The FTX Film Rights Bidding War: Considerations for Sellers and Buyers

Just over a month ago, FTX founder Sam Bankman-Fried was running one of the world’s largest crypto-currency exchanges and hobnobbing at conferences with the likes of Bill Clinton. Celebrities and athletes, from Larry David to Tom Brady, appeared in FTX advertisements. The FTX name was everywhere, including on the Miami Heat’s arena (as part of a $135M naming rights deal). The rise of the company and its billionaire founder was unparalleled.

However, as has been widely reported, concerns about the company’s assets led to a massive deposit run and looming insolvency. Major venture capital firms publicly indicated that their nine-figure investments in the company were worthless, and within a matter of days Mr. Bankman-Fried resigned as CEO and FTX filed for bankruptcy.  He has since been arrested for violating U.S. securities laws.

The rise and fall of Mr. Bankman-Fried and FTX is a story made for Hollywood. Industry executives seem to agree. Deadline reported three weeks ago that Apple is close to reaching a deal with Michael Lewis for the rights to his upcoming (but yet to be written) book about FTX. Apple is reportedly paying seven figures for the rights, having beaten out Netflix, Amazon, and a host of other suitors.

The race to acquire audiovisual rights to books, magazine articles, podcasts, and other sources of intellectual property (“IP”) has only accelerated in recent years, as streamers continue to battle for content. While producers and studios pay huge premiums and engage in bidding wars for books by authors with impressive track records like Mr. Lewis (box office successes Moneyball, The Big Short, and The Blind Side were all based on his books), countless other deals are economically modest and create no fanfare.

For those with little experience in the area – both authors who may be interested in selling film/television rights to their work and producers interested in buying such rights – it may be helpful to understand how these deals are typically structured. What does it really mean to “buy the rights” to a work and what are some key considerations?

The option: Deals to acquire audiovisual rights to books or other IP are typically structured as option-purchase agreements. The producer or studio initially pays for an exclusive option to purchase the film/television rights. Option fees can often be quite low, especially where the author does not have stature, the content is niche, or there is otherwise limited demand for the work. When the buyers are independent producers (rather than resource-rich studios), it is not uncommon to see option fees as low as a few hundred dollars (or even less) for a 12- or 18-month option period. Agreements often include extension rights, at a cost, to allow the buyer to retain an exclusive option while they continue development.

Purchase price: When an option is exercised, the buyer pays the author a purchase price in exchange for acquiring the film, television and possibly other rights in the IP.  The purchase price may be structured as a fixed sum or a percentage of the project’s ingoing budget (which may be subject to a purchase price ceiling and floor).  When the initial project is a series, the seller will also be entitled to royalties for each episode produced.

Along with the purchase price, all other financial and non-financial terms are negotiated as part of the option-purchase agreement, including:

Profit participation (a/k/a “backend”): Authors’ representatives are often able to negotiate for backend participation, the amount of which will vary greatly.  Conceptually, if a film or series based on a book is successful, this allows the author to share in the upside.

Passives: An option-purchase agreement will typically cover financial entitlements in connection with subsequent productions (e.g., a sequel of the initial film or spin-off of the initial series) if the rights granted to the buyer include the rights to derivatives. These “passive” payments are usually structured as a percentage (e.g., 25% – 50%) of the purchase price and profit participation for the original project, with greater passives for sequels/prequels than for remakes or spin-offs of the original film or series.

Credit: A “Based on” credit is customary, with the precise form of credit changing slightly depending on whether the film/series has the same title as the book. Compare the credit in the film Moneyball (which has the same title as the Michael Lewis book on which it was based) with that in the Academy Award nominated film Captain Phillips:

Moneyball: Based on the Book by Michael Lewis;

Captain Phillips: Based on the Book A Captain’s Duty: Somali Pirates, Navy Seals and Dangerous Days at Sea by Richard Phillips with Stephan Talty.

Services: In instances where it might be beneficial or necessary for the author to provide services (e.g., consulting) in connection with the project, the terms of such services may be negotiated upfront. In addition to a fee (which may be negotiated as a weekly salary, episodic royalty, or other structure), the author may negotiate for certain creative consultation rights and/or producorial credits, which may be appropriate depending on author’s stature.

Reversion: Option-purchase agreements will contemplate the reversion of rights to the seller in the event that rights are purchased, but no film or series is ultimately produced. Points that need to be negotiated include the number of years before the reversion occurs, the conditions for reversion (usually a lien for the purchase price and development expenses), and other financial terms such as royalties and/or profit participation if a film or series is later produced by another buyer.

In addition to the above, there are a number of other terms (e.g., reserved and frozen rights, holdback bonuses, etc.) that sellers and buyers will need to negotiate. While most authors do not have Mr. Lewis’ stature and smaller producers do not have the resources of a major buyer like Apple, the above should provide all potential sellers and buyers a useful overview of key considerations when negotiating a deal.

Daniel J. AinThis article is intended as a general discussion of these issues only and is not to be considered legal advice or relied upon. For more information, please contact RPJ Senior Associate Daniel Jason Ain who counsels clients in areas of entertainment, media and literary, intellectual property and employment law. Mr. Ain is admitted to practice law in the State of New York and the District of Columbia (admission pending).