licensing n.
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  1. Licensing

  2. Definitions • Licensing: authorization that one business gives to another business, individual or organization which grants one of the entities permission to use another’s property (ex. Logo) in exchange for a fee. • Royalty: Per unit payment made for the use of intellectual property created by a business or person, such as a sport team’s name and logo

  3. Definitions • Licensee: the group, individual or corporation paying a percentage of the revenue earned through the use of the entity’s intellectual property. (New Era Cap) • Licensor: Owns the rights to some intellectual property and grants permission to a group, individual or corporation to use this property. (MLB, NFL, etc…) •

  4. “Official” • Many companies find it attractive to be the “official” item (hat, ball, sandwich) of a sports team or even a music tour. • To become the official item of a team, the company licenses the use of the name and/or logo on a particular item. • The license may be exclusive or non-exclusive.

  5. Exclusive • An exclusive license means that no one else can sell the same type of item with the team’s name and logo. • In an exchange for the right to use the name and logo, the licensee normally pays the team a fixed fee and a percentage of its sales of the item (known as royalty) • Revenue = Fixed Payment + Royalty x Estimated Units Sold

  6. Example: Wheaties wants to have the exclusive rights or to be the licensee to use the Olympic Logo on their boxes and to be the official 2012 Summer Olympic cereal. They pay the Olympics (the licensor) a fixed rate of $100,000 for the rights to the logo plus for each box they sell, they will pay $.10. They estimate they will sell 1,000,000 boxes. Revenue = Fixed Payment + Royalty X Estimated Units Sold $100,000 + $.10 x 1,000,000 200,000 = $100,000 + $100,000

  7. What to look for…. • In evaluating potential licensees, a team must consider the fixed fee offered, the royalty rate and the firm’s estimate of the amount it can sell. • Sports and entertainment businesses are also very concerned about the quality and ethical reputation of licensees because a bad “official” item of the team reflects badly on the team.