Art on Products - contract/money question

  • In the video she said you want to get a percentage of the gross amount sold. But in the sample contract it says
    " LICENSEE shall pay ARTIST a royalty equal to 3% for mass
    markets, 2% for Wal-Mart mass and 5% for independent retailers of Net Sales of each
    Licensed Product sold, .... “Net Sales” shall mean the gross invoice
    amounts billed for all sales of Licensed Products
    So um... what? Net means gross? I don't understand. Can I get a definition of gross vs net?

  • SVS Instructor Pro

    Net means "after costs are deducted".

    So if a Licensee has a "gross" income of $10 and they deduct business costs of $3 then the Licensee has a "net" income of $7.

    For an illustrator working with this client:

    • 5% of a $10 "gross" item (or "list price") is $0.50
    • 5% of a $7 "net" item is $0.35

    Personal Opinion: I am not a fan of "net" but have found some publishers have baked it into their accounting dept.
    Because of this when working with contracts specifying "net" rather than "list" (or "gross") it is typical to negotiate double the royalty rates.

    As for the contract line you quoted here -- yeah, that's confusing. Based on just this quoted text it does read that Net Sales = Gross invoice amount billed. But contracts are often depended on other clauses in the document. Difficult to evaluate without the rest of the contract.

  • Have a visual arts attorney examine the contract, it's worth the cost. Your attorney will probably (should) ask for a specific definition of "Net" as in what expenses count towards the net profit.

    Also, you should have the right to request a detailed accounting - illustration specific - and the sales/costs/profits and how they are tabulated.

    In licensing my experience has been that it is always "net" and you are charged for everything possible eight down to the illustrations used at licensing shows and promo pieces where your work is featured.

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