Having learnt the hard way, I advise you to know the stampsies rule before you vinegar up your cheeser and play with the big kids.

If you grew up in the 70’s and 80’s, lobbing lumps of fence panel at a horse chestnut tree in the autumn was both an art and a science. The art of avoiding occasional traffic combined with the science of releasing your chosen projectile with the correct elevation such that it prescribed a perfect parabola and connected with the intended target, a branch laden with conkers.

Having retrieved the spoils of your labour, it was time to split the bounty. If, like me, you had some competitive mates, this could descend into arguments and potentially violence, especially when one of your mates thought he was entitled to all the “cheesers” in the hoard.

Emerging from their spiky green shell, a cheeser was a twin conker and as such was approximately half the size of the others, but it had sharp edges. I was not a fan of cheesers, and with good reason.

Playing conkers in the playground when I was eight or nine, my first cheeser brought me to tears. I had soaked it in vinegar and let it dry out so that it was bone hard. I went to school supremely confident and ready to take on the big kids.

So I challenged the school hero of conkers to a match. He accepted the challenge, took one look at my conker, and smacked it as hard as he could with his gnarly, world beating beast. It hit my cheeser so hard it ripped the string from my hand and my prize clattered to the playground floor.

What happened next lead me inextricably to become a middle-aged royalties analyst. I just didn’t know it then.

My conker had hit the floor relatively unscathed, but as soon as it had made contact with the asphalt surface, my opponent screamed “stampsies!” and mercilessly crushed it beneath his Clarkes.

I lost and obviously, I cried.

My mates were obviously very supportive of my defeat.

” Ha-ha, you forgot to call “No stampsies”!”

The rules were enshrined in playground law, and especially Conkers law but I hadn’t read the contract. I didn’t speak to the right people and get the right advice. I neglected to become informed of the rules before naively wading in with my challenge.

So how did this lead to me being a royalty analyst? Well, I was aggrieved by the outcome of the conker incident but somewhere in my subconscious I knew I had failed myself by not observing more matches and asking more questions.

And so, when I first entered a world enshrined in royalty payments and minimum guarantees, I knew it would require a great deal of reading and asking of questions before I knew what I was talking about.

So I did. I read all the contracts. The ones that were signed, the ones that were still in negotiation and the ones that had expired.

All of them.

Because, unlike the stampies rule which was pretty simple to grasp, all royalty agreements are different.

So why is that?

I would expect that if I had moved schools and played conkers there would have been different playground laws. Probably different rules for pretty much every playground in the country. Maybe not wildly different, just subtly. But just enough to lose you a game of conkers.

And licensing contracts are no different. Every licensor is entitled to write a license agreement that benefits them. This may be specific to channels that they wish to prevent a licensee from selling their articles in, or distribution methods that they need to reserve for another contract, or want to avoid altogether.

They may have analysed their royalty income and worked out ways to increase it by subtly reducing a discount limit or by splitting the minimum guarantee territories into smaller regions.

Or they have the same licensing agreement they have used for years and just not updated it. They may not even be that familiar with it themselves.

But, as a licensee you have a responsibility to conduct your business in accordance with this agreement. You negotiated it. You signed it. You have to follow it.

All of it, not just the bits that are pretty standard, but the bits that aren’t as well.

Because the return on an audit is, more often than not, a very healthy one. For the licensor and the auditor that is.

And that’s mostly why they audit you.

They know that often people don’t read the agreements, at least not in enough detail to spot the particularly tricky clauses that cause the most problems, and frequently the biggest findings.

Licensees frequently hold dozens or hundreds of executed agreements, often multiple agreements with the same licensor and it can become extremely cumbersome, even impossible, to extract every relevant clause and apply them to the letter of the law. Even with the best of intentions and enormous effort, clauses will be overlooked, mis-interpreted or simply just not followed. Rarely do the license agreement receive enough scrutiny by the right people to guarantee zero audit findings. 

Royalties are not sexy. They don’t attract much attention and aren’t front and centre of licensee’s marketing or PR effort. Clearly, having a fantastic royalty department is not something you can boast about or leverage to make more sales or increase brand loyalty.

But royalties represent one of the biggest expenses to the business, often the largest after cost of sales and payroll. So, they should be treated with great respect and tireless attention to detail. But, having tried to research the subject when I very first engaged with the industry decades ago, it appears there is precious little information, advice or support available. It seems to be almost a dark art.

So does the subject appear to be shrouded in secrecy and shadow? Maybe had my opponent carefully confirmed the rules with me before crushing my conker out of existence, the odds may have tipped slightly in my favour.

Maybe the audit process is so established and accepted that there is no real incentive to change, and that the audit costs and findings are deemed reasonable to the licensee and the provision that is carried to cover the expense is within acceptable limits.

But this makes no sense to me. But then again I’m not a particularly fun guy. In my world, all the conker players will know all the rules and they will be reviewed before anyone swings a string. And I will make sure there are no stampsies.

In the dark dingy basement where the royalties are prepared there will be placed a blinding halogen light to illuminate the license agreements and to provoke an active conversation about the application, impact, and the consequences of all royalty related clauses.

This vision is a consequence of an experience I had many years ago at a trade fair auditing workshop. A licensor asked the auditor running the workshop the following question.

“What responsibility do we have to help the licensee improve their reporting process if we find they have underpaid?”

“None. They signed the contract. It’s their responsibility”.

Not all auditors or licensors will take this approach, thankfully, and not all will agree with this statement. It does seem somewhat harsh.

But I do agree.

Because I think he was right. If the licensor wants to forge a collaborative partnership with the licensee then of course it makes sense to help, advise and guide them to get the royalties right. But they have no obligation to offer unsolicited guidance. Of course, if a question is asked regarding an interpretation of a clause or a channel category that needs to be confirmed, then they are always willing to advise, in my experience. But it comes down to the licensee asking the right questions, not the licensor.

But licensees all too often don’t ask the right questions. Experienced licensees who have fielded many audits can build reference points to which clauses individual licensors tend to focus on and where they are likely to be scrutinised most closely. However, first time licensees do not have this luxury of experience and exposure and are much more at risk of applying clauses incorrectly or missing them altogether. They fail to apply basic principles like reconciling the sales records they use for declarations with the GL or recording the nature of discounts accurately.

This is evidenced by the high return on investment in the auditing process. But it doesn’t have to be this way. And it shouldn’t. Not in my opinion, anyway.

So, forty years after such a bitter playground defeat I am trying to enlighten and support licensees to know all the rules, know how to apply them, communicate them to all the stakeholders in the business so they can get their royalties right.

When the inevitable audit is booked, not only are they confident that the audit will reveal no significant findings, but they can operate in an environment where the royalties paid and the royalties payable are the same amount and they won’t have to carry an excessive provision for royalty audits. Oh, and they won’t have to pay the auditor’s fee either.

Having learnt the hard way, and it bringing me to tears, I advise you to know the stampsies rule before you vinegar up your cheeser and play with the big kids.