A version of this article previously appeared on Forbes.
Some of the all-time greatest business deals involve entrepreneurs who viewed the scope of their negotiations in terms of decades, rather than years. Too often, entrepreneurs negotiate deals which consider a relatively short-term time horizon. This tendency is understandable, as most business negotiations address near-term objectives, such as driving incremental revenue or acquiring customers. However, shrewd entrepreneurs look beyond a deal’s near-term impact.
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“The man who waits for roast duck to fly into his mouth must wait a very long time.”
A potentially apocryphal story is told in Green Bay, Wisconsin about a bar that was sold in the 1940’s. The version I heard involved a bid/ask spread of a few hundred dollars. In order to close the sale, the bar owner “threw in” four season tickets to the Green Bay Packers football season.
Fast Forward to 2014: According to James Carlton, “Every Packers game for the past 54 years has been sold out and the team’s season-ticket waiting list has nearly 90,000 people on it. It’s said that the average wait time to get season tickets is about 30 years.” Thus, if the story is true (and folks around Green Bay swear by it), the “thrown in” tickets are nearly priceless, at least in the mind of a typical Packers fan.
The key to pulling off a killer long-ball negotiation is to secure rights to something that the other party considers to be worthless in the near term, but could have substantial value over time. Given that the other party sees little or no value associated with your request, you can often gain such rights inexpensively, by asking that they be “throw in.”
If your negotiation foe is ultimately correct and the provision proves to be worthless, you are not worse off. However, if your supposition is correct, the upside to the savvy negotiator can be enormous. With enough foresight, a roasted duck might actually fly into your open mouth.
Some of my favorite, non-apocryphal long-ball negotiation deals include:
Hard Day’s Help – Walter Shenson, the Producer of The Beatles’ movies, “A Hard Day’s Night” and “Help” negotiated complete ownership of both films’ rights 15-years after their respective releases.
At the time, few people in Hollywood thought the Beatles would be remembered in three years, let alone in a decade and half. This option cost Mr. Shenson nothing. Box Office Mojo estimates that since 1980, the films have netted over $10 million in theatrical re-releases and at least that much in collective VHS, DVD and Blu-ray sales.
Obtaining the films’ rights was a sweet deal, but Mr. Shenson didn’t stop there. He was prepared to share 25% of the films’ net revenue with the Beatles’ Manager, Brian Epstein. However, the inept Mr. Epstein settled for a startlingly low 7%.
VC Shut Down – Software startup Miramar Systems negotiated a seven year provision with their venture capitalists which gave the company an option to refund the their investors’ money, if the company was not sold within seven years.
The investors could not conceive of a scenario in which the company would be thriving seven years later and yet still be a stand-alone entity. However, that is exactly what happened.
In the seventh year, Miramar’s executives remitted to the VCs their investment, along with nominal interest. This allowed the management team to recoup a huge chunk of equity, which served them well when they eventually sold Miramar to Computer Associates. Cha-ching.
Tarzan Cleans Up – In 1917, Edgar Rice Burroughs sold the Tarzan film rights for a nominal sum. However, he retained the licensing rights associated with all the characters in the Tarzan books. At the time, such rights were of little value to the film studios. However, this move proved to be a pure genius, as Tarzan merchandise ultimately grossed millions during the remainder of the 20th century.
Burroughs might have been a mediocre pulp author, but he was a prescient businessman. Case in point, in 1923 he became the first American writer to incorporate himself. Retaining the licensing control of Tarzan allowed his corporation to collect royalties at a lower nominal tax rate. Burroughs made more money from merchandizing than he did from book sales, as his characters were eventually licensed to: a nationally syndicated comic strip, a radio show, a TV series and various comic books.
The ABA’s Last Laugh – The Silna brothers, owners of the American Basketball Association’s St. Louis Spirits, desperately wanted to join the NBA when the leagues merged. However, the NBA only accepted four ABA teams, leaving the Spirits’ owners out in the cold. Or so it seemed…
The Silna brothers were not willing to go away quietly. To avoid a lawsuit, the NBA’s owners agreed to pay them $2,200,000 upfront, along with a 4/7th share of the television rights of the ABA teams which were absorbed by NBA. The brothers agreed to this arrangement, with the stipulation that the royalties be paid in perpetuity or until the NBA ceases to exist. Asking to be given something in perpetuity is genius, agreeing to it is criminally pathetic.
In contrast, the other ABA team that was not merged into the NBA, the Kentucky Colonels, negotiated what appeared at the time to be a better deal. A one-time payment of $3,000,000.
By 2014, the Silna brothers’ brilliant perpetuity provision is estimated to have generated over $300,000,000 and is considered by many people as the single best (or worst) business deal ever negotiated. Not bad for a team that never played a single game in the NBA.
The next time you cut a deal, identify a long-term scenario that may seem unlikely, but could result in a lucrative payday. As the deal nears a close, encourage your unwitting negotiating opponent to “just throw it in.” Twenty years from now, you might be eating roasted duck.
Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet about that killer burrito I just ate.
Photo: UPI, via Wikimedia