08 - Licensing a game from a designer

Submitted by ehanuise on Sun, 07/07/2013 - 20:07

08 - Licensing a game from a designer

Most publishers do publish games designed by authors that are not employees of the company. And most board game authors do license their games to different publishers, so there is in effect a free market of game licensing.

As a publisher you will need to search for games to publish, and to negotiate licensing term with game authors. Usually, a contract is made when the author and publisher agree to team up to publish the game. The contract is important as it has a binding effect, covers the rights and obligations of both parties, serves as a reference to what was agreed upon, and covers most practical aspects of how this collaboration will work.

Royalties

The publisher will pay money to the author in exchange for the right to publish his game. This usually takes the form of royalties : a recurring payment whose amount is based on the total sales of the game during that period.

The most common basis for royalties is the gross sales of the publisher : the author receives a percentage of the money the publisher received from selling the game to distributors and other parties (retailers, customers, etc.). The percentage can be fixed or change according to the quantity of games sold. That percentage can range from as low as 3% to as high as 15%. 5% to 8% is however the most common range. Some authors and publishers also agree on a sliding percentage, varying with the total amount of games sold. Famous authors and exceptional games can justify very different amounts and arrangements, each game and royalties negotiation is different.

Other arrangements exist, but they are less common : some publishers pay the designer a set amount of money based on the number of games printed for each print run as a lump sum advance payment, others pay a set amount of money for each game sold no matter the actual sell price, and some even pay a one-off amount no matter how many games will be printed and/or sold.

The percentage royalties based on actual sales figures is the most common situation because it is the one that best fit both the publisher and the designer's interest, in my humble opinion.

So how does this work ? Here is an example :

The designer and publisher agree on the amount for the royalties, say 8% of the publisher's sales for that title, with a fixed percentage for the sake of convenience.

The publisher produces 3.000 games, at a $9.000 cost ($3/unit). The game's SRP (suggested retail price) is $25.

Retailers usually buy the games at 50% off from the distributor, so $12.5/unit. In Europe, distributors usually have a 30% margin : $9.61 + 30% = $12.25

So the publisher's sell price is $9.61, and the author gets royalties on that basis : $9.61 x 8% = $0.769 per unit sold.

If the publisher attends a convention and sells games there at $25/unit, the author will get $25 x 8% = $2 per unit sold.

So at the end of each period (usually six month but it could be each quarter or yearly), the publisher will put together a sales report with all sales for the game, the corresponding royalties amounts and total, and make a payment to the designer for that amount.

Distributors don't always just buy games from the publisher however, it can happen that games are put at the distributor's warehouse and sold on a consignment basis. This usually means the publisher gets a better price per unit, but it also means the prices can vary a lot from sale to sale : the distributor could sell some games at 50% SRP to individual retailers, sell some other with an extra 20% off to a chain that buys a few hundred copies at a time, and some at SRP or with a small discount directly to customers on a convention or through their website. Here again, they will put together a sales report at the end of each month and send it to the publisher along with the corresponding payment, and these reports will also be used by the publisher as the basis for the calculation of the author's royalties.

Calculating period sales amounts and putting up together the royalties statements can be time consuming if you're not well organised, so make sure you keep your books up to date. Using an accounting and/or ERP (enterprise resources planning) software package would definitely help.

Copies of the game used for promotion, reviews, and customer service (replacing lost or damaged parts) usually are not included in the royalties calculation.

The author must deal with the taxes and legal declaration of that income himself, although some publishers help them manage that.

Duration and extent of the rights licensed

Another important aspect of the agreement between the publisher and designer is the duration and the extent of the rights licensed. The duration is usually a set period of time (3 or 5 years) from the time the game gets released. It should also include a planned publication date and define what happens if the publisher fails to publish the game for that time. Most contracts state that they are automatically renewed for a similar or shorter (6 or 12 months) time after the initial period if none of the parties object to it.

As a publisher you should ask to exclusive rights to the game published : you don't want to compete with another publisher to sell the same game on your market.

The contract should include the area and/or languages that it covers, and the status of other rights : digital versions of the game (computer, tablet, web, ...), use of the name, promotion purposes, merchandising items, etc.

Advance payment

Many game authors demand an advance payment when signing a publication contract. It can be a token amount as low as $100, or it can be a much larger sum, as agreed between the author and publisher. The advance payment has several purposes. It serves as a commitment from the publisher to actually publish the game. It guarantees the author that if the game eventually does not get published he will not have lost everything. It guarantees the author that if the game gets produced but does not sell he will at least get a minimum amount of royalties for it.

The advance payment can be separate from the royalties, or be considered an advance payment on the forthcoming royalties. In that case, when the game begins to sell the publisher will only start to pay royalties once they exceed the advance payment amount, and only for the exceeding amount.

The royalties percentage and advance amount are to be negotiated between the designer and publisher. A higher advance could compensate for a smaller percentage, or vice versa.

It is also possible to agree on not paying any advance, and to have the publisher commit to paying a penalty fee should the game eventually not get published for any reason whatsoever. I favour that kind of arrangement for Flatlined games while I'm a small start-up, as it allows me to use that money on art and preproduction instead. This is of course compensated by a higher than average royalties percentage paid to my authors.

Contract end

A contract is usually just a piece of paper sitting in a folder for as long as all goes well. You will usually only pull it for reference when paying royalties, to check its range and duration, and when it ends.

A contract can end in several ways and for several reasons. One of the parties may want to end it. One of the conditions written in it such as a minimal amount of yearly sales may not be met. A dispute may arise. Whatever.

It is at that time that the contract becomes very important, so you should always be very careful about how you define the end of the contract. Making it easy and painless to deal with the contract end for both parties ensure you only end that contract and not your whole business relation and that you can still work with that designer for future projects.

Gentlemen agreements

As stated above, this industry is first and foremost a people's industry, and there are many things that are agreed upon between persons on a gentlemanly fashion, with just a handshake. You should however always take the time to write down these agreements in a contract, no matter how well-meaning you and your author are. Making a contract does not in any way mean you question or doubt the other's integrity or trustworthiness, it means you stand up to what has been agreed upon and are willing to be legally bound to it. Signing a contract should always be viewed as a positive event.

When should you sign the contract ?

As soon as you are certain you will publish the game and both parties agree on the contract terms. The contract shows both your and the author's commitment, and gives both a guarantee that the project will bear fruit. If the author wants to pitch the game to other publishers before he commits to you publishing it, you should not start working on it until the contract is signed. Most importantly, as a publisher you should never engage any money on a game that you don't have a signed contract for.

It can take some time and back-and-forth between you and the author until all aspects of the contract are OK for both parties (especially if the game has several designers). You can start some development work during that period, but you should not engage any money (art production, printing, manufacturing, marketing, ... and of course advance payments) until the contract is signed.

So, the sooner you sign the contract the better, but you have to make sure both parties are willing to commit to the project before you do sign it.

Some authors will insist on using their own contract model, but unless you can't avoid it you should always use the same contract for all your games in order to keep things consistent, and to ease up contract maintenance and corrections with your authors if you find mistakes or legal issues in your 'standard contract' after some time.