees
Authorized Channels New Product Introductions
Territory Sales Performance Requirements
Contract Term Shipping Date
Exclusivity Commercialization Date
Royalty Rate Sell-off Period
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3. NEGOTIATING LICENSING DEAL TERMS 7© 2011 Licensing Brands, Inc. All Rights Reserved.
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4. NEGOTIATING LICENSING DEAL TERMS 10© 2011 Licensing Brands, Inc. All Rights Reserved.
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Stage II: Developing a Negotiating Strategy
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5. NEGOTIATING LICENSING DEAL TERMS 13© 2011 Licensing Brands, Inc. All Rights Reserved.
!$1*%4'%*>$:*4'8"*'*#$$,*$8"58&"1*$9*%4"*V*"."+"(%)*$9*'*):77"))9:.*("#$%&'%&$(<*/*5"7$++"(,*
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+"(%)2**E"*4'8"*-5$8&,",*>$:*1&%4*'*%"+-.'%"*&(*;--"(,&A*/*%$*4".-*#"%*>$:*)%'5%",2
Standard Deal Term Ranges
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Royalty and Payment Terms
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Deal Terms Guidelines
Technology
1% - 4%
Corporate Brands
5% - 10%
Pro Sports
12% - 20%
Character
8% - 20%
NCAA
8% - 12%Royalty Rates
Sales Performance 25% - 40% of Forecasted Sales by Country, by Period
Minimum Guarantees 25% - 40% of Forecasted Royalties by Country, by Period
Contract Term 40% - 60% of First Year Minimum Guarantees
Advances Commercialization Date
Exclusivity 2 -3 Times Sales Performance and Minimum Guarantees
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6. NEGOTIATING LICENSING DEAL TERMS 16© 2011 Licensing Brands, Inc. All Rights Reserved.
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7. NEGOTIATING LICENSING DEAL TERMS 19© 2011 Licensing Brands, Inc. All Rights Reserved.
Well, we will be launching with 5 prod-
ucts, so we can introduce 1 new prod-
uct each year. Does that work for you?
So, if we agree to launch 2 new prod-
ucts a year, will you be able to meet
your internal velocity rate?
When you put it like that, it doesn’t
seem as unachievable. Alright, we
agree to $800,000 minimum sales in
Year 1.
Well, that depends on the
concept approval by your
team and the line reviews
with the retailer. As I said,
we need about 18 months
to get product on shelf.
$800,000 in minimum sales
seems a little steep…
That’s acceptable. What about new product
introductions? How many new products do you
plan to introduce each year?
Normally, we look for a velocity of 40% for our
internal products every 4 years, i.e., if we currently
have 10 products on the market, we will launch 4
new products over that time period.
Yes! I will include a minimum of 2 new products a year in the Deal
Terms Sheet. Let’s discuss the sales performance requirements.
We would like you to achieve minimum sales of $800,000 in Year 1.
Good. Now when do you plan to ship the product
to the stores and when will the product be
available on the shelves? In other words, what are
the shipping and commercialization dates you’re
looking at?
As per your forecast in the conservative business
estimator, you projected selling $2 Million in Year
1. Even if you were to fall short of the target by
20%, you would have $1.6 Million in sales. All we’re
asking is that you guarantee half of that number in
sales.
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8. NEGOTIATING LICENSING DEAL TERMS 22© 2011 Licensing Brands, Inc. All Rights Reserved.
I understand and will contact my
insurance provider.
Sure, thank you Ms. Z, I look forward
to working with you in the future!
That’s correct. The cash advance will be offset against
future royalty payments. We also require you to hold
insurance with a minimum of $1 million coverage. We
really don’t have much bandwidth here.
Well, Mr. Doe, it looks like we have agreed to all
deal terms. I will send you a copy of the Deal Terms
Sheet for you to review and sign.
That’s the going rate in the market for
some of your direct competitors.
I cannot argue with that! Yes, I think
7.25% is a fair rate.
Okay. What are the minimum guaran-
teed royalty payments in this case?
And this will be paid at the time of
signing the contract?
I’m glad we agree. We also usually ask for 50% of
the first year minimum guaranteed royalty pay-
ments as a cash advance upon signing the contract.
Well, we agreed upon the minimum sales target to
be $800,000 in the first year. So the minimum guaran-
teed royalty payments will have to be $58,022. Half
of that amount, $29,011 will be the cash advance.
Well, based on our analysis, if you sold $800,000
worth of product at a 40% margin and paid us
10% in royalty, we would earn $80,000 and you
would earn $148,571. Now you said your margin
won’t exceed 30%. At a 30% margin, if you paid us
7.25% as royalty, both of our earnings would fall by
$21,978 each. We’re willing to share the burden of
the lower margins with you, but we will not accept
a royalty rate lower than 7.25%.
Can you explain how you reached that number?
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9. NEGOTIATING LICENSING DEAL TERMS 25© 2011 Licensing Brands, Inc. All Rights Reserved.
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10. NEGOTIATING LICENSING DEAL TERMS 28© 2011 Licensing Brands, Inc. All Rights Reserved.
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34"*.&7"()""*+:)%*0""-*&(*+&(,*%4'%*"8"(*%4$:#4*%4"*.&7"()""*4')*)&#(",*%4"*,"'.*%"5+)*)4""%<*%4"*
.&7"()$5*7'(*1'.0*'1'>*95$+*%4"*'#5""+"(%*'%*'(>*-$&(%2*3>-&7'..><*%4"*.&7"()$5*("",)*'--5$8'.*
95$+*%4"&5*)"(&$5*+'('#"+"(%*6"9$5"*%4">*7'(*)&#(*$99*$(*'(>*,"'.2
Stage IV: Drafting the Agreement
O(7"*)"(&$5*+'('#"+"(%*4'8"*#&8"(*%4"*,"'.*%4"*#5""(*.&#4%<*'(,*%4"*,"'.*%"5+)*4'8"*6""(*'#5"",*
:-$(*'(,*)&#(",*$99*6"%1""(*%4"*.&7"()""*'(,*%4"*.&7"()$5<*%4"*.&7"()$5*')0)*%4"&5*."#'.*7$:()".*%$*
,5'9%*%4"*7$(%5'7%2*34"*,"'.*%"5+)*):++'5>*)4""%*-5$8&,")*%4"*+'%"5&'.*9$5*%4"*7$(%5'7%2*
E4&."*%4"5"*'5"*+'(>*8"5)&$()*$9*.&7"()&(#*7$(%5'7%)<*6")%B&(B7.'))*7$(%5'7%)*7$(%'&(*%4"*9$..$1&(#*
B* J74",:."*@*J7$-"*$9*Q&7"()"
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11. NEGOTIATING LICENSING DEAL TERMS 31© 2011 Licensing Brands, Inc. All Rights Reserved.
Schedules D, E, and F
B
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34&)*-5$8&)&$(*&)*:)",*14"(*%4"*.&7"()""*,$")*($%*$1(*%4"*+'(:9'7%:5"52*/(*%4&)*7')"<*%4"*K'(:9'7B
%:5"5*;#5""+"(%*)%'%")*%4'%*'(>*%4&5,*-'5%>*+'(:9'7%:5"5)*:)",*6>*%4"*.&7"()""*1&..*6"*':,&%",*-5&$5*
%$*"+-.$>&(#*%4"&5*)"58&7")*%$*+'0"*):5"*%4"*+'(:9'7%:5"5*+""%)*%4"*)%'(,'5,)*)"%*6>*%4"*.&7"()$52*
J74",:."*L*7$8"5)*%4"*Y:'.&%>*J%'(,'5,)*%4'%*+:)%*6"*9$..$1",*9$5*'..*.&7"()",*-5$,:7%*6"&(#*)$.,*
:(,"5*%4"*.&7"()$5H)*('+"2*34&)*)"7%&$(*%>-&7'..>*&(7.:,")*%")%&(#*)%'(,'5,)*9$5*"'74*$9*%4"*7$8"5",*
-5$,:7%)*'(,*14'%*%")%&(#*9'7&.&%&")*7'(*6"*:)",*%$*"8'.:'%"*%4'%*%4"*'--5$8",*-5$,:7%)*-'))*%4$)"*
)%'(,'5,)2*N'))&(#*%4"*%")%&(#*)%'(,'5,)*0""-)*%4"*-5$,:7%*95$+*6"&(#*5"7'..",<*14&74*&)*75&%&7'..>*
&+-$5%'(%*%$*%4"*.&7"()$52
Stage V: Signing the Agreement
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/9*%4"5"*'5"*'(>*$%4"5*%"5+)*$(*%4"*7$(%5'7%<*$5*%4"*7$(%5'7%*.'(#:'#"*&)*:(7."'5*$5*74'(#",<*%4"*
.&7"()""*)4$:.,*7$(%'7%*%4"*.&7"()$5U*#"%*%$#"%4"5*1&%4*%4"+*$8"5*%4"*-4$("*$5*&(*-"5)$(*'(,*5"'74*
'(*'#5""+"(%2*34"*.&7"()$5*1&..*%4"(*+'0"*'*74'(#"*%$*%4"*%"5+)*$5*%4"*.'(#:'#"*T')*%4"*7')"*+'>*
34"*7$(%5'7%*+'>*#$*6'70*'(,*9$5%4*)"8"5'.*%&+")*6"9$5"*6$%4*-'5%&")*'5"*7$+9$5%'6."*1&%4*'..*
%4"*%"5+)*'(,*.'(#:'#"2*O(7"*%4&)*&)*,$("<*6$%4*-'5%&")*)&#(*%4"*7$(%5'7%2*O(.>*14"(*'*7$(%5'7%*
&)*)&#(",*6>*6$%4*-'5%&")*&)*&%*7$()&,"5",*F"A"7:%",2G*34"*7$(%5'7%*&)*($1*8'.&,*'(,*6$%4*-'5%&")*
)4$:.,*0""-*'*7$->*$9*%4"*F"A"7:%",*7$(%5'7%2G
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12. NEGOTIATING LICENSING DEAL TERMS 34© 2011 Licensing Brands, Inc. All Rights Reserved.
4L//,#$/35(/862($+((/%(86.("/"(86#M8(/>1#8639/#$%/+(".62(/8(.(8+O
!L//P-E/E688/63/5(8F/35(/M"#$%O
B* J74",:."*@*J7$-"*$9*Q&7"()"
B* J74",:."*L*Y:'.&%>*J%'(,'5,)
O(7"*%4"*7$(%5'7%*4')*6""(*,5'9%",<*&%*&)*)"(%*%$*%4"*.&7"()""2*34"*.&7"()""*5"8&"1)*"'74*$9*%4"*-5$B
8&)&$()*$9*%4"*7$(%5'7%*%$*"():5"*%4"*%"5+)*'5"*'77"-%'6."2**/9*%4"5"*'5"*'(>*%"5+)*$5*.'(#:'#"*%4'%*
'5"*($%*'77"-%'6."<*%4"*.&7"()""*5"8&"1)*%4"+*1&%4*%4"*.&7"()$5*&(*'%%"+-%*%$*5"'74*'(*'#5""+"(%2*
/(*+'(>*&()%'(7")*%4"*7$(%5'7%*.'(#:'#"*&)*($(B("#$%&'6."*'(,*%4"*.&7"()""*+:)%*,"7&,"*14"%4"5*
%4">*7'(*.&8"*1&%4*%4"*$5&#&('.*.'(#:'#"2**/(*5'5"*&()%'(7")<*%4"*.&7"()$5*1&..*+'0"*'*74'(#"*%$*%4"*
.'(#:'#"*'(,*5"%:5(*%4"*5"8&)",*7$->*%$*%4"*.&7"()""*%$*8"5&9>*'#5""+"(%2*
;9%"5*'..*%4"*%"5+)*'(,*.'(#:'#"*'5"*'#5"",*:-$(<*%4"*7$(%5'7%*&)*5"',>*%$*6"*)&#(",2**34"*.&7"(B
7$(%5'7%*&)*,""+",*"A"7:%",2**345""*7$-&")*$9*%4"*"A"7:%",*7$(%5'7%*'5"*5"%'&(",*6>*%4"*.&7"()$5*'(,*
#$*%$*%4"*.&7"()$5H)*6:)&("))*:(&%<*%4"*.&7"()&(#*,"-'5%+"(%*'(,*%4"*.&7"()$5H)*."#'.*,"-'5%+"(%2*34"*
5"+'&(&(#*%1$*"A"7:%",*7$-&")*'5"*0"-%*6>*%4"*.&7"()""H)*6:)&("))*,"8".$-+"(%*'(,*."#'.*,"-'5%B
+"(%)2**E&%4*%4"*7$(%5'7%*"A"7:%",<*&%*&)*($1*%&+"*%$*5"7$#(&="*'..*%4"*4'5,*1$50*'(,*7"."65'%"*%4"*
)%'5%*$9*'*.$(#*'(,*):77"))9:.*5".'%&$()4&-2***
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13. NEGOTIATING LICENSING DEAL TERMS 37© 2011 Licensing Brands, Inc. All Rights Reserved.
Initial Term:
Extended Term (only upon mutual agreement of the parties):
Insurance Requirements:
Required limits may be satisfied by a combination of primary General Products,
Umbrella, and/or Excess Liability insurance policies
ROYALTY AND PAYMENT TERMS
Royalty Rate:
Advance:
The Advance payment may be offset against Royalties due during the period that
ends on
________________________________
Guaranteed Minimum Periodic Royalty Payments (by country and by period):
Initial Term: Year AmountThis document is a partial preview. Full document download can be found on Flevy:
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14. NEGOTIATING LICENSING DEAL TERMS 40© 2011 Licensing Brands, Inc. All Rights Reserved.
APPENDIX III: INTERNAL DEAL MEMO
(Can be used as a template)
This document is a partial preview. Full document download can be found on Flevy:
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15. NEGOTIATING LICENSING DEAL TERMS 43© 2011 Licensing Brands, Inc. All Rights Reserved.
APPENDIX V: Schedule C
ROYALTY AND PAYMENT TERMS
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&(*%4"*+'(:9'7%:5"<*)'."<*+'50"%&(#<*',8"5%&)&(#<*$5*,&)%5&6:%&$(*$9*%4"*Q&7"()",*N5$,:7%)*)4'..*6"*
,",:7%",*95$+*'(>*M$>'.%&")*-'&,*6>*Q&7"()""2*
34"*F=-9#839/=#3(
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?"'5* * ;+$:(%
* * * * ?"'5* * ;+$:(%
PAYMENT INSTRUCTIONS
Q&7"()""*)4'..*):6+&%*'..*-'>+"(%)*:(,"5*%4"*Q&7"()"*;#5""+"(%*%$*Q&7"()$5*6>*1&5"*%5'()9"5*&(*
* * * !#$*K//
/ / / 422-1$3/D#)(K//
/ / / 4!4&=-136$G/SK/
/ / / 422-1$3/SK/
* * * *
This document is a partial preview. Full document download can be found on Flevy:
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16. NEGOTIATING LICENSING DEAL TERMS 46© 2011 Licensing Brands, Inc. All Rights Reserved.
?'I=4B;/?IJR':ID?/,#3(G-"9/?#8(+/U#$%/?3#$%#"%/C#"G6$X/
B
$9*'%%"(%&$(*%$*%4&)*)"#+"(%2*
@2*O5,"5*)&=")<*14&."*+$,"5'%"<*'5"*4&#4.>*8'5&'6."
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%&$()4&-*1&%4*'*1"..B-$)&%&$(",*+'50"%*."',"52
*
This document is a partial preview. Full document download can be found on Flevy:
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17. © 2009 Licensing Brands, Inc. All Rights Reserved.
LICENSING BRANDS, INC. IS A MEMBER OF THE EVERWORTH GROUP.
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