Tuesday, December 18, 2007

Do The Math

Okay, we're going to clarify some things from the comments because I made some assumptions that clearly left people confused. (I can only imagine what lurkers are thinking!)

Now, I personally share Holly Kennedy's opinion that is is *almost* always better to have your agent sell your foreign rights rather than your publisher, if they have the capability to do so. However, I do say *almost* because there are definitely exceptions. Here's where the math comes in. Also, you will see Jamie's point about double dipping in terms of royalty percentages.

Okay, let's say you get an offer from your publisher for 10,000 dollars. (Nice round number). They want North American rights. (For the sake of this entry we are going to say that the unimaginable happens and they agree to pay out your advance in one lump sum. If that doesn't sound strange to you, go here and read how advances are generally doled out.)

Here's how the numbers work: $10,000 - (15% or $1,500)= $8,500 to the author.

Now your agent sells $10,000 worth of foreign rights. She and her co-agent split 20% of the advance which means: $10,000 - (20% or $2,000)= $8,000 to the author.

Foreign Rights plus NA rights combined= $16,500. Savvy?

Good, because now we're going to complicate things.:)

Next Scenario: The publisher wants World Rights and is willing to pay $20,000 for them. Again, we are in dreamworld, so they pay out the $20,000 in one lump sum and your agent takes his/her cut.

$20,000 - (15% or $3,000)= $17,000 to the author.

Now wait a minute. It looks like the author who sold World Rights is actually coming out ahead. Why don't I just advocate selling World Rights? Well, we need to get a little further into the process. Thinking caps on. (Hehe, my third grade teacher used to say that all the time.)

Let's compare apples to apples and say that the publisher was also able to sell $10,000 worth of Foreign Rights.

Thats $10,000 - (20% or $2,000 for the publisher)= $8,000 that the publisher sends to your agent. Now the agent will take his/her fifteen percent commission (and this is where Jamie's comment about double-dipping comes in.)

$8,000 - (15% or $1,200)= $6,800 for the author as opposed to the $8,000 the author who only sold NA rights received for their foreign rights. So in the end, it would actually take the second author $1,200 worth of royalties more to make the same amount of money despite the fact that they got $500 more in the beginning.

However, this is a scenario where all things are even. Do you remember in the last post where I said there should be a reason to sell World Rights? Well, there definitely are some.

Let's have some more scenarios, and we're going to up the ante since higher numbers are often involved when agents and authors are negotiating for World Rights.

A publisher offers $50,000 per book for NA Rights for three books. $150,000 - (15% or $22,500)= $122,500 for the author.

The agent is able to sell an additional $150,000 worth of foreign rights. $150,000 - (20% or $30,000)= $120,000 to the author.

That makes $242,500 to the author. Nice, huh?

However, let's say the Publisher really wants World Rights, and they are willing to pay for it. They offer $175,000 per book for three books. Weird number you say? Watch and see.

$175,000 X 3 books= $525,000

You see what just happened? We just got into the "major deal" range. By doing so, the publisher has just made a huge amount of buzz. You can consider them to have paid for advertising. There are many overseas companies who will make a bid to buy foreign rights sight unseen if they know the books have sold for over half a million dollars. Because of this, the publisher in our scenario was able to sell not $150,000 worth of foreign rights, but because they have an excellent FR department and the additional buzz, they are able to sell $300,000 worth of foreign rights.

Now let's crunch the numbers.

$525,000 - (15% or $78,750)=$446,250 to the author

With Foreign rights we will see the double dipping principle upon payout:

$300,000 - (20% or $60,000)= $240,000 - (15% or $36,000)= $204,000

(Don't add the $204,000 to the $446,250, it doesn't work that way. The $446,250 is all the author gets up front, we'll use the Foreign Rights number later.)


Let's say that in North America, each author sells 100,000 copies of each book (300,000 total) and earns about $2.50 per book. (Yes we could get into hardcover vs. paperback and escalation clauses, etc, but I'm not an accountant.:))

Author A, who sold NA rights has earned $750,000 plus the advance from her foreign rights which her agent sold which equaled $120,000.

Author A has earned a total of $870,000 on three books.

Author B, who sold World Rights, earned the same $750,000 that Author A earned on North American sales, but her royalties from foreign rights equaled $204,000 despite the fact that her publisher and her agent both took a chunk.

Author B has earned a total of $954,000 on three books.

Now I think we would all agree that both authors did ridiculously well, but technically, the author who sold World Rights made more money. Why? Because the publisher saw the value of the World Rights and was willing to pay for them.

When all things are equal, as in the scenario at the top, I say go for only NA or WE rights every time. Keep those foreign rights and have your agent sell them. But when the publisher has a good reason for obtaining those rights, it can pay off and pay off big.

The bottom line? You've got to have an agent you can trust to advise you on decisions like these. They will crunch these kinds of numbers, they know if the publisher had the ability to sell FR better than they do, they know what those foreign rights mean for you. I sold World English Rights to HarperCollins because Jodi advised me to do so. But if she had told me that she thought selling WR was in my best interest, I'd have done so in a heartbeat.

Take the time and effort to get an agent you can trust.

And when you do, trust her.

Ciao!!

*I promise, promise, promise to cover the rest of the sub-rights next time, but really, no one wants to move on to film and audio rights after reading through that veritable calculus class.;)*

11 comments:

Carrie said...

Thanks for taking the time to do all the calculations. I'm not sure how it works in other contracts, but in mine, my agent does not take a commission on publisher-sold sub-rights. So there's no double dipping. Only the publisher takes a percentage and then applies the rest towards my advance (essentially towards paying the publisher back my advance).

Now, once I earn out (which I would do sooner with the publisher selling world rights) then my agent does take a commission on all royalties (as he would in either scenario).

Another consideration to take into account is money in the author's pocket versus earning out. And I tend to think that it really comes into play with the heaftier advances (which can be more difficult to earn out). I happen to come from a romance writing background where earning out is paramount and failure to do so can be very bad for your career and subsequent book deals.

You've definitely given all of us a lot to think about! Thanks :)

Kenneth said...

Interesting. My wife tells me that you are a lawyer, and since I am in the middle of 3rd semester finals, how about a devilish hypothetical? d^_^b

Say you've earned out your advance (via sales and et cetera) and something odd happens: your publisher manages to sell rights in Sri Lanka for $10,000. They take their 20%, and you are due $8,000 in royalties (as you've already earned out your advance).

Would your agent take 15% of that check?

Put another way, you have suggested that your agent does not take a commission on publisher-sold sub-rights. If that is the case, then wouldn't your agent owe you some of your advance back when your publisher put 80% of foreign rights money toward your advance? You say that "the publisher takes a percentage and then applies the rest towards my advance," but your agent has already taken 15% of that money when it came out of your advance check.

It's not that the agent is taking 15% out of every check that your publisher gets--but they are getting 15% of all the money owed to you, one way or another. The publisher's 20% just means there is less money owed to you overall.

Consequently, there is inevitably "double dipping" when you sell world rights--but of course, if you make an extra $10,000, $50,000, $100,000, or more selling those rights up front, the double dipping may well be earning you more than it is costing you. (Much like not having an agent nets you an extra 15%... but likely that's an extra 15% of a much smaller initial amount and a much less advantageous contract.)

Jamie Ford said...

That's true. If your deal is for multiple books and you compound that amount by selling your foreign rights you can definitely aggregate your way to a big number. And that amount can have a gravity all its own. Happens all the time.

Whether that number automatically ensures more foreign sales than done separately, I'm not sure there's definitive proof either way.

But hey, that's what the wisdom of agents are for.

Demon Hunter said...

Aprilynne,
I appreciate you sharing this information with us. Since I do not yet have an agent, this is invaluable information! Thanks you! :*)

Maprilynne said...

Jamie,

I think you're right about the higher sale not helping FR sales quite as much as in my scenarios, but that's what hypotheticals are for.;) Actually I think that the higher original sales numbers would boost your American sales more significantly than your FR (although buying FR sight-unseen because of the original sale price is not at all uncommon) but that didn't help me illustrate my point!:)

Carrie said...

Sorry if I wasn't clear in what I said, I was taking care of my boyfriend who just had surgery and wasn't really paying attention to what I was writing.

Here's the point I was trying to make... in Aprilynne's first set of scenarios (world rights sold for 20k), she says: Let's compare apples to apples and say that the publisher was also able to sell $10,000 worth of Foreign Rights.

Thats $10,000 - (20% or $2,000 for the publisher)= $8,000 that the publisher sends to your agent. Now the agent will take his/her fifteen percent commission (and this is where Jamie's comment about double-dipping comes in.)


My argument is that because the author has not yet earned out his or her advance (at least in that scenario), that money does not get sent to the agent for him or her to take a commission. So, as I said, there's no double dipping. In that scenario, the publisher gets their percentage and credits the rest to the author's account.

Now, Kenneth asked what happens once the book earns out and then sells more foreign rights (via the publisher). In that case, then the foreign rights money is again credited to the authors account -- which has earned out -- and is sent out as royalties and, as I said, agents to take commission on all royalties. So yes, in that scenario both the publisher and agent are taking a cut of the publisher sold foreign rights -- but only if you earn out your advance.

And that's the ultimate point I was trying to make -- it really depends on what you, the author, want and what you think works best for *you*. As Aprilynne has emphasized, that's why it can be so important to have a good agent to help you weight the various options.

moonrat said...

can i play devil's advocate? the problem (especially for debut authors of literary novels) is that sometimes no one will end up buying, say, British rights. the agent will do his/her darndest and not be able to sell. maybe British publishers seeing the market as only being able to absorb 2,000 copies (maybe it's a very American book). as a result, it is illegal to sell any copies of the author's book in British territories. whereas if the author had sold world rights to their American publisher, that publisher would have been able to run on with their own printing and export the book through the commonwealth, so at least it would have been available at all. (this is really more of a concern for smaller deals, but still.)

also, carrie and kenneth talked about this, i see... say the advance earns out--then you get even more complicated calculus. because if you sold your american publisher world rights, and they sell british rights for, say, $10,000 (nice easy number), they only keep 20% or 25%, so there's $7,500 for you and the agent. on top of what the american publisher paid for your world rights.

anyway. i'll go now. i'm just making a mess here.

Kenneth said...

I think just about everyone is on the same page here (get a good agent!), but Carrie, I think you're missing a really crucial mathematical nuance.

Your argument is that when the author has not yet earned out his or her advance, the foreign rights money does not get sent to the agent for him or her to take a commission, and so before the advance is earned out, there's no "double dipping."

What you seem to be missing is that, before the advance is earned out, the foreign rights money also does not get sent to the author. That's the point of an advance--that money has, literally, already been sent to the author. And by the same token, the agent has already taken his or her 15% of that money! It just happened before the FR sale instead of after.

Your agent's 15% comes out of every dime of the money you earn. One way or another, they always get 15% of the 80% the publisher pays you for foreign rights--even if they already took that chunk from your advance check instead of taking it directly from the FR check.

Maprilynne said...

Yes, Moonrat, that is another reason to sell World Rights. Also, you explained much better than I did in my last post why Jodi has been making several English World Rights deals lately. It avoids that whole territorial thing. Thanks for pointing that out.:)

Melissa said...

A writer AND a math wiz? Glad I found your blog, Aprilynne!

Anonymous said...

Kenneth, I think some of your confusion comes from the use of the inaccurate phrase "double-dipping," which directly implies that someone is taking money twice. In reality, this never happens. The way I read what Carrie is saying is that Aprilynne's hypo shows the agent taking a percentage of the advance, and then taking an extra percentage of the publisher-sold foreign rights. Carrie is saying that this only happens if the novel has already earned out, and thus the agent never "double-dips."

I think everyone's on the same page with the basic structure of this: there are ups and downs to either side of the equation. On the one hand, selling world rights to the publisher means that both the publisher and agent get a percentage of that sale, whereas otherwise only the agent would get a percentage. Conversely, selling the world rights to the publisher, and consequently having foreign rights sales accredited toward your advance, makes it easier to earn out and therefore easier to make the publisher happy and willing to invest in your next book. Thus, leaving aside the issue of who would be able to sell the rights for more, both approaches have benefits and drawbacks, and the ultimate point is, as both Aprilynne and Carrie have said, that you need to have a good agent who can help you make the best choice for you individually.