"It's fundamentally stupid to have recoup terms where publishers protect all of their downside risks and recover all the money first."
Tim Bender, co-founder of Manor Lords publisher Hooded Horse, claims that publishers across the industry should eliminate recoup terms and clauses to ensure developers are getting a fairer deal.
During a wide-ranging interview with Game Developer (more on that soon), we asked Bender what developers should be wary of when negotiating publishing deals. He claims one of the biggest red flags you can encounter is the presence of recoup clauses that deny "critical cash flow" post-launch.
Although he understands why recoup terms are still commonplace—he claims the idea of using them has simply become "ingrained" in the industry—he believes publishers should seriously reconsider leveraging terms that place developers at risk.
"If we went by what I thought was fair, it would eliminate too many good publishers. Because I believe, fundamentally, that one horrible thing that exists within the industry is the use of recoup terms in contracts between publishers and developers," he says. "These are just any term that allows the publisher to recover the vast majority, or all, of the sales before the developer gets anything."
Bender, who previously worked as a lawyer, claims recoup terms make "no sense" because one of the fundamental principles of sensible contracts lies in allocating risk to the party best placed to shoulder that risk. "That's an efficient contract," he says. "And publishers can bear the risk of individual projects succeeding or failing.
"They have many of those projects. It's not a big deal. It's not like every project has to be a financial success for the publisher. But developers have one or maybe a couple of projects. They can't easily bear that risk. So, just from a matter of contract theory, it's fundamentally stupid to have recoup terms where publishers protect all of their downside risks and recover all the money first."
He explains recoup terms can make it difficult for developers to find their footing and stabilize once their project hits shelves by blocking cash flows. Post-launch, teams will need funds to retain workers and ensure they can continue supporting their project, but Bender says recoup terms can make that difficult.
That's why he feels they're also terrible for players, because they remove the ability (and incentive) for developers to support their projects. "How many wonderful game projects that could have still done well after release were buried under a recoup term that wouldn't go away? The developer has to make choices. They've got to take care of their staff, so they can't [do that] if there's no money coming in because of some giant recoup," continues Bender.
He acknowledges that recoup terms don't inherently make a publisher bad. "Even good publishers have them in their contracts," he says. "[But] this is a silly way to do business." He feels a clean revenue split is a better solution and says that's essentially the standard at Hooded Horse.
"Our standard terms [...] where we're just doing the marketing and distribution and all of that, we have a very simple ask: 35 percent for us and 65 percent for the developer. There's no recoup or anything else. It's that split. It never changes.
"I would challenge [other publishers] to go through and actually analyze the alternative hypotheticals and ask whether instead of having recoup terms, which are really damaging, they can think of two things as alternatives. Suppose there's a publisher that says 'okay, I want 100 percent recoup on my costs and then I want to get 30 percent long-term' [compared to] another another publisher that just says 'I just want 35 percent any no recoup.' That is a much better relationship for the developers.
"If from a publisher's perspective, you then analyze your entire portfolio and say 'okay, let me go back for years and pretend I never did recoup terms, but instead asked for a tiny increase on that long-term rate. Let me see how I would have done.' I bet most of them would discover they would have been better off financially."
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