First and foremost, I am not a lawyer. Contract law is a beast, and if you’re unsure about the wording in a game contract, take it to a contract lawyer. I’m hear to offer you some enlightenment on the pitfalls I’ve stumbled into in the many contracts I’ve been involved with over the years.

Eventually, once you’ve convinced a game company to produce your game, they’re going to offer you a contract. You’ve probably negotiated the obvious stuff, like how much of an advance you want, and the percentage royalties you’d like to get, but the devil is in the details. Here are some of the things you should look for, based mostly on bad experiences I’ve had in the past.

Here’s a sample game contract. With a few variations, this is probably what you’ll be looking at. It’s short, so take a quick peek. I’ve had contracts anywhere from 1 to 20 pages long. Just depends on how the manufacturer wants to protect himself. Read contracts carefully. Look for weird loopholes. And it never hurts to have a contract lawyer review it for you (except, of course, for the cost of the contract lawyer). I’ve had very few contracts where I didn’t need to have a couple of changes made to clarify or correct statements. Companies are usually quite good about dealing with this, if you explain your concerns well.

ADVANCE AND ROYALTY

Generally, you want to get some sort of non-refundable cash advance paid to you upon signing the contract. Based on who you’re dealing with, this can be anywhere from a few hundred dollars to $5000. The reason you want this is that, in many cases, the manufacturer never actually publishes the game (this has happened to me on at least five occasions), but sits on it until the contract expires. Without the advance, your game would have been tied up for a couple of years, with nothing to show for it. I was offered a contract once by a company who said they never paid advances – I turned them down. A company who isn’t willing to offer you an advance is a company that isn’t serious about publishing your game.

Your advance is always taken out of your eventual royalties, so even if the company sells 1000 copies, you aren’t likely to see any money from it until you’ve earned more royalties than your advance was worth. Then you start getting checks. I did have one contract many years ago that stipulated that I would be paid an advance against royalties upon the signing of the contract. The person who offered me the contract left the company right after signing it. His replacement balked on paying me the advance because, if you can believe it, “we might not publish it, in which case there would be no royalties, so there could be no advance against royalties if there are no royalties.” To add injury to insult, I had to wait 2 years for the contract to expire before I could offer it to another company. I shrugged and went on to work on another design while waiting.

The royalty is best calculated as part of their net sales; what they actually collect in cash for sales, rather than the retail price. This way they can give away samples, give discounts, or sell at full retail at cons and you get a cut of the actual net sales. This is fairly standard. Most of the contracts I’ve seen are anywhere from 5-8% of net, though some have been as low as 2% and as high as 10%. Depends on the manufacturer; if they expect to market a million copies through Toys-R-Us, you can expect a lower royalty. Royalties are generally paid quarterly or semiannually.

TERMINATION DATE

You should expect the contract to die at some point so that the rights revert back to you if the company isn’t continuing production. Unfortunately, I’ve had a couple of inadvertently open-ended contracts that said stuff like, “this contract will expire 2 years after the first production of your game,” which, in retrospect, was a very stupid thing to have in my contract. It means that if they never produce it, they retain the rights to it forever. After five years, I contacted the company who was obviously never going to make it and asked them nicely if they’d give the rights back to me. They offered to sell it back to me. You can guess how that went. In a different example, a company made 100 copies of the game using a print-on-demand, and said that since they had “published” the game on time (within the 2 year drop-dead date) that they had fulfilled the requirements to hang onto it for another 2 years.

So my suggestion here is to disallow POD entirely or stipulate a minimum number of copies (say, 1000) for the termination period to renew. Or have a fixed termination date regardless of the number of copies sold with renewal negotiable. Some contracts will state, “if we sell XX number of copies during the period, then the contract automatically renews for X years”. Sometimes the company will just have a fixed duration contract, then contact you to renew it if the game is still selling well for them.

In yet another case, I allowed the company to renew the contract (for a fee) every year for 10 years whether the game was being produced or not. Oddly, they kept paying the renewal fee, but never made the game again, unfortunately tying up the rights to the game for 10 years. I would advise you to avoid doing this.

Regardless of how it’s done, you want a termination date. One allowance you’ll usually see in the contract is that if the contract is terminated, they’ll be allowed some time period, like a year, to sell their existing stock.

KILL FEE

A kill fee is something a company might give you for all the work you’ve done when they decide not to do the project after all. Wizards of the Coast, in addition to giving me an advance on Primrose Path (which later became Drakon from FFG), gave me a kill fee when they finally (after about 2 years) elected to return the game to me without publishing it. It was pleasantly unexpected and wasn’t in our contract. Thanks, WotC! I mention it here because it’s something you could ask for in your own contract, though it’s very rare. I personally have no contracts with a kill-fee in them. It’s more common in work-for-hire free-lance writing. If you are doing work-for-hire game design, however, it’s worth having in the contract.

SELLING OUT

You can, of course, opt to sell the whole ball-of-wax to them at a fixed price. There’s nothing wrong with this, but if the game does fabulously well, you’ll never see a penny of royalties. On the other hand, for an outright sale, you should expect more money than a simple advance would get you, at least double.

WORK FOR HIRE

Work-for-hire is another option, which I’ve done twice. It’s usually a lot of work, and on a deadline, to boot! It’s important to establish delivery dates for proposed designs and final designs, and partial payments for each stage, and so on. If you’re designing a game or expansion for someone else based on their intellectual property (like the module I did for FFG’s Mansions of Madness), it’s a fairly simple matter for them to define what they expect to see, and when. If you’re designing something from scratch, you’ll have to document well what the customer expects to see and what they want, when they want it, and payment schedule for each stage in the event they decide to drop you, possibly including a kill-fee. The stages might include concept, raw prototype, playtested prototype, incorporations of revisions (from the buyer) and final version, with delivery dates, payments, and penalties if you’re late. This is obviously a highly flexible list, but whatever you end up with should be well-defined. Artists can attest to this; a poorly defined contract will just irritate both the artist and the client.

SUBLICENSING

Here is where a lot of weirdness can happen, although, thankfully, the people I have worked with have never used any of these loopholes. Sublicensing usually consists of one company selling the rights to print a game to another company for a fixed price, for which you get a much larger percentage, as the licenser (the company you sold your game to) isn’t actually doing any of the labor except for selling it to someone else. They’re acting as a middle-man, a sales rep. It’s reasonable in this case to ask for 20-40% of the sublicensing fee that they get from the licensee. Alternately, you can stipulate that in the case of sublicensing, the licensee also pays you a royalty on each copy sold, and you don’t get any of the sublicense fee at all.

The pitfall in this is the opportunity for two companies to “sell” each other the rights to games that they’re both interested in at a substantially reduced cost, or zero, thus reducing your percentage of the take while providing a much cheaper acquisition of an IP (intellectual property) for both of them. I’m not sure how you can avoid this, unless you go the route of asking for a royalty-per-copy regardless of who sells it. Another quite common protection against this is to limit the range of sales to a particular geographic area, such as North America rights, thus retaining the rights to sell in other countries to other companies. If the company maintains an international presence, then they’ll want all the rights, however.

A secondary pitfall here is that a company could buy your game without the intention of printing it at all, but with the intent to sublicense it. This isn’t necessarily a bad thing; it’s a bit like having a sales rep or an agent market your game for you and taking their cut for selling it. Do your homework on whom you’re about to sell your game to. Usually their reputation will precede them! Trust is an important part of the game industry, and once you’ve got companies and partners you can trust, hang onto them.

Be aware of how the company intends to market the game; if they’re going to sell one or two copies via Game Crafter, or offer it as a PDF download on Amazon, or print-and-play on their website, or as a Kickstarter project, know all this ahead of time and modify your contract to protect yourself (with solid termination dates!). It doesn’t hurt to have sales minimums listed in the contract.

YOUR BOARD GAME AS A VIDEO GAME

Often, your board game might be recast as a video game. If you’ve retained the video game rights to your games (very common, though many companies will want computer game rights, media rights, and derivative product rights as part of the contract), then you can license companies to produce any sort of video game based on your game. You can limit each license to a single platform or platforms (iPod or Xbox, for example), and ask for an advance, and royalties based on downloads or sales as you like. It’s a good right to retain, if you can; I sold the computer game rights to Wiz-War two or three times over the years. When you sell such rights, it’s important to stipulate that it is non-exclusive (if you can), especially if you want to sell it for development on multiple platforms.

THE LOSS LEADER LOOPHOLE

I’ve had one of my games converted to video (Wiz-War, ages ago) and offered as a loss-leader by one company (Total Entertainment Network, now defunct). Their business model was to collect fees from a subscriber base, and disseminate those fees based on the hours that a game was played versus the total number of hours played on all games on their site. Then, they offered Wiz-War for free as a loss-leader to drag in new players. When I confronted them with this, they told me that they couldn’t pay me anything since the game wasn’t actually making any money. I pointed out that per the contract, this was irrelevant: it was based on the number of hours played, not the income made by the game. They came back and said that they didn’t actually track the number of hours the games were played. Huh. Bottom line was that Wiz-War remained as an on-line game for a couple of years without me receiving a cent for it, and I finally got them to take it down, based on a clause that said that if it produced no income for a certain period, I could cancel the contract – the mandatory termination clause. It could have ended up in court, but it didn’t.

I don’t actually have any great ideas on how to prevent a company from marketing your game as a loss leader, essentially turning it into an advertising prop. Sometimes it works well for versions of your game to be given away for free to act as advertising for more complete versions of your game; a common ploy in the app-game market. But it they give your game away to help market someone else’s game, or bundle it as a freebie, this is a problem.

More recently, I’ve had Got It! turned into an iPhone/iPod/iPad app, along with a puzzle game called Wriggle. Both of these were based on an advance plus a percentage of the download income, and I did none of the app development. I’ve had no trouble with either contract, primarily because of the business model involved. But video game contracts can be tricky, particularly as the technology and marketing techniques evolve. Some games are modeled by selling virtual items in the game; if you stipulated that your royalties were based on paid downloads, or boxed sales of the game, you’d get nothing. So securing the net of ambiguity that video game marketing allows is difficult. One possible solution is to try to list in detail every possible money-making scheme that exists to date (leading to a 50-page contract). Or stipulate that any money made by the company based on the intellectual property (including derived products and add-ons that only function with the game) are fair game for royalty calculations.

Hmm. I’ve appeared to have rambled on about this subject longer than expected. Hope you’ve gleaned something useful out of all this.

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James Mathe also has an excellent article that talks about what to expect in a contract, called Alien – First Contract. It is well worth reading, and discusses various aspects of a normal contract and what they mean.