Tackling the Money Issues: The Financial Relationship between Licensor and Licensee

Content  Key features of a sports licensing agreement  Key clauses – definition and clarity…and interpretation  How the licensee conducts its business – important considerations  Managing the brand  Internal compliance practices amongst the parties  Other financial considerations  Royalty Reporting and Audit 2

Introduction – what do we do? Fisher Forensic  Forensic accountants  Specialise in Licensee Royalty Audits  Hundreds of audits each year  Audit worldwide  Across a range of industries –Consumer products, fashion, film & TV, publishing, sport, music, inventions and technology  Act for a vast array of IP owners both small and large  We see how agreements are interpreted and royalties are calculated by licensees 3

LIMA: Who we are International Licensing Industry Merchandisers’ Association Offices in twelve countries Members include licensors, licensing agents, licensees Education, research, industry standards, networking, awards The ‘glue’ for the licensing business 4

Key features of a sports licensing agreement  Key definitions – Gross and Net Sales, deductible discounts, territory, the rights being conveyed (exclusive/non-exclusive/sole licence – player, former player, team image, logos); sales to affiliates.  Product approvals process  Embedded remedies  Marketing Commitment  Minimum Guarantees – no cross-collateralisation by territory, year, product types, etc.  Collectibles and collections – same products, multiple units with different players.  Best price clauses to Megastores/Licensor  Approved factories 5

How the licensee conducts its business – important considerations  Is it part of a Group, say, with own distributors and own retail outlets?  Does it have the territorial reach or does it sub-licence?  How does it trade with its customers – direct delivery, FOB etc?  Triangulation arrangements?  Does it make consignment sales?  Discounts that it grants to its customers?  Channels of distribution?  Internet sales? 6

Managing the Brand  Appointing reputable local agents in foreign territories;  Financial due diligence on trading partners;  Avoiding overlapping rights assigned to licensees;  Ensuring integrity of brand value – channels of distribution;  Having a robust product approvals system;  Transparency of financial reporting from licensees;  Documenting all changes to agreements in writing;  Use of holograms;  Regular auditing – on the ground knowledge of what the licensees are doing. 7

Internal compliance practices amongst the parties  How good is their record keeping?  Full approvals procedures;  Product procurement – approved factories;  Integrated inventory and sales systems;  Detailed forecasts and marketing plans;  Royalty report template;  Tracking issue and receipt of quarterly royalty statements;  Efficient contract management systems;  Monitoring and override;  Communication. 8

Other Financial Considerations  Withholding Taxes;  Exchange rates;  Exchange Control;  Timely payments 9

Royalty Reporting and Audit  A robust audit programme;  Corporate governance;  Gives first-hand knowledge of how the licensee operates;  Detects contract compliance breaches;  Quantifies and recovers lost revenue;  A Profit Centre in its own right;  What we find: unreported sales, sales to affiliates; unlicensed product; sub- licensing/triangulation; disallowed deductions from ‘Net Sales’; unapproved product; out of territory sales, out of term sales; ‘royalty free’ product sales; underspent Marketing Commitment; wrong royalty rates; FOB sales, etc. – the list is endless! 10

Contact us: Stuart Burns T E Kelvyn Gardner T E 11