Minimum Guarantees Are Everything In Licensing. Until They’re Not.

The musical Cabaret had a point. (Many in fact.)?Money makes the world go ‘round.?

The brutal truth.?Licensors calculate their net worth through expected future earnings.?That comes from minimum guarantee commitments.?Nothing is more concrete when quantifying headcount, compensation, stability, and the propensity to buy (or get bought).??

Licenses with ambiguous financial obligations are hobbies.?

Strategic collaborations are marketing moments, and we celebrate those.?But that’s a tough tale to tell a banker.

Manufacturers who think they can avoid that are na?ve.?But.?There is a constructive route for licensors to explain, expect and (dare we say) maximize guarantees.?The best of brand licensors don’t get this right all the time.?So: a few tenets that always ring true, and lessons that can’t be learned enough.

Amazing Idea.?Huge Potential.?No Capital For Licenses.?Just Say No.

Cut the discussion short.?Kindly and candidly.?Those companies sound convincing, I know.?They will siphon your energy, frustrate your colleagues, and disappoint you.?To be clear – their ideas and upside may look great.?But anyone can write a deck with dollar signs.?With no financial guarantee, they are simply not ready to be a party to a license agreement.?Under-resourced, or unstable, or simply disorganized. ?It doesn’t matter. No money for a license means no capital for product development, inventory, good staff, or any tool required to execute their great idea.?

By the way.?If you’re a licensee hoping to acquire properties without the capital to commit – wait until you have scaled to the next level.?A great brand license won’t jumpstart your business if it has yet to exist.?

Your First Question For A Licensee Is What Guarantee They Can Afford? Isn’t That Like…

…asking about salary in the first interview question??Yep.?And it makes our industry seem very unsophisticated. Of course we gauge potential employees on the financial value they can add.?But first questions are not about money.?That maxim applies here.?Discuss experience.?Capabilities.?Ideas.?Successes in market.?Be curious, and patient, about what licensees can become, and their vision for what your brand could do for them.?And meanwhile, ask yourself if this is even the right industry, or company, or product, for your brand, before you start talking dollars and cents.?Please. The best initial licensor pitches I have ever heard are when brand owners do nothing but ask questions.?The terms discussion is imminent.?Save it for when both parties are more vested.

?Ask For A Higher Guarantee.?Ask For A Big Advance.

?If you’re a Licensor, or a representing agency, that’s your job.?But potential, competent licensees will ask you why. Be really prepared when licensees ask you that question.??Better yet, pre-empt their skepticism. We had two recent discussions with licensors, each representing a litany of media properties.?Independently, each told my team that they didn’t execute license agreements for less than $100,000.00 per brand.?No proactive explanation. We asked why.?(One person was very senior.)?Both told me that it was a management directive.?I cringed.?Licensors need to be more if they want to maximize their wealth.?Explain what that investment will gain for licensees, rather than what the price tag says.?If you seek a higher number, help licensees understand why the property is valued as such – through ratings, current licensee performance, and anticipated sell-through when the brand appears on their shelf.?Or tell licensees you have another higher offer, if bona fide.?That’s legitimate.?You won’t get more money because your supervision said it was a mandate.?Licensees will invest elsewhere.?

?Big Brand??New Licensor??Manage Your Expectations.

If you’re a big fish in your own big pond, you have likely built up significant equity to extend into other categories through license agreements.?Take a look first at the annual top 100 licensor list.?

With few exceptions, those brands have been in the licensing game for a decade or more.?Could you catapult your global brand onto that list in year one??Maybe.?Not likely.?

?Two reasons why:?1.?As a licensed property, you have no equity (yet).?2.?You have mastered leadership in your own aisle.?New aisles have new competitors that will do everything to keep your brand from gaining share.?By all means, dive into the new ocean for the first time.?But choose your categories, partners, and first products carefully.?Why rush? Success begets success.?When those first products sell through, more licensees will come to you.?The size of your very first guarantee matters far less than the performance that licensee delivers.?Let them be great, and your guarantees in subsequent alliances will grow.?That’s how the top 100 became the top 100.

If Money Is All That Matters, Find Another Vocation.

Because your licensing program will die.?Anyone can write a deck.?Andy any cash-rich company can write a check.?Big dollars blur the vision required to ascertain the background, competency, expertise, reputation, and longevity of a potential partner – not to mention their interpretation of your brand they will bring to market.?

The most fundamental due diligence questions (unrelated to money) can speak volumes about who a licensee is, and what makes them special – in good ways or bad.?My company had the privilege of representing a non-profit with unblemished global equity stretching back decades.?In our first meetings they laid out the criteria for industries and companies with whom they would never strike an alliance.?It was their Good Book.?No way would they alter it for a new agency.

They did ask us if they were constricting us unfairly.?We said they were applying structure to logic and common decency.?Who can dishonor that? One money grab is a nightmare that casts a shadow over future deals. Know when to walk away, know when to run.

You’re Not The Only Brand That Can Leap Tall Buildings.

Good licensees speak to plenty of brands.?Your equity may be measured against others.?

Great licensees know the difference between a strong property and a strong partner.?Be both.?

How your brand appears in presentation, negotiation, and communication could be the decision driver.??If your brand is strong, get strong staff to represent it.?Don’t present your trademark is a privilege for 3rd party manufacturers.?It really looks bad. Plus, licensees always have other investments they can make.?they can take elsewhere.?There’s a sting in hearing that another brand was chosen because of stronger collaboration and camaraderie.?Learn that lesson once.

More to come after the holiday.?Perhaps a short and sweet one during the break.?It’s needed this year.?Happy Festivus to one and all.