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Contracting

Contractual Marketing & Advertising Commitments Reduced in 2019

Contact the editor at karina@plainlanguagemedia.com

Respondents to TLL’s 2019-2020 Licensing Business Survey overwhelmingly reported fewer, less onerous marketing and advertising in 2019 compared to previous years.

Only 74% of Licensing Execs Require(d) to Pay Minimum Guarantees

TLL calculates that roughly 94% of licensing agreements signed in 2019 contained a provision for minimum guaranteed payments, otherwise known as minimum guaranteed royalties. The guarantee is the minimum amount the licensee agrees to pay the licensor at the end of each year or contract period regardless of sales.

A smaller share of licensing executives reported that they required (or were required to) make minimum guaranteed payments this year (74% for 2019–2020 versus 82% for 2018–2019).

Roughly 17% of respondents indicated that they were not required to make minimum guarantees. Another 9% said that it was only sometimes, depending on the outcome of negotiations (typically, a larger advance may make up for a smaller guarantee).

Contracts signed in the U.S./Canada are less likely to include guarantee provisions, with 35% of licensing executives working in the territory stating that they are only sometimes, or not at all, required to make (or demand) minimum payments.

For those who had contracts with minimum guarantees, just 14% of licensing executives reported an increase in the value of guarantees from 2018–2019, compared to 25% in 2017–2018 and 37% in 2016–2017. Most (77%) reported that the value stayed the same, and just 9% reported a decrease.

Executives outside of the U.S./Canada were more likely to see an increase in guarantees (17% versus 13% in the U.S./Canada). Exactly 81% of respondents in the U.S./Canada reported that the value of guarantees remained flat in 2019, compared to 67% internationally.

Advances Dip in Average Value, Burst in Popularity

Approximately 96% of licensing agreements contained a provision for advances, or a sum due upon contract signing.

Most (83%) respondents indicated that they required (or were required to) pay an advance, with the remainder equally split between not being required to or only sometimes (9% each).

Bucking the trend, advances proved somewhat more popular this year compared to last. In 2018–2019, 15% of executives indicated that they required (or were required to) pay an advance. Three-fourths (75%) did not have such a requirement, while 10% only sometimes (half or less of all deals).

Contracts signed in the U.S./Canada were less likely to include an advance provision, with 24% of executives stating that they are only sometimes, or not at all, required to pay (or demand) an advance.

Over two-thirds (62%) of respondents reported that the average value of advances stayed constant from the previous year, while 24% observed a decrease in value and 14% an increase.

Rates were slightly more stable outside of the U.S./Canada, as respondents working outside the territory were less likely to report a decrease in average value (17% versus 25% in the U.S./Canada) and more likely to report no change (67% versus 56%).

Over Two-thirds of Execs Don’t Deal With CMFs

Just over half (53%) of all licensing agreements contained a provision requiring licensees to participate financially in marketing the property, beyond advertising their own product line, by paying into a central marketing fund (CMF).

A minority (21%) of respondents stated that they required (or were required to) pay into a CMF, with an additional 11% indicating that they required (or were required to) only sometimes. Two-thirds (68%) of licensing executives indicated that they made no CMF contributions.

Respondents working in the U.S./Canada are most disdainful of paying into a CMF, with 77% not paying (or demanding payment). Licensing executives outside of the U.S./Canada are more likely to have to pay into a CMF, with 33% stating that they regularly do so and 17% that they sometimes do so.

Compared to last year, the average contribution to a CMF for those required to do so has declined. Most provisions call for a 1% contribution as a percentage of net sales (44% share of contracts), followed by 2% contribution (29% share), with a minority asking for over 2% contribution (20% share) or under 1% contribution (5% share). Other calculations such as flat fee payments make up 2% share of contracts.

In 2018, 54% of CMF provisions called for 2% or greater contribution (compared to 49% in 2019) and only 44% for 1% or less (also 49% in 2019).

Licensee Advertising Commitments Fall Out of Favor

Only 10% of licensing agreements included a provision outlining a commitment to licensee advertising, with most respondents indicating that spending was merely encouraged rather than required.

Under one-third (30%) of respondents were required to (or required) a stated commitment to licensee advertising regularly and 10% sometimes. Respondents working outside the U.S./Canada were much more likely to not contract for a strict requirement (83% versus 60% in the U.S./Canada).

For the minority required to (or demanding) spend of a percentage of net or wholesale sales on advertising, the average requirement was slightly less compared to the previous year. Just over 41% of contracts asked for a contribution under 2%, 34% for a contribution between 2–5%, and 25% for a contribution of over 5% of net or wholesale sales. In 2018 the breakdown was 40% share under 2%, 32% share between 2–5%, and 28% share over 5% of net or wholesale sales.

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