Delving into Money Matters in a Contract

This article is intended to give you an idea of just some of the ways that you can improve the amount of money you receive under a variety of agreements. I am not dealing with accounting, inspection, interest or payments in this article.

Follow the flow of money

The biggest failure under most contracts is that no one actually takes the time to go through the actual potential figures and to evaluate in reality what will be paid by whom, to who and when. As well as to establish with clarity the method by which money will be paid and how it will be held and by whom.

Link payments to fixed dates

The most obvious aspect to first consider is to negotiate a higher advance and percentage rate of royalties. It is likely that the advance may be linked to the delivery of material or the completion of certain work or the use of certain intellectual property rights by the other party. Regardless of this fact always consider whether there should be a series of dates by which in any event money will be paid to you.

Defining the source

The payments that you receive for any royalty are directly connected to how the original pot of money from which you receive your percentage is defined. Great care should therefore be taken to understand whether you are receiving a percentage of gross or net receipts or whether it is based on sums received.

Payment after expiry or termination

You need to check whether you will continue to be entitled to receive payment of any royalties which accrue after the termination or expiry of both the main agreement and any sub-licences.

New forms of technology, formats and rights

If you are receiving royalties derived from a long list of forms of exploitation such as publishing, merchandising, film, television, music, downloads, apps, sponsorship, brand endorsement and other forms of media. It is important to ensure that all new rights which may be created which do not exist now and all new forms of exploitation developed in the future are either subject to a new agreement in each case or have a fixed rate royalty which can be applied. Failure to address the issue of new rights, technology and formats which arise after the contract has been signed may lead to the other party not paying you any sums for them at all.

Escalating royalties

You may negotiate escalating royalties so that you can receive a sequence of higher percentages after a specified number of units of a product are sold or fixed financial targets are attained. These figures may be very high and appear unrealistic at the time of negotiation but reap great rewards if the project is an unexpected spectacular success.

Bonus linked to success

It is possible to Incorporate a series of bonus payments which relate to identifiable success. An athlete may receive an additional sum from a sponsor for winning a medal. A sponsor may pay an additional fee if the attendance figures at a festival or event substantially exceed expectations and reach a high agreed figure.

Costs and expenses

It is vital to try and list in detail the costs and expenses that the other party must incur and which they must pay in full. It helps to ensure that none of these sums can be deducted prior to the calculation and payment of any sums due to you.

Limiting deductions

The agreement should establish what deductions may be permitted before any royalty or other sums are paid to you. A blanket statement that marketing costs may be deducted may result in you receiving no sums at all. So you may wish to put a total capped amount on the deductions which are allowed as a whole or in relation to certain specified subjects.

You may require that If any such sums are to be deducted that supporting evidence must be provided of the expenditure. You may in addition set a financial limit for deductions which cannot be exceeded which relates to an accounting period or each year of the contract or the term of the agreement.

Clearances, consents and payments

A contract should identify which company or person must be responsible for and obtain clearances for the use of any intellectual property rights including copyright, trade marks and any other consents that may be required. This matter needs to be dealt with in relation to two main areas for which the facts and terms are not necessarily the same. The first is the original rights and material and the second is the creation and development of any new rights and new material. Note here that clearance or obtaining consent for something is not the same as being liable for the payment.

A contract must also set out the responsibility for the payment of the sums due for such clearances and consents both for the original rights and material and any new developments and forms of exploitation. Such costs may include reproduction of master material, software, music, text, scripts, mechanical reproduction, performance of a work, payments due to collecting societies, photographs, images, videos, films, animated material, blogs, websites, domain names, logos and trade marks.

It is a useful exercise to endeavour to predict all the costs and expenses which might be relevant to your project. The topics may then be dealt with in the contract to establish who is responsible for the payment of such sums. Examples include freight, import and export charges and custom duties, hotel, travel and mobile phone costs, bank charges, currency conversion costs and insurance. Other potential costs cover recall of any defective products; power failures and problems with the supply of source materials. The cost of manufacture and reproduction of any products, artwork, samples, packaging, advertising and marketing. There may be costs and expenses for ill-health and incapacity of a person who is a significant part of a project as well as sums for legal and professional advisors; the registration of domain names, trade marks and administration.

Notice Period

Where you are the consultant or person engaged by a company. Then you may seek to agree a long period of notice before termination can take place under the agreement. The longer the notice period then the more money the company may have to pay to bring the agreement to an end under that notice period.

Non-Exclusive or Exclusive Licence

It is always preferable to grant a non-exclusive licence rather than an exclusive licence. As the non-exclusive licence does not prevent you from granting the exact same rights to a third party. Provided that there is no additional restriction or prohibition in the agreement.

Licence Period and reversion of rights

There is an advantage in negotiating and agreeing a very short licence period and avoiding the grant of a licence for the full period of copyright. If you grant an exclusive licence for one year or three years or ten years. Then at the end of that licence period you may grant another exclusive licence and receive additional advances and royalties in respect of the same rights. Note that you should try to ensure that at the end of the licence period that all rights in the original work and material and in any new work and material revert to you the licensor rather than remain with any licensee or distributor.

Limiting the scope of the rights

There is a commercial benefit to you if you limit the type of right that you grant to a licensee or other third party and are very specific as to the format and the scope of the rights granted. You can do this by being very descriptive as to what is actually licensed and what is not. If you are not authorising the right to reproduce, adapt and exploit the rights in any other form of exploitation. Then it is vital that you exclude those rights and formats from the agreement and include examples of those excluded areas.
If you grant a right to reproduce a character from a book as a toy in an approved way. Then also confirm that there is no right to acquire the right to register the name as a trade mark or to create other products around it or to create a theme park or hold a festival based on that character.

Additional fees paid by a sponsor

In a sponsorship agreement it is necessary to confirm whether or not the sponsor has the right to film at the site and if so under what circumstances. How is the sponsor permitted to use the name of the festival and those that appear in any stage show or sports events? It is also important to clarify whether the sponsor has the right to use the images and names of those who appear in the show and events and if so in what manner. The contract may require that a new agreement needs to be negotiated and concluded for each new proposal.
It maybe that the sponsor may only be authorised to use any image or name with the express prior approval of an artist or athlete and the organisers. The sponsor could be obliged to supply an exact example of the intended project together with copies of any associated marketing or advertising. The sponsor may be obliged to pay additional fees to the artist or athlete and organisers in consideration of their consent and approval.

Allowances and additional fees

A television presenter may ask a company to pay a myriad of expenses which are necessary to keep up to date with the latest news and to create a suitable appearance on screen. These costs may be a fixed allowance or subject to an annual limit and the supply of relevant invoices and receipts. Examples of the type of costs which could be covered include hairdressing, spas, dental work, clothes, travel, entertainment, accommodation, technology, equipment, mobiles and security. There may also be additional payments due for interviews, filming and photographic sessions and marketing; attending a number of functions and other promotional work.

Additional rewards

There are other rewards under an agreement which create benefit for an individual which may be requested. Examples include health cover, share options, extended paid leave of absence; appointment as a director or partner at a future date; options to extend the agreement which are then subject to increased payments; relocations costs and loans or payment for property rental or purchase. Both financial and indirect benefits may be subject to tax.

© Deborah Fosbrook 2017

Deborah Fosbrook
Barrister and Consultant

 

Co-author of Contract and Copyright Drafting Skills

The A-Z of Contract Clauses 6th Edition

The Media and Business Contracts Handbook 5th Edition

The A-Z of Contract ClausesThe Media and Business Contracts HandbookContract and Copyright Drafting Skills

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