Great Britain’s gold rush at the Rio 2016 Olympics has buoyed the country’s spirits and forged a number of new stars and new brands
With Olympic champions in tennis, golf, gymnastics and cycling, Rio 2016 created a number of new stars and the potential for new brands. Max Whitlock’s success ended a 116-year wait for a British gymnastics Olympic champion and boosted Team GB’s medal count. The biggest boost of all could be to his bank balance.
For our sports stars, a valuable brand - or to use a much broader term, brand intellectual property (IP) – could arise through sporting success, a new fictional character or concept, a trademark or a new television format. In all cases, the brand represents intangible value above and beyond a singular product or service.
Imagine this: you have a loved IP, you are hot property and licensees are beginning to knock on your door suggesting new ways to exploit your brand. Well, what now? Here are our 6 tips to ensure new and growing brands are protected.
1. Nail down a license agreement
The backbone of your relationship with any licensee is the license agreement. Work with experienced advisers at the start of the process to ensure the agreement covers all matters that are important or may become important to you.
Pay extra attention to deal terms that may be open to interpretation. Any ambiguity can cause grief later down the line. Prioritise issues that are important to you and use creative deal terms to ensure these are fully covered in the agreement
2. Get the experts in early
Engage lawyers and accountants that can bring their cumulative legal and forensic experience to your benefit. Advisers can help you consider and define your key terms early:
- specifying royalty rates for different income streams, reflecting the margin norms of the licensed product category (if the rate is too high, retailers must be willing to reduce their margin - if too low, you lose potential income), or tiered royalty rates based on sales volumes
- distinguishing between sales based on invoicing and sales based on cash receipts
- clearly identifying who bears the risk of bad debts and wrapping this up within the definition of 'sales'
- clarifying allowable deductions and perhaps giving some clear examples of what is not an allowable deduction
- spelling out any overall caps on total deductions or any marketing commitments required from the licensee (to ensure sales are optimal) or your rights to factory approvals.
3. Make sure boundaries are clear
Specify if the licensee is allowed to hold back reserves for product returns, provide price promotions without approval, or enter into transactions with related parties without your consent. Ensure the process for approving any special price promotions are explicit and remember to include wording accounts for the rapid evolution of technology – you cannot predict the future but you can predict that the future will look different: include language that will protect you whatever happens.
4. Know your audit rights
One of the most important license terms of course is your audit rights. All licensing is risky but a licensee monitoring programme will help to reduce this risk significantly. Trust is not enough. Include audit rights and spell out how long you have to 'look-back' – the period after which you are no longer allowed to audit a royalty statement.
5. Exercise your right to audit
Ensure you engage auditors that understand the industry and the ongoing nature of your relationship with your licensing partners - the delicate line you tread between trust and control. Audit results reflect more than just underpayment of royalties, it helps you identify contract languages that have unintended consequences and may help to identify unauthorised or damaging use of your brand or IP early.
6. Engage your team
Finally, don't make your relationship with your licensees (or your advisers) purely transactional – communicate, communicate, communicate.
Not just for sports stars, any young brand should look after their exclusivity and put the necessary protections in place from the beginning. To find out more about how Grant Thornton UK can assist you to protect and boost your brand, contact our dedicated Royalty Audit team.