WHAT ARE ROYALTIES?
Royalties are payments made from one party (the licensee) to another (the licensor) for the right to the use of an asset. The asset can be virtually anything — from tangible assets like minerals and oil to intellectual property like songs, brands and patents. Royalties are usually paid as a percentage of revenues, gross or net, yielded from the use of the asset.
Visit our Resources section for more information about royalties.
WHAT AM I BUYING?
Royalty Exchange offers the opportunity to purchase future royalty revenue generated by an asset. Details about the royalty stream you are purchasing and the asset which generates it will be available in the auction listing you are viewing — simply click “financial data” to view them.
Visit our Resources section for more information about different types of royalties and the industries in which they’re used. For an overview of what comprises a song and the different royalty rights available to musicians, visit our guide to Music Royalties.
DO YOU PROVIDE REVENUE DATA FOR EACH ROYALTY STREAM?
Yes, available royalty revenue history will be made available for each listing.
HOW LONG DO I OWN A ROYALTY STREAM?
Each listing will explicitly state the length of investment for the royalty stream at auction. There are many types of royalties for many different assets, so lengths of ownership vary.
WHEN DO I RECEIVE ROYALTY PAYMENTS?
Royalties are paid on a quarterly or biannual basis. An investor’s first royalty payment for a recently purchased royalty stream will disperse on the quarter following the reassignment of the stream. The reassignment process takes longer for some listings than others, depending on the payment company, but is generally completed within 2-5 months. If this process takes longer than a quarter, the first distribution will include payment for all distributions that would’ve occurred during the waiting period.
Royalty Exchange will always distribute royalties quarterly — the only exception to this is when a stream generates bi-annual royalties, in which case royalties will be distributed every other quarter. Payments will be made via Paypal on the first week following the end of each calendar quarter.
HOW DO AUCTIONS WORK?
The first step to participating in auctions is to validate your status as an accredited investor by filling out our registration forms. You can then register for Single-Unit and Multi-Unit auctions individually for each auction that you’re interested in. Once registered for an auction, you can place a bid simply by entering the amount you’d like to bid and clicking “Bid Now”. Our unique auction widget will keep track of bids in real time and notify you of other investors’ bids.
All bids are binding and must be placed online before an auction closes. If you wish to place a bid through another medium, please contact us at firstname.lastname@example.org to discuss alternatives.
To learn more about “How Multi-Unit auctions work, check out our video about bidding and strategies.
WHAT IS A SINGLE-UNIT AUCTION?
A single-unit auction is an auction where only one whole investment asset is made available. Buyers can only place bids for the whole asset and there can be only one winner of the auction. Winning bids are binding legal contracts with the seller.
WHAT IS A MULTI-UNIT AUCTION?
A multi-unit auction is an auction where an investment asset is securitized or broken up into multiple units allowing buyers to buy a small or large amount of that asset. Many buyers can win in this auction however each auction has a cap of 100 buyers.
Bids are solely in terms of price and quantity. Your offer may be accepted by Royalty Exchange at closing and only after your accredited investor status has been verified.
CAN I OWN IT INSTEAD OF BUYING A SECURITY?
Yes. If you are the winning bidder of all the units (100%) in a securitized multi unit auction, then you may request to buy the asset directly, without it being securitized. Royalty Exchange has the sole discretion on making these exceptions.
WHAT IS A “SECOND PRICE” AUCTION?
Royalty Exchange implements a hybrid “Second-Price Auction” auction format that has been specifically adjusted for our model.
In a second item auction, the seller offers more than one identical item for sale, so that there may be more than one winning bidder. Each bidder can bid for all the items or only some of them, and publicly indicates the price that he/she is willing to pay for each item. However, all winning bidders need to pay only the lowest qualifying (successful) bid. If there are more successful bids than items available, priority goes to the bidders who’s bid was highest and then to bidders who submitted their bids first.
In order to beat a competing bidder, one must bid a higher price per item than that competitor, regardless of the number of items that are being bid for. Here is an example of how this might work:
The seller auctions 5 identical items.
1. Bidder “A” bids for 2 items at $20 each.
2. Bidder “B” bids for 4 items at $21 each.
3. Bidder “C” bids for 3 items at $18 each.
The outcome of this auction would be:
1. Bidder “B” wins 4 items at $20 each….
2. Bidder “A” wins 1 item at $20 each.
The price is $20 because that was the lowest successful bid (hence the second price). The difference between the “traditional” second-price auction and the Royalty Exchange auction is that Royalty Exchange will require all winning bidders to buy their final share totals regardless of the first amount of shares they offered to bid.
Auction extension: an auction can be extended for two reasons. Either, there were no bids on an auction and the seller agrees to extend the auction beyond its normal timeframe or someone places a bid within the last 5 minutes of the auction, which will automatically extend the auction another 5 minutes.
HOW DOES THE “MAKE AN OFFER” FUNCTION WORK?
The “Make An Offer” function applies to both Multi-Unit auctions and Single-Unit auctions equally. It is a way for a bidder to make a full-price offer only. No partial offers for fractional interest will be accepted. Offers made should be at or above the current price. Once an offer is submitted and reviewed it is presented to the other current bidders in that auction for a chance to counter the offer, (Note: only investors who have placed an active bid in the auction will get a chance to counter). If there are no counter offers, it is then submitted to the seller for final acceptance.
Auctions will continue until a price has been agreed upon by both parties.
Offers are not considered valid until accepted by the company and the company has the right to refuse any offer.
WHAT HAPPENS AT THE CLOSE OF AN AUCTION?
Royalty Exchange uses the Five Minute Rule for auctions, whereby if a bid is placed in the final five minutes of an auction the listing will stay open for an additional five minutes. There is no limit to the number of times an auction can be extended, so we recommend that bidders check back often as an auction nears closing time. When the auction has officially come to a close, the listing will indicate “Auction is Closed”.
- Royalty Exchange makes every effort to ensure system availability. However, we reserve the right to (in rare cases) close an auction prior to, or extend it beyond, the posted closing time. This may be done at our discretion and without warning.
- Royalty Exchange is not responsible for incomplete, failed, garbled, scrambled, delayed or misdirected computer transmissions due to technical computer hardware or software failures or other errors of any kind.
WHAT HAPPENS ONCE I WIN AN AUCTION?
For Single-Unit auctions: Buyers are obligated to wire closing funds to Royalty Exchange within 24 hours of winning an auction.
For Multi-Unit auctions: Please consult the Private Offering Memorandum associated with the multi-unit auction for the closing process.
Once closing funds are received, the entity currently paying royalties will be contacted to put payments for that royalty stream on hold while closing contracts are generated. The length of time needed to generate contracts can vary depending on the specific assignment.
For music royalties, the royalty payer can take anywhere from 1 – 6 months following the submission of contracts to begin distributing royalties to the royalty stream’s new owner. The royalty stream will be on hold during this processing time — a buyer’s first royalty statement(s) will include all royalty revenue generated during this time.
ARE THERE FEES ASSOCIATED WITH BUYING ROYALTIES?
For Single-Unit auctions: We charge a Closing Fee, the amount of which will vary by auction and is directly related the the legal costs involved in closing the auction. We also charge a 1.5% Buyer Fee (one-time) on the final sale price and a 0.5% Admin Fee (ongoing) on each quarterly royalty payment for the length of the investment (as specified on the individual auction pages).
For Multi-Unit auctions: Please consult the Private Offering Memorandum associated with the multi-unit auction for the fee structure.
HOW ARE ROYALTY PAYMENTS TAXED?
The Royalty Exchange expects that the income generated by royalty payments will be ordinary income for federal income tax purposes; however, the timing of any deduction related to the original purchase price of the royalties will vary, which would affect the amount of income. Tax matters are quite complex, and investors should consult with their tax advisers.
WHAT IS A RESERVE PRICE?
A reserve price is a hidden minimum selling price set by the seller. It is the lowest price that a seller is willing to accept for an item. If no bids meet reserve price when an auction ends, the seller is not required to sell the item. If there is a reserve price for an auction it will be noted on the listing.
WHAT IS A PROXY BID?
A proxy bid is the amount that you set as your maximum bid price per unit for an auction.
The Royalty Exchange auction system monitors the on-going auction bidding for the current high bid amount and will use your proxy bid amount to place incremental bids on your behalf to ensure that you remain the highest bidder. The automatic bidding on your behalf will continue up to the maximum amount of your proxy bid. The bid increment is set for each auction.
Once your proxy bid has been met, you will be notified if and when another bidder places a higher bid. Upon notification, you can choose to continue bidding at the higher level to remain in the auction.
MAY I LICENSE AN ASSET ONCE I PURCHASE ITS ROYALTY STREAM?
The answer to this question depends on the purchase. An investor who owns only the rights to the royalty revenue generated by an asset and does not own the asset itself, or the rights to license the asset, will not be able to license the asset for further use. However, full ownership of an asset will occasionally be posted for auction, in which case an investor may license the asset as desired.
HOW DO I VERIFY THE LEGITIMACY AND LEGALITY OF A TRANSACTION?
Royalty Exchange verifies each asset with both its current owner and the organization responsible for collecting and dispersing the royalties it generates. For further information, please refer to our terms and conditions.
WHAT ARE “CLOSING COSTS”?
Royalty Exchange has invested heavily in creating a standard set of documents to use for royalty transactions. Unfortunately, we deal with many organizations that pay royalties and each has its own sets of ever-changing forms, rules and regulations regarding rights assignments. This necessitates that some listings carry a “Transaction Fee”, which covers both costs for the basic legal forms and our time to process and confirm that each assignment is completed correctly. The fee scales according to the price of the auction in order to both cover the complexity of larger transactions and spread costs across all transactions.
If you have any further questions, feel free to Contact Us and ask!
WHICH TYPE OF ROYALTIES CAN I SELL?
Royalty Exchange accepts all types of royalty streams! Royalties from industries including but not limited to music (public performance, sync, mechanical, publishing and production royalties), book publishing, television, film, pharmacy, intellectual property and energy can all be listed on Royalty Exchange.
CAN I SELL ONLY A PORTION OF MY ROYALTY REVENUE?
This is totally up to you! You can sell any percentage of your royalty stream. The options are almost limitless! Royalty Exchange will work with you on your ideal auction and how best to present your royalties.
HOW QUICKLY CAN I SELL MY ROYALTIES?
Once we have your previous years’ royalty statements, we can usually conduct an auction in as few as 30 days.
WHAT KIND OF BACKGROUND CHECK DOES ROYALTY EXCHANGE CONDUCT REGARDING MY ROYALTY STREAM?
Royalty Exchange has a simple verification process for sellers. There are no credit checks, and we only require the past 2-3 years of your item’s royalty statements, including the last statement available, to ensure that there is no encumbrance on payments.
WHAT DOCUMENTATION DO I NEED TO PROVIDE IN ORDER TO SELL?
To have your royalty stream listed on Royalty Exchange, you will need to provide us with the following information:
- What you’d like to sell
- i.e. for music: songwriter’s share of performance royalties, mechanical royalties, production royalties
- The person or entity paying your royalties
- AT LEAST three years of royalty statements
- Digital statements in CSV/Excel format are preferred, as this allows us to provide a more sophisticated analysis of your royalty stream
After we review your data and verify your royalty stream, we will discuss the following questions:
- What percentage of your royalty stream do you want to sell?
- Streams can also be divided by other criteria, such as by song or by licensor.
- Do you want to use a reserve price?
- A reserve price is the minimum price you would accept for a sale on our marketplace. If this price isn’t met, there is no sale.
- How can we best promote your auction?
- Royalty Exchange handles most of the promotion for auctions, but any outlets that you can provide us will increase the probability of your item selling. Some examples include social media accounts, websites and personal industry networks.
WHEN WILL I RECEIVE PAYMENT FOR MY SALE?
If your listing sells, you will receive an expedited payment after the final signed paperwork and payments are received by Royalty Exchange. Paperwork can take one to four weeks to process depending on the complexity of your sale.
WHO SETS THE MINIMUM BID AND RESERVE PRICE?
The reserve price and minimum bid will be determined by you. We want to give you complete control of your listings, as well as provide your auction with the best possible probability of success.
WHAT CHARGES CAN I EXPECT IF I SELL MY ROYALTIES THROUGH ROYALTY EXCHANGE?
One of the great things about Royalty Exchange is that there is no charge to list an auction on our platform, so you’ve got nothing to lose! We only collect a 12.5%* fee if your item sells.
CAN I PRIVATELY SELL MY ROYALTY STREAM?
Yes. We value your confidentiality and can list your royalty stream privately if that’s your preference. A private listing will be advertised only to our investor community, not to the public.
WHAT HAPPENS IF MY ROYALTIES DON’T SELL?
If your auction fails to reach its reserve price, you have the option to have Royalty Exchange negotiate on your behalf with the highest bidders to strike a deal. Otherwise, there is no sale. Royalty Exchange charges no fees for auctions that fail to sell.
IF I CHOOSE NOT TO SELL MY ROYALTIES, ARE THERE OTHER OPTIONS?
Yes. Our Royalty Advance Program allows you to receive up to a three year advance on your royalties. To qualify for this program, a royalty stream must have booked an average of AT LEAST $10,000 in revenue over the past three years. To learn more about this program, please visit our Royalty Advances page.
If you have any further questions, feel free to Contact Us and ask!