"Famous Last Words"

Is a “Ten Percentery” Worth Ten Percent? (August 2003)

Dear Jim,

We’re a new studio looking to make our first development deal. We’ve all got credits on some pretty big games and have decided it is time to go out on our own.

I made some contacts at DICE, GDC, and E3 and have been in touch with two agents. They both want to represent us and our game. We got a “letter of intent” from one agent who wants 10% of all income from our game, plus 10% from all other games we develop for the length of his contract.

Is this standard?

Signed,
What’s a percent or two among friends?

Dear Friends (I always wanted to start a column with that!):

Talent agencies in the movie, television, and literary business are called “Ten Percenteries” by Variety magazine. That reference comes from the percentage they take from their client’s income. Agencies historically represented individual talent who were paid for providing their acting, directing, writing or other personal services. So in that sense, 10% is the historic norm for an agent’s commission in the entertainment field.

Sports agents who represent high price athletic talent are typically paid less, sometimes much less, when they negotiate the enormous playing, shoe, and endorsement contracts received by their clients.

Record deals are frequently negotiated by personal managers who may be paid up to 20% of their client’s gross income. But personal management contracts, particularly when the artist is represented by an experienced entertainment lawyer, may specifically exclude from commission revenue received by the artist and earmarked for production of recorded music product, music videos, or tour support.

How much should you be paying your agent? The commission rate is strictly a business decision and may be negotiable. You may have difficulty justifying 10%. After all, game development is historically a very low margin, low profit, high risk business. Publishers are increasingly looking over the shoulders of developers to understand and monitor costs. No publisher wants to overpay for a game. Your publisher knows that paying an agent 10% of every dollar will take resources away from development or increase the out-of-pocket cost for the game.

A good place to start your analysis is to understand who your agent is and what he or she can do for you. Lots of folks go around calling themselves agents in the games business. In some jurisdictions it may take no license or training to enter the “agent” business. All it takes is a client.

Some agents are enormously dedicated, hard working and respected, with long track records of success. Others less so. As the “principal” you must fully understand what your agent proposes to do and what experience and skill-set he or she brings to the relationship.

What will the agent do to earn the commission? If all he or she does is find a publisher, a 10% commission rate may be very high. A more typical “finder’s fee” might be 3% or less.

If the agent continues to work with the developer to maintain publisher relations, helps manage the development process all along the way, acts as a liaison with the hardware companies, and serves as a developer business development department, it may become easier to justify a higher commission.

Agent agreements, prepared by agents, frequently provide that the commission is paid for the life of the game, as well as all sequels, add-ons, extensions, etc. even after the end of the agent’s contract.

In other fields, commission rates are frequently negotiated down on a sliding scale over a period of time after the end of the contract. If you develop an evergreen blockbuster that lives for years, your agent might have helped get the initial publisher interest, but it’s your work that has kept the franchise growing. Should an agent (had one been involved) continue to be paid 10% for all developer income derived from Castlevania? Doom? Tomb Raider? Think about what is fair over the long term. Eventually, the balance of what the agent did to get your game started, and what you have done to maintain it, may shift more and more in your direction. Think about whether you should be paying the full commission rate forever – particularly if the agent is no longer active on the project.

Commissions can also be reduced during the development of a big project. For example, if a deal were made to develop three console versions, and a hand-held, the commission schedule could provide, for example, 10% on the first million in development income, then 6% on the next million, and less on all remaining income.

A few last tips: get and follow-up agent references -- find out what deals your agent has completed in the last year and speak to the developers he or she has represented; make sure your agent agreement provides that you have an absolute right to approve the terms of any deal the agent proposes to you; that you have the right to negotiate the deal with your own lawyer; unless you know your agent and his or her reputation and have absolute confidence, all money should be paid to you, not to the agent. You can then account and pay the agent his or her commission. And no commission should be earned by the agent until the corresponding amount is received in your developer bank account.

Agents will argue, sometimes very persuasively, that they are entitled to their full commission rate because they sign short term deals with developers, are working in a very tough competitive business, help developers when they are just starting out, and have no expectation of continued representation when their developer clients make it big.

Each developer should decide whether these arguments work for them, and what an agent can do for their companies and careers.