Marc, it was a "common" publishing deal. As I`ve completed & sold my first game 21 years ago for the C64, and after working 6 years for a publisher, I can tell you a little story about the contracts.
In the good old days, when a dev team came up with a good idea, a GDD (game Design Document) and a playable prototype, and they got funding from a publisher, there were two major models:
1. Royalties from start: The Publisher funded the developement of the game, and from each unit sold, a small share (around 5%) was paid to the developers in addition to the funds they have received for developing the game.
2. Royalties after break even: The Publisher funded the developement of the game, and after the revenues of the sales have surpassed the incested sum by the publisher, the developer got a small (but bigger than in case 1, let`s say 10%) share from each unit sold further.
Then, I don`t remember which company started first, but it was around 2005 - 2006, the first contracts appeared with the "budget against Royalties" clause inside. The Royalty shares looked quite high (up to 25%) and many developers were blinded by the trick. But what does that "budget against Royalties" mean?
Let`s take a look at an example:
You are developing a game with a small team. The budget provided to you by the publisher is enough to cover the dev costs, but not more. Let`s say it`s
100.000 Euro
Your
Royalty rate within the contract is set at
20%
So you get the 100.000 you need anyway to get the game done, and then you expect to get 20% of the net profit from the sales.
Right?
WRONG!!!
First, a contractual Production Developement Fund (PDF) is determinated in the publishing contract, covering the localisation, production and QA costs of the publisher. Usually it`s around 30 % of the budget. Then the same applies to a Marketing Developement Fund (MDF), set at 40%
So the theoretical sum invested by the publisher goes up to
170.000 Euro
Allright, the game is finished, produced, shipped and (most important) being sold.
The publisher gets
10 € for each unit sold.
What happens now?
In the "old days contract, version 1" scenario you`d get 0.5 Euro for each game sold, from the very beginning. A small share, but each sold unit counts.
In the "old days contract, version 2" the publisher would first to have sell 17.000 copies to get his investement back, then you`d get 1 Euro for each copy sold after reaching the Break Even. If the game sells more than 34.000 copies, you get a better deal than in the version 1 scenario, but both versions are somehow fair.
And now for "budget against Royalties" (Which is nowadays a COMMON contract model if the publisher funds the developement):
The contract treats the developement budget and the PDF and the MDF as a loan (but as one that doesn`t have to be repaid if something crashes that is NOT the devs fault) the developer gets and has to repay with his royalties.
For each sold unit, the share of the developer (2 Euro as 20% of the 10 Euro the publisher gets) is balanced into the developers account inside the publishers balance sheets.
ONLY AFTER THE ACCUMULATED ROYALTIES HAVE REACHED 170.000 EURO, THE DEV GETS ROYALTIES!
Not hard to calculate - the game has to sell 85.000 copies to make the dev-oublisher balance even.
And for the 85.001st unit sold, the developer gets his first 2 Euro payed out.
If this Threshold is reached,
the publisher made a profit of:
85.000 * 10 - 170.000 =
680.000 EURO
while the Developer got
0 Euro.
Nice catch, eh?
Now let`s assume the game has sold 50.000 copies.
In the "old contract scenario 1", the Dev would get 25.000 Euro Royalties.
In the "old contract scenario 2", the Dev would get 33.000 Euro Royalties.
In the "budget against Royalties" scenario, the Developer would still owe the publisher a fictional sum of 70.000 Euro.
Understood?
And Marc, If I knew exactely how much profit the publisher made, I wouldn`t be allowed to tell. I can only tell it surpassed the 100k mark, while we got no profit at all, but as we didn`t do the game for money puroses, it didn`t hurt that much to be screwed.
