Publisher Contracts: Red Flags

At some point in every commercial product and collaboration, contracts should happen. At that point, lawyers tend to come into play - but many indies still feel lawyers are too expensive to work with, or aren't comfortable trusting just what they say. I will still recommend consulting a lawyer whenever you want to draft a legal document, or sign a legal document (and a lot of games industry lawyers will happily give you a free consultancy) - but I also think there's tremendous value in understanding some common ideas and warning signs in contracts.

Please note that I am not a lawyer. This is not legal advice. This is an independent developer speaking to you from a place of working with contracts for a decade. Please consult a lawyer if you want certainty. What I do know is that whatever a publisher sends you, please understand that this is their wishlist version. It was drafted for them by their lawyer. Everything in it works exactly as they want it to & to their benefit.

It is absolutely your right to ask to have things changed. In fact, it is generally expected that you do - even if the publisher mentions otherwise. They might say "this is the same contract we send to everyone" or "it's boilerplate" or "we don't make changes to this contract" - but if you have concerns and they refuse to budge, it's sometimes better to walk away if you can.

I feel by now most indies have heard the infamous "don't give up ownership" rule - but let's talk about a few other things I see in contracts a lot, that I always recommend indies change, add, remove, or consider before signing.

General

Before any of the more specific things to look for, it's important to understand how a contract is structured. Generally, contracts start with the definition of the parties, followed by definitions of terms, followed by clauses, then signatures, and finally additional documents.

The easiest way to read a contract is to print it, then grab the pages with definitions, and hold them aside as you read the rest. Whenever you come across a Capitalised Word, check in the definitions what it means in the context of this contract. Also check for words that are vague or poorly defined - phrases like "(un)reasonable", "market-conforming", "beta".

Read any contract three times: once as if you're looking to sign it, once as if you're looking to get out of it because the publisher is screwing you over, and once as if you're the publisher looking to screw you over. You'll suddenly find a lot of different perspectives to that single text.

Negotiation

In contracts, you might come across the phrases "Right of First/Last Negotiation/Refusal". Each of those has a very specific meaning, and a specific way you should respond. Usually these rights are asserted for your next project (whatever it may be), or for all 'derivative works' - any sequel or spin-off that you might want to create. Personally, I feel derivative works makes sense: after all, the publisher is helping the IP gain value - it makes sense they would want some right to try and ensure that benefits them in the future too.

• Right of First Negotation: The publisher is asking for the right to be shown an upcoming project first for any negotiations. You will be expected to negotiate in good faith, but you're allowed to continue searching for potential other partners after rejecting an offer of the publisher. This one is common, and generally only means you will have to make the publisher aware of your project before you can negotiate with someone else.
• Right of First Refusal: The publisher is asking for the right to choose whether they want to take an upcoming project. This one is tricky: it effectively means you have to wait until the publisher decides not to take the game before you can "shop it around". I generally recommend indies to fight this clause until it is removed, or to not sign the contract if it can't be removed.
• Right of Last Refusal: The publisher is asking for the right to match the final offer you're considering taking. This one is tricky too: it means when you have an offer from an interested party, you will be required to ask of the publisher whether they want to match that deal. This one can make shopping around a little more complicated, but generally isn't hurtful to your project. It is still a good idea to push back.

I do want to add one more clause that is increasingly common during negotiations: avoid signing any contract or term sheet that prohibits you from continuing to negotiate with other potential publishers. Publishers can use these sorts of terms to push you into situations where the money is more needed as you wait for their response, and get themselves a better deal because of your desperation to stay afloat. My rule of thumb is simple: if they can talk to other games studios, you should be able to talk to other publishers. Have any such clauses removed.

Payment

Payment is one of the most critical parts of your collaboration with the publisher, and making sure these terms are clear and unambiguous is critical to ensuring that you get paid, and that you discuss this while money isn't on the table yet.

The most important things to note is how you're getting paid, when you're getting paid, and based on what you're getting paid. It is also important to recognize when you are not getting paid.

The conditions of your payment are the most important: frequently publishers will use a schedule or addendum to define when you're getting paid. Payment is generally in two parts: upfront (before your game launches) and backend (after your game launches).

On the upfront, there's usually a set amount of money spread over a pre-defined list of milestones. Look specifically for what the definitions for those milestones are (and note that terms like "Alpha", "Beta", or any other jargon mean nothing legally unless they are defined anywhere in the contract) and what levers the publisher has to reject or accept a milestone (and how long they can take). Keep in mind that if the dates are set in the contract, the publisher being late with things does not mean you have more time to hit your deadline: they can effectively sabotage your ability to hit your deadlines by blocking your payments and slowing down your production.

On the backend, there's a revenue share - this is usually split into two segments: pre-recoup (or before break-even) and post-recoup (or after break-even). Here the most important thing is to define how much is recouped, what the recoup entails, and what counts towards recouping.

Most publishers will work with 70%-100% for them pre-recoup, and then 30%-50% for them post-recoup. Note that with a 100% (or other very high) pre-recoup, you should generally prepare for making no money at all off of your game-launch - at the very least for three months to half a year, but potentially ever. In that case, make sure that the upfront funding takes you through development and well into the pitch for your next game.

In general, the amount to be recouped includes any funding you'll be given, and any marketing costs. Some publishers will include QA & localisation costs, or miscellaneous costs - some will even include a margin. Keep in mind once again that this will influence your bottom line post-launch, so ensure there are no vagueries or ambiguities, or any costs included that are internal to the publisher - these costs should be external services, not salary or a new printer at the publisher's office.

In general "all revenue attributable to the game" will count towards recoup - but check whether it means merchandise and other sales will count too (and if it is undefined, get it defined!). Be very careful with whether any exclusivity deals or external funding counts towards recoup: a lot of publishers currently pitch games to services like Epic Games Store and Xbox Gamepass for large sums of money, and if those aren't included in your recoup, you'll be missing out on a lot of money.

Finally, check for the payment terms: how often do they pay? When do they start paying? How often do they report their income from the game? Do you get auditing rights to check if they're indeed paying you what you're owed? Is anything required from you to pay, like an invoice? If so, how can you adhere to any requirements? And after you invoice or get the report, how long until they pay?

Note that for most contracts, backend payment doesn't start until at least three to six months after the game releases: some platforms and digital stores can take up to three months to pay out money, and depending on whether your publisher pays monthly or quarterly, it can mean a half-year wait for your part of the first months' revenue. Ensure that your studio can survive that time through the upfront funding - I've seen too many indies get in serious trouble waiting for (sometimes enormous amounts of) money.

Service Definition

One thing that needs to be very clearly defined is what you will do and what the publisher will do.

From your end, ensure that it is clearly defined what you will do, and that there are no responsibilities listed that you did not agree to, or do not wish to agree to. Post-launch support is a very common one, but should be defined clearly and conditional on there being financial space to do so.

For the publishers' side, ensure that their duties are clearly defined, and that it is clearly defined who will pay for each task: them, or you via the recoup? If the latter, how much can they spend?

If the contract says "marketing" - that's not good enough. What does marketing mean? How much budget is available? Do you get a say in what kind of marketing happens?

Often these sections will include phrases like "market-standard" or "competitive" or "reasonable efforts" - try to see if you can get any of these phrases defined more clearly. Check whether any promises the publisher made are missing: localisation, QA, community management, trailer creation, store pages, release management, etc. Again - ensure you're clear on who is paying for these.

Contract Termination & Fault

Finally, very carefully look at what happens when the contract is terminated under various circumstances. The main ways a contract can end are term and breach.

For term, most publishers keep a five year to one-decade term - although some of them will have perpetual terms. This effectively means when your legal responsibilities to one-another end - and depending on how things are worded, you might have the game returned to you, or you might end up with a publisher selling your game but no revenue coming in.

In breach, the publisher has included rules that you can breach: conditions you're required to adhere to that you didn't fulfill. For example, in many contracts, you'll find language about repeatedly failing to get a milestone approved. Check these clauses very carefully, and check what the criteria for rejection might be: usually, there will be a requirement for the publisher to notify you of breach, and a period of time you have to fix that breach. Also be mindful of what happens at a breach: the publisher can sometimes assert that they can take the game for themselves in case they reject a milestone a few times.

You also want to ensure that the termination clauses are even-handed, and that you too have ways to leave the contract if the publisher is in breach and not fulfilling their side of the bargain.

Ultimately, a contract should be a collaboration - a way to codify what happens if there is ever a disagreement. If you ever feel like something is unclear, missing, ambiguous, or bad for you - no matter how legal it looks, or how logical it sounds, or how silly you might feel for asking for clarity - do speak up. Do not sign a contract until you're positive that it is good (enough) for you.

Actionables

• Get a lawyer. I am not kidding: legalese is something you can read for a decade and still not have a complete grasp of. You can negotiate by yourself as far as you want using resources like this article, but before you sign you should have a lawyer take a look. Most games lawyers will offer a free consultancy. Use that to protect yourself.
• I genuinely cannot stress this enough, but try to internalize that the contract you get from a publisher is the opening to a negotiation. Read up a bit about redlining, a phrase you might hear in contract talk: it basically means to go through a contract and make a pass on what you all need changed.
• Read the thoughts of my former Vlambeer co-founder Jan Willem Nijman as he goes through the publishing contract for Raw Fury, who continue to be the most transparent publisher out there even when it's not necessarily the easiest path to take. Also take time to read the incredible blog series "Contract Killers" by Tim Repa Davies over at GameDeveloper.com.