Royalty Pools

ROYALTY POOLS

Royalty pools are now more commonly being negotiated and in particular on musicals and larger budget straight plays.

A common example of a royalty pool can be described as follows: instead of the Royalty being calculated as a percentage of the net Box Office receipts, it is calculated as a proportion of the Gross Weekly Running Profits, using the following guidelines:

The Gross Weekly Running Profit (Calculated by deducting from the weeks net box officereceipts all weekly running costs excluding royalties) is divided between the Royalty Pool participants and the Producer/Investors in an agreed ratio. For example, 65% to the Producer/Investors and 35% to the Royalty Pool. This split (65%/35%) would be part of the negotiated agreement.
The Producer/Investors’ share (e.g. the 65% as above) becomes the Net Weekly Running Profit and, prior to Recoupment, on a weekly basis, aggregates towards achieving Recoupment. Following Recoupment the percentage division is normally adjusted (again by negotiated agreement); for example the Producer/Investor’s share may reduce to 60% and the Royalty Pool increase to 40%.
The Royalty Pool share (e.g. the 35% as above, or 40% following Recoupment) is divided between all the Royalty Participants in the ratio of their individual Royalty to the total of the Royalties to be paid. For example, if the total Royalties in a pool amounted to 15%, each 1% Royalty holder would receive 1 point within a total of 15 or 1/15th of the total Pool.
It is clear from a), b) and c) that in a week where there is little or no Gross Weekly Running Profit, Royalty participants could share in a small or even non existent Pool. In order to deal with this eventuality and to ensure some payment is made to royalty holders in poor weeks, a minimum payment per point is normally negotiated, for example £200 per point or a total of £3,000 for the 15 points illustrated.

The use of a Royalty Pool helps to protect the Producer if a show is playing to poor business and effectively reduces the figure at which the show will start to show a loss on a weekly basis.

A profit/loss illustration based on a 65%/35% Pool arrangement is shown overleaf. The same Box Office Figures and Fixed Weekly Operating Costs are used as for the previous profit /loss illustration, but it will be clear that on the Pool arrangement the Producer is at less financial risk of loss at the lower Box Office levels.