How To Use The Royalty Exchange Marketplace

  in Investor Guides

Jun 05, 2020


The Royalty Exchange marketplace is where buyers and sellers of royalties meet. It is designed to function as a transparent exchange of information and value where transactions can take place with confidence and fairness. 

Several elements are needed to accomplish this:

  • Information: Access to financial information about specific assets and how they compare to the broader market is critical to confident investing. 

  • Price Discovery: A free market with a willing buyer and willing seller that makes all bids and offers public for all to see ensures each asset can find the best price that the market can support. 

  • Standardization: All participants adhere to the same deadlines, terms, and conditions. No one gets special treatment based on their relationships, financial position, or history. 

But above all is transparency. Taken together, these elements represent the power of markets. With it, the full value of ideas traded on that market can be fully unlocked for all. 

You will see examples of all the above in the two main components of the Royalty Exchange Marketplace: the Auction House and the Secondary Market. 

 

Let’s take a deep dive into both. 

AUCTION HOUSE

The Auction House is where we list individual royalty assets that investors bid on in open, live auctions. All bids are public, and bids are accepted for the entire asset only. Each auction has only one winner, and the winning bid is a binding, legal contract with the seller to acquire the entire asset.

All assets on Royalty Exchange go through a rigorous evaluation process to ensure the seller has the rights to place the asset for sale and to verify the financial history of the asset. Once we complete this due diligence and the seller signs the listing agreement, the listing appears live on the site awaiting an opening bid. 

Listings

Each listing on the Auction House consists of:

  • Overview: A short summary of the asset, its starting price, bidding increment, investment term, last 12 months of earnings, and payment/fee details.

  • Financials: A compilation of all relevant financial details about the royalty stream. Only earnings relevant to the asset for sale will be presented. For example, if an auction is for 25% of the seller’s royalty stream, all financials presented will reflect 25% of the historical earnings. A spreadsheet with raw royalty data will be provided for review and analysis.

  • Documents: downloadable financial spreadsheets and/or lists of all the assets included in the auction, and other relevant documents.

  • Media: Streaming music, photos, video, or other relevant context surrounding the asset for sale.

Here’s an example of a listing and the details we provide. 

 

You’ll first see the current price, the time left on the auction and the number of current bids. 

To the right, you’ll see the standard information presented in each listing. This includes the starting price, Dollar Age, Investment Term, distributor information, and the rights included. 

On the financials tab, you can dig into more details, such as year over year earnings history, and royalties by song and source. 

 

LEARN MORE ABOUT HOW TO READ OUR LISTINGS HERE

Watching or Bidding on Auctions

Any investor registered with Royalty Exchange can view listing and watch an auction. To watch an auction, simply click the 'Watch or Bid' button on the auction listing. 

This does not commit you to bid. 

To actually place a bid, you must first complete our one-time verification process. It only takes a few minutes: 

  1. Fill out the verification form

  2. Set up a quick, 5-10 minute verification phone call w/ a member of our staff. 

We recommend completing the verification process BEFORE you find an asset you’re interested in acquiring so you’re not at a disadvantage against other pre-verified bidders. 

Each listing has a starting price, which is the lowest price the seller will accept in an auction. Initially, an auction will be listed in “Awaiting Opening Bid” status until a verified bidder places a bid at or above the starting price. 

Once the starting price is met, the auction clock will begin. Most auctions will run for less than a week.

[Note: Investors who place the opening bid of an auction they win don’t pay the standard marketplace fees. That’s a saving of either 1% of the auction closing price or $500, whichever is greater. 

Our auction system will keep track of all bids in real time and notify you of other investors' bids on the auction. All bids are binding and must be placed before an auction closes.

A few other things to keep in mind: 

  • Proxy Bidding: this feature allows you to set a maximum bid for an auction. Our system then uses your proxy amount to place incremental bids on your behalf to ensure that you remain the highest bidder up until your limit. Tiebreakers got to the earliest set proxy bid. 

  • Five Minute Rule: If a bid is placed in the final five minutes of an auction, the auction clock will reset to five minutes and begin counting down again. There is no limit to the number of times the auction clock can be reset.

  • Post-Auction Process: If you win an auction, a Royalty Exchange Account Manager will guide you through every step of the closing process to ensure a smooth and speedy transfer.

For more details on these and other steps related to the Auction House, read the article below

HOW AUCTIONS WORK

 

SECONDARY MARKET

The Secondary Market is where we list any asset previously acquired on the Royalty Exchange marketplace, mostly assets acquired in previous auctions. 

 

Here, you can make an offer directly to the asset owner, usually another investor just like you. They can accept or reject (or ignore) these offers as they like. 

Asset owners can also set an asking price for the catalogs they own, which if met initiates a sale. 

There are typically well over a hundred listings to review in the Secondary Market on any given week, compared to a weekly average of 3 - 5 on the Auction House. 

Again, each listing contains detailed information about sources of earnings and earnings history. 

But the Secondary Market also contains information like the number and size of bids made since listed and earnings since initial purchase. 

You’ll notice the Analyst Benchmark price, which is an algorithmically derived benchmark we include to provide guidance on what we think might be a fair price guidance based on the catalog performance. 

That benchmark is based on the median multiple paid for other catalogs with similar characteristics. It is not based upon an individual analysis of the particulars of the specific catalog. The Analyst Benchmark is only available to All Access investor members

With dozens of assets in the Secondary Market, there are several useful filtering tools available to you. These include: 

  • A “Sort By” option that will list the assets in order of most recently added, or other factors like List Price, Analyst Benchmark, Offers Made, and more

  • A “Filter By” option that allows you to filter out listings that don’t meet certain criteria, which include the last 12 months earnings of the asset, the age of the songs in the asset, or the number of offers made. 

  • A “Hide/Show” option that further refines the filter based on details like Term of the asset, only those with List Prices, and so on. 

How to Bid on Secondary Market Assets

There are two ways to make an offer in the Secondary Market. 

First is a manual offer. Simply select the asset you’re interested in and choose “Buy Now” if you want to purchase at the List Price (if set)

Or, choose the clear “Make Offer” to place a custom offer

And then fill in your offer preferences in the resulting popup

(Note: All Access members have a third option of making an offer at the Analyst Benchmark price as well). 

Once you place your offer, the owner of the asset is notified and has 24 hours to accept or reject it. If accepted, your offer is considered binding and you will receive notification of next steps to complete the purchase. 

Another option is to place a Standing Order. Standing Orders allow you to place an offer into our system based on the criteria we’ll outline below, and our platform will automatically match your request to assets that meet your preference. 

To place a Standing Order, simply navigate to the Standing Orders tab in the Secondary Market, and select the green “Place New Standing Order” at the top right of the screen.

This will open the popup where you can leave your offer criteria. These include: 

  • Minimum Dollar Age of the asset

  • The multiple of the asset’s last 12-months’ worth of earnings you’re willing to pay

  • The total amount you’d like to allocate

 

 

These orders will be matched to any asset that meet your submitted criteria, either new catalogs submitted by rightsholders using our Know Your Worth app, or to other assets in the Secondary Market held by other investors. 

There’s a lot more to consider when leaving Standing Orders, so please read the article below for a more detailed overview:

AUTOMATED INVESTING FOR ALL INVESTORS


The Auction House and the Secondary Market are the two components of the Royalty Exchange Marketplace where you can acquire royalties. We hope this guide provides a helpful overview of each. 

But this overview is just the first step. We recommend registering to watch an auction before you actively participate as a bidder. Or make a few manual offers on the Secondary Market before placing a Standing Order. 

Thank you for your participation in Royalty Exchange. We’re happy to have you as a member. 

 

STILL HAVE QUESTIONS? 

Register to attend one of our monthly Investor Office Hours sessions—an open Q&A where our staff answers all your questions. You can submit a question in advance, or ask one live. 

REGISTER HERE