Sharing in Success: How to Compensate Your Team through Revenue Sharing

Introduction

• Speaker: Kellen Voer, Video Game Lawyer
• Focus: Representing independent game studios and creating revenue sharing structures.
• Observation: Lack of understanding in the industry about revenue share structures and key considerations.

What is a Revenue Sharing Structure?

• Definition: Legal or corporate structure for distributing game profits amongst everyone involved in game development.
• Purpose:
  • Incentivization: Provides chance to participate in game's success, attracting talent.
  • Financial Relief: Decreases financial outlay by supplementing immediate compensation with revenue share.

Types of Revenue Sharing Structures

1. Revenue Sharing Agreement

   • Definition: Written agreement to pay a percentage of game profits as royalty.
   • Types:
     • One-on-One Agreement: Individual basis, not ideal for large teams.
     • Pool-based Agreement: Set aside a pool (e.g., 15% of net revenue) shared among participants.
   • Simplicity: Important for understanding and managing the agreements.

2. Equity-Based Revenue Share

   • Definition: Developers receive shares corresponding to revenue share.
   • Mechanism: Revenue share takes form of dividend on shares.
   • Considerations:
     • Complex and costly to create.
     • Suitable for raising investment.
     • Legal constraints on share classes.

Key Considerations for Structuring Revenue Share Agreements

1. Percentage of Game Revenue to Allocate

   • No industry standard; consider startup stock option sizes (15-20%).
   • Factors: Number of hires, percentage willing to give away, publisher’s share.

2. Calculation of Revenue Share

   • Gross Revenue: All revenue, no deductions.
   • Net Revenue: Gross revenue minus platform fees, returns, etc.

3. How Revenue Share is Earned

   • Methods:
     • Time-Based: Proportional to time worked.
     • Milestone-Based: Earned upon completion of milestones.
     • Time-Passage: Vesting over time, possibly with a cliff.

4. Treatment of Non-Game Revenue

   • DLC and Merchandise: Separate calculations and payments for those involved.
   • Equity-Based Difficulty: Complex due to inability to separate dividends easily.
   • Sequels: Create new plans or share classes.

5. Termination of Revenue Share Agreements

   • Methods:
     • Fixed duration or monetary cap.
     • Mixed approach (e.g., 5 years or certain amount paid).
   • Situations for Termination: Company/game sale, financial difficulties.

Conclusion

• Types of Plans: Revenue sharing agreement (individual or pool) and equity-based.
• Recommendation: 95% use revenue share agreement.
• Key Considerations: Percentage setting, earning structure, non-game revenue treatment, and termination planning.

Contact & Questions

• Presentation concludes with contact information for further inquiries.