How to Find and Exploit Marketplace Gaps With Standing Orders

  in Investor Guides

Jul 13, 2020

Automated investing through our new Standing Orders feature is a powerful way for investors on Royalty Exchange to acquire a royalty portfolio quickly. 

But Standing Orders are only as good as the offers made through them. Many Standing Orders are left vacant with no catalog to fill them, for several reasons: 

  1. The Standing Order overlaps with too many competitive orders for the same catalog criteria and the better offers win 
  2. The Standing Order is matched to a catalog, but the offer multiple is so low that the asset owner rejects it
  3. The Standing Order criteria is too narrow, and as a result, many potential matches are not connected

Gaps in Matching Orders

For instance, there are 11 Standing Orders that match to a 10-Year-Term catalog with a Dollar Age between 6 - 7.5 with last 12 months (LTM) earnings of between $1,000 and $5,000. Thirty catalogs have entered the marketplace with these parameters and were matched to the highest offer. That means 10 competing Standing Orders did not get filled because they were bested by a higher competing offer.

But for 10-Year Term catalogs with a Dollar Age between 3 - 3.9 with an LTM over $8,000, there are exactly zero Standing Orders currently placed to match. That means if anyone placed a Standing Order in this range, it would be the sole offer that matches it. Since launch, 13 catalogs have entered the Royalty Exchange system with those parameters but are not presented with offers because of this lack of a matching order. 

Below is a table of potential catalog iterations available for a 10-Year Term Standing Orders by investors, from a 3-year Dollar Age catalog earning $1,000 in the last 12 months, to an 8-year Dollar Age catalog earning $25,000 in LTM.*

(*Investors who are not All Access members are limited to placing Standing Orders only on 10-Year Term catalogs with $25,000 or less in LTM. 10-Year Term catalogs with an LTM of more than $25,000 are also matched to Life-of-Rights Standing Orders). 

The red block in the bottom left illustrates the huge gap in Standing Orders noted above. 

Click to view larger

Since the beta launch of the Standing Order feature 18 months ago, 83 10-Year Term catalogs entered the system eligible for Standing Order matching but were not matched because there was no corresponding Standing Order placed. That’s nearly a quarter of eligible catalogs left without a match simply because there was no Standing Order available. 

The PDF linked below illustrates the same table above, but with a scatterplot layered atop it to illustrate the catalogs that have come into the system that match each potential order. As you can see, there are several missed opportunities for matches. 

View PDF

Gaps In Offer Multiples

Now, just because a match is made doesn’t mean it will be accepted. The offer still must prove enticing to the seller, or the offer will be rejected. Of the 1,271 10-year matches made to Standing Orders, 49% have been rejected. The rest expired or were accepted.

This raises another opportunity to leave smart, competitive Standing Orders. Many of the Standing Orders in our system have the potential to match incoming catalogs, but the offer multiple falls far below our Analyst Benchmark price analysis. (The Analyst Benchmark is simply the average sale multiple for similar catalogs on our marketplace). 

The further below the Benchmark price, the less likely it is to be filled, which gives investors the opportunity to place more competitive offers closer to the Benchmark price. 

The table below is an analysis of all the Standing Orders placed in the marketplace, and how far above or below our Analyst Benchmark the highest offer multiple is for each potential catalog that could enter the system. 

The green cells represent areas of opportunity… the darker the green, the further below the Analyst Benchmark the offer multiple is, meaning the greater the opportunity to place a higher offer multiple to beat out that offer. 

The red cells represent areas of less opportunity because the offer multiple is higher than our Analyst Benchmark. The darker the red, the higher the multiple premium over our Benchmark.  And the white represents no offers left, so there’s no data to compare against our Benchmark. 

Click to view larger

Note: All the stats and graphs above are limited to new catalogs coming into the marketplace from artists interested in selling their catalog. It does not include data on matching Standing Orders to existing Secondary Market assets, which we only added in March 2020.

If you’d like a more detailed overview of the above, below is a clipped segment from our last Office Hours Q&A session, where we introduced the data to attendees.

How To Use This Information

We realize this is a lot to absorb at this time. We’re sharing this raw data and analysis with you in a spirit of sharing and transparency. We also intend to update the graphs that illustrate gaps in the Standing Order marketplace every month to help you make more informed offers. 

But we realize that ultimately we must use this data as the backend to a more intuitive offer interface feature, so you can benefit from the analysis at the point of making your offer without the need to interpret the data and do the calculations on your own. 

To that end, we’d love to hear any feedback, suggestions, or helpful criticisms, so we can design this feature to your benefit.