Someone Wants to Option/Purchase Your Screenplay -- Things to Consider PART 1 & 2

[finalact4]

It's a long post... shocking, I know. 🙄

I’ve been wanting to write a post about “What to do when you receive an offer to option,” for a while now. I don’t think there has been one posted—if there has been, my apologies up front. I wanted to give writers, any writer, really, some insight that once someone is interested in your IP it shouldn’t be an automatic, “throw your hands in the air and sign on the dotted line,” unless you don’t really care about protecting yourself.

In that case, have at it.

I thought it would be great to open a discussion about the pitfalls of options, and other members can add their experiences, too.

First, if you are in this position, congratulations! Seriously, it is a big deal to have someone want to option your material. I don’t care if it is the dreaded $1 option, and if it is, don’t do that. The minute you do, they will always expect it. Raise your head to the level of a WGA writer—even if you’re not.

Second, after you’ve celebrated with a night out, get a lawyer. Seriously, you need a lawyer to decipher all the bullshit you’re going to be hit with (if you’re offered a long form option/purchase). I’ve only had long form options, three of them… and they can get long, like 26 pages long—you don’t want to be negotiating that on your own.

Why? Because there’s absolutely no reason for you to give money away when they might agree to your terms and all you have to do is ask. They can always say no. You don’t get anything if you don’t ask for it. A lawyer will know what to ask for.

Third, refer to the second recommendation, again. Yeah, get a lawyer, it’s that important. Even before you start “conversing” about numbers because that email is an agreement, too.

So, why listen to me? Don’t… Or do. Totally your call. I’m a nobody.

I’ve had three option offers and several people interested in trying to set up my projects. Two with a manager/producer on board, and one without. But… all three I had an entertainment lawyer. You just make stupid mistakes that are hard to reverse when you don’t have a lawyer, and even when they try to spin it to reverse your disadvantage, sometimes they can’t.

And I’m telling you, that’s not even with me trying hard to sell my projects, so if it can happen to me, it can happen to you. And all that really means is that someone somewhere loved what I wrote on a few screenplays. I was close at Sony TV—that would have been nice. A no is a no.

Reality check? Get used to it, rejections don’t stop with query letters. There’s no softball pitch—they either want it or they don’t. The rejections continue, forever, even if they say really great things about your writing. After all, a no is a no. Even when you’re sent out-- no one remembers who lost, they only remember the winners. Doesn’t mean you’re a bad writer.

I’m not going to talk about a short form option which is basically a one sheet that details the option, option $ amount, the length of the option and the terms for renewal extension and its fee. There can be one extension or two—depends on the producer. Perhaps I’m wrong, because I haven’t had one yet. So, a call to members, provide some context, please.

The long form is an option/purchase agreement and has everything included. It talks about residuals, TV spin offs, sequels, prequels, first rights of refusal to write the first draft of a sequel… all of it is in there and more. And you’re not going to know what you should ask for and remember…

This is very important…

They want to obtain your property for the least amount of money possible. That’s their job. Even if they’re Ron Howard (no offense). Read that again, because it’s important that you understand that they will come at you with the lowest offer possible. It’s your job to negotiate UP and theirs to negotiate DOWN. First rule of negotiations? Know what your adversary WANTS. Understand it. It will prepare you to be a better negotiator. It’s not easily known, though.

And that brings up another topic. They are not your friends. They are not your partner. They don’t want a partner—they want control of your project. The sooner you realize that, the better off you’ll be. They want to know that you will do as you are told with respect to rewrites. If you don’t do it, or come up with something better, guess what happens? They bring in another writer to rewrite you. They fire you. Yes, some may be more collaborative than others—just keep it in mind. Make sure you have all rewrite rights revert to you if the option is never exercised, you’ll want to keep their advice and experience in the drafts whether you use it or not. And if you’re doing any free writing—it’s the least they can do. More on that later. Speaking features here, not TV where a writer has more value.

And remember, it’s not personal, it’s business.

Now, at the beginning it may be, what seems an innocuous email that starts the negotiation. The moment you open option/purchase discussions, get a lawyer. It may seem like a friendly email conversation, but at this point, the negotiations have begun and before you know it, you can agree to something you shouldn’t have.

Floor and Ceiling:
These two numbers are very important to understand. The first guarantees the very minimum of what you will be paid if they exercise the option. That doesn’t mean they start production, it means they want to buy the property rights from you and from that moment on they will own it forever and into eternity (yes, they use absurd language like that) with the single exception of “reversion,” they own it forever. And into eternity. Haha.

So, your offer should be based on a percentage of the budget. Regardless of whether this is studio or indy, you want to language to specify the budget includes all going in costs including pre-production, production and post-production. DO NOT settle for a “producer’s budget” that is unspecific, because they can then turn around and use rebates to reduce the budget and also not include some portion of the budget—mainly indy producers may attempt this, because they can say “this is the budget” and you’re shit out of luck, because you agreed to the “producer’s approved” budget and “producer’s approved” budget can be SIGNIFICANTLY LOWER than the real budget and can/will significantly reduce your fee.

For example, 3% (that was my offer) of a $3 million budget you earn $90,000 and 3% of a $12 million budget is $360,000.00. You want to have an idea of the budget they are shooting for and/or just figure what you think they’ll make it for and then calculate the floor and ceiling.

Get the floor at the number that you actually want them to pay for your script, because if they exercise the option, they still may never make the film and you just sold your script for the floor and that may be all you ever get (outside the option fees). Make sure you understand this provision well.

The ceiling is your cap. That means that at some point you max out what you can earn regardless of the budget. So, if all the sudden Jennifer Lawrence signs onto your film and it leaps from a $10 million indy film to a $40 million studio film you will always and forever receive ONLY your ceiling… what is 3% of 40 million? It’s $1.2 million. You won’t get that, but you could negotiate a half a million-dollar ceiling (and higher) if they want it bad enough, even if it’s your first sale.

So those two numbers are really important, but fear not, because there are other ways to make more money.

Budget:
The changes we are seeking in Paragraph G.2. are just to clarify that (a) the “Budget” that is used to calculate the “Purchase Price” has to be the going-in budget at the time of commencement of principal photography, without any implication that rebates, etc., that may later reduce the budget somehow reduce (or require partial refund of) the Purchase Price; and (b) the “Budget” comprises the full cost of prep, production and post (e.g., not leaving out later-acquired “finishing funds” for post), without only the usual and customary exclusions.

But first, you need to do this…

Professional Writer Status:
You need to secure that you will be considered a “professional writer” by WGA standards and that all third parties that they come into an agreement with, will also consider you as a “professional writer.” This is really important—it’s about credit. A lot of our projects may start out and remain in the indy realm, but if at any point it becomes a WGA project, even in distribution this concession will protect your credit rights and allow you arbitration.  get that in their too. They may not agree to WGA arbitration across the board, but in all three of my negotiations we were able to secure this provision. If I can do it, you can, too.

If you don’t protect yourself this way, and it becomes a WGA project they can hire a WGA writer to simply punch up your dialogue and THAT WGA WRITER will get full/sole writing credit even if they change only 10% of the script. Why? Because without the language to protect you, you are not deemed a “professional writer,” and until you are, they cannot give you credit.


Credit Bonus:
This is where I made my mistake, because I didn’t have a lawyer initially to go over the email “conversations.” In order to get me closer to my ceiling, they offered a credit bonus that paid out $25,000 for every set amount that the budget increased until I reached the difference for what I wanted the selling price to be. Sounds nice right? An additional $100k or two never hurt anyone, right? Well you have actually RECEIVE sole credit, and then it’s reduced if you receive shared credit. If it’s an indy film, have your lawyer (they should do this anyway, if they’re any good) stipulate that the producer will apply credit in good faith by the WGA standards in force at the time the contract is signed.

Here’s a stipulation:
Credit Bonus. We are willing to accept that the up-to-$100K bonus is tied to your earning writing credit, but we don’t want it to be a hard step down by 50% even if the other writers sharing credit aren’t receiving any analogous bonus based on credit. So, for shared credit, we are seeking agreement that you are reduced on a $-for-$ basis by any such later writer bonus, down to a floor of 50% of the sole credit bonus.

I would say to use this only IF you have previously negotiated a HIGH-BUDGET BONUS.

High Budget Bonus:
This is a better deal for a writer that might most likely be replaced. For me, my concept and premise are very unique so they wouldn’t have been able to write me out of credit because of its originality. But I could lose credit if I didn’t ask for the protection of being considered a “professional writer” by WGA standards for all parties involved.

So, another way to get more money for your spec is to write in a provision for a high-budget bonus if the budget suddenly skyrockets due to additional talent being attached of it becoming a high budget studio project. You only get paid this IF the film goes into production. I would opt for the High Budget Bonus over the credit bonus—this was my mistake and good for my lawyer trying to get it changed, but they would not change the credit bonus.

Writing Credit Determination:
While we won’t press for all WGA credit arbitration rules be applied in all respects, we think it is fair and reasonable to ask that WGA-style credit arbitration be required automatically in the specific situation where (blank) proposes writing credit be given to an employee or other person receiving “producer” or “executive producer” credit on the picture.

Chain of Title:
If your screenplay is an original work you should never need to agree to this because it doesn’t apply. It’s for when there has been another contributor to the work—a novel, story, another writer. This particular producer wanted this provision and I would NOT agree to it, because they wanted me to pay for it, which would cost me upwards of $1,000. This was the argument from my side:

“Chain of Title” Conditions. Simply, this is not relevant where the property being optioned—as is the case here—is an original screenplay. It would be different if the property were a book, or if your screenplay is based on pre-existing, third-party IP which you are representing to (blank) you own/control. Especially since the language (blank) has here includes a requirement that you obtain a copyright report at your expense (which could easily cost upwards of $1,000 or more, and simply won’t show anything), there is no reason to include Paragraph B.1. and the language in E.1. that references that provision.

If you agree to this and then don’t do it, you will be in breach of contract and you can lose money, if the contract is written in a way that has a provision to that effect. READ the damn contract. You should understand it fully.

Protective Language:
What I noticed right away is that the language that referred to the producers was exceedingly flexible, accommodating for errors and just ambiguous enough that you couldn’t really hold them to any breach of contract expectation. They even had a provision that in no cases could I actually claim ANY breach of contract on their part. However, when it came to my warranties and expectations on the deliverables it was a hard-line against me, where they could literally claim “breach” for something totally unintentional on my part. This was the language we requested be inserted, which only elevated me to the SAME standards they were being held to…

Language Comments Throughout—Especially modifiers like “material(ly)”, “reasonab(le)(ly)”, “substantial(ly)”, “uncured”, “to the best of knowledge”, etc. I know that all these sorts of language comments strike non-lawyers as annoying, minor quibbles. But all these ensure that innocent, minor or merely technical defaults, where no one could honestly say (blank) interests are truly and meaningfully compromised, are not seized on to leverage you into giving up rights or benefits under the agreement. There should be a difference between saying that you could be denied writing credit or forfeit compensation because you delivered a draft two minutes late, vs. because you infringed someone’s copyright in writing the script. Having the producer agree to these sorts of changes facilitates a respectful atmosphere of comity and collaboration between the parties, as opposed to a more draconian relationship constantly on the knife’s edge.

Make sure you protect yourself. Otherwise, if there’s additional language it can cost you your fees.

(cont...)

[finalact4]

PART 2

(cont...)
Pre-signed Short Form Assignment:
This is a weird provision. It requires that you pre-sign the assignment document authorizing the transfer of the copyright from you to them. By dating it and signing it, they could essentially “accidently” or deliberately file it and BAM, they own the full copyright legally without ever paying you a dime. This was our argument for additional language to be inserted to protect me from that happening, which could cost thousands and thousands in court costs to reverse.

Pre-Signed Short Form Assignment. I am willing to stipulate that this is a common approach in the industry to documenting and recording the exercise of the option and the assignment of rights to the producer. Nevertheless, as I’ve said in both rounds of comments, that doesn’t mean such a practice makes sense or, frankly, that it is a good idea for any party involved. As I’ve tried to point out, there is the moral hazard of such a document being held by the producer—who could really go ahead at any time (whether through innocent error of some employee or, bluntly, malfeasance) and record the instrument with the Copyright Office and deprive you of your property. But the weird fact that the document will be signed and notarized now, with the effective date filled in later, could cause (blank) all sorts of problems with the clerks at the Copyright Office even if and when it properly seeks to record the instrument. While I think the affidavit approach, I first proposed would be simpler and better, we can live with the pre-signed assignment instrument approach, but we really need the comfort of the stronger language addressing misuse we asked for in Paragraph E.3. and in the assignment document itself.

You want to insert language that specifies the filing of the assignment document is ONLY effective ONCE the option is exercised and ONLY when the payment is made for the full purchase price. Here’s what you can add…

“The undersigned Seller, for valuable consideration now received, effective on Producer or Producer’s successor or assign, duly, fully and timely effecting exercise of the “Option” (including, without limitation, full and timely payment of the “Purchase Price”), as defined in, and pursuant to the terms of, the Memorandum Agreement.”

Force Majeure and COVID-19:
The point of a force majeure clause is to recognize that unexpected circumstances may arise that render performance of the contract impossible for some significant period of time. Certainly, the COVID-19 pandemic could have been an entirely legitimate force majeure event if this contract were entered into last year, before the disease even arose. But COVID-19 is now a known fact of life, and certainly we and presumably (blank) have factored in the continuing restrictions it has imposed on life and business in deciding to make this deal. Therefore, it would be profoundly unfair if, after you signed the agreement, (blank) were to invoke the COVID-19 status quo as the basis of getting 6 extra months on the option. As I said in the comments, certainly a significant worsening of circumstances beyond the COVID-19 status quo may well be a legitimate basis for a force majeure suspension and extension.

It seems to me, that producers are always trying to negotiate “free time,” which should not be allowed at all. This is a “no-no” don’t ever agree to this, because you shouldn’t have to. Here’s an example where they stipulated that if they entered into “pre-production” they would AUTOMATICALLY receive up to a 12-month extension to the option without paying for it. This was our response.

Extension for Ongoing Pre-Production. It is hard for me to come up with a phrase to describe Paragraph 2.2 of the standard terms other than “breathtakingly overreaching.” I have been drafting and negotiating agreements like this (including for major studios) for over 30 years. I have never, ever, seen any studio or production company seek such a provision, even when the bargaining power was completely one-sided. We cannot agree to this. If the option period is running out, but the picture is still in prep, then the production company needs to exercise and pay the Purchase Price, or fold up its tent. That’s just the way it works.

When it comes to “reversion” you’ll want to limit the time to something reasonable and you want to limit it to only what they’ve paid you and not any additional costs, including charging you for interest. Here was our response…

The changes in that provision seek only to keep to a reasonable level the cash amounts you would be responsible to reimburse if the property reverts (i.e., if (blank) exercises the option, but never gets around to producing the picture) and you produce it elsewhere. It really should be limited to the amounts that were paid to YOU—not all amounts spent on the project, and certainly no interest charges.

And finally, you want to secure that all rights to work, notes, rewrites by you or rewrites by any other writer will remain as your copyright and ONLY transfers to the producer UNTIL and IF they exercise the option. That way if the option, or extension period, expires everything remains with you. That’s just the cost of not exercising the option.

You should understand the difference between “executing” and “exercising” an option. Executing is when the option is signed and paid for and starts the option period ticking down to zero. Exercising the option required them to pay for the full amount of the agreed upon price before the assignment of the copyright can transfer to them. You will get pain your floor if the full budget hasn’t been established and the difference upon principal photography if it goes into production.

I know this is a lot to digest, but I wanted to share my experiences. Fifty-two emails and 6 weeks of negotiations and we parted ways amicably. I just didn’t need to place myself at risk. I’ll find someone else to buy it, and if I don’t… well, I’m okay with that.

This is based on my experience. Each writer will/may/can have a different experience. I’d love to hear other stories about how negotiations go. I know if I didn’t have a lawyer, I could use some insights to help me understand better what could hurt me or put me at risk in some way.

Good luck to each of you.
FA4

[kintnerboy]

Thanks for taking the time to write this up. I've read dozens of blog posts regarding option agreements and most just cover the same major deal points without getting into the more esoteric stuff.

What's an example of a seemingly harmless comment a writer might say in a "friendly" email that could come back to bite them?

[finalact4]

It's really about not understanding that even a nobody can ask and expect to have many of conditions equal to what a WGA writer can. Not everything but some things.

So, in my case I received an email that talked about the sale price and I wanted the ceiling to be higher, because it's a high concept that I felt could easily have a higher budget. They, very smartly, returned with a credit bonus "to get me closer to my purchase price." Which would cap out at the amount I wanted. My mistake and their gambit, was that I am inexperienced and credit bonuses aren't about the purchase price and it's something THEY control. It's clear they would want to hire another writer, the minute they do my money is halved.

What I should have returned to them is, I want it to be a "High-Budget Bonus" because budget is directly tied to the my ability to make money. This would have given me a substantial increase in potential to make as much as I wanted. The "credit" could be manipulated to by them, and they could give themselves and the director "shared writing credit," which reduces my potential. There's nothing wrong with receiving a credit bonus, but it doesn't work as cleanly as a High-Budget Bonus does. Credit isn't about purchase price where budget is.

Also, the idea that you don't get what you don't ask for...

So, I had an initial 12 month option period for an amount. Then two 12 month extensions each for an increased amount. You can get increases on the extensions and you can get them to be free and clear of the purchase price. The first option will be against the purchase price, but your extensions can be negotiated so they are NOT against the purchase price. A writer without a lawyer might just sign that each option reduces the price. They may not agree with it, but in my case they did.

The other thing I wanted to mention. If they are paying you an option fee and then inside the contract it says, "for $1 writer has the right to deliver (these are your some of your deliverables) to deliver at least two rewrites (or drafts) just have them remove the $1, because then they cannot claim that you were a "write-for-hire." If you are a write-for-hire, then you are doing work for THEM based on their notes and they might expect to claim that they own those revisions and you do not.

I will also say that all the passive payments we asked for WGA standing and negotiated down on those deal points. Passive payments are all the things that can happen to the IP after the film is made... Sequels, Prequels, Spin offs, Television (movie-of-the-week, series and such), Reruns, Non-network television.

I'm not a lawyer, but negotiating in email is, initially, disarming. You feel like you're having a conversation, but you're not. It's a negotiation and they want to lock in the big numbers first. I knew I went too low when they sent me the long form contract and even though they had the floor and ceiling "written" words correct, the "numbers were MUCH higher. This is because they used a template long form and forgot to change the "numbers" to match the "written" numbers. I won't make that mistake again.

What some of these producers are banking on is that, as a writer, you are so desperate to sign the document that you will sign away many of the rights you just don't know you have. I'm not talking about what a repped writer would go through. They have a team they have to negotiate directly with the producer.

My lawyer adheres to the California statute that states an Entertainment Lawyer cannot engage in procuring work for their client-- that is reserved solely for the "Agent." My lawyer could only send me the changes and I had to negotiate it directly with the producers. I just forwarded it, but it did force me to make sure I understood what the deal points were.

The can also try a soft pull out. Which is when they say they're done negotiating and they're pulling out of the deal to see if they can force your hand and get you to let go of the last asks and just sign. It seemed pretty clear they did this to me. I responded with, "I thought we were very close and that it was disappointing they wanted to pull out. I wished them good luck on their projects and thanked them for their interest.

And they came back and said to let them know what are the deal breakers. They even called me out of the blue to speak on the phone. Giving all these reasons why they couldn't move. They can and do move. They said if this didn't work out maybe we could work on another project in the future. In the end I told them I would not sign unless my last deal points were included, and though I appreciate their interest in my project, that unless they are willing to make these same changes in the future we would face the same blocks. We left amicably. That's the important part.

During another negotiation we switched from a long form option to a shopping agreement, but we couldn't come to some specific terms. At that time my manager was signing on as producer, which could have been the problem. My manager's lawyer was also my lawyer which I realize now is a conflict of interest because my lawyer would negotiate both our deals. When your manager is your producer, you are not on the same side.

The thing about emails is that once they put it in long form, if you aren't specific enough they will rightly say, that's not what we agreed to.

A seemingly harmless comment? "Well if we go into pre-production we will receive an automatic option extension of 12 months." You: "Sure." That's an example. If you don't know that that is NOT standard, you're giving away time.

I'm not a lawyer. I'm a writer. This information is for writers who don't have a full compliment of reps. I'm not saying DO THIS, and DON'T DO THIS, I'm sharing my experience and what was important to me. You might not feel the same about your deal points. I know some writers/people say just take the money. It's more than that. If it doesn't help ME advance, it means nothing. I have a job. I work full time.

If I don't fully and completely understand what is being asked in an email, I will forward it to my lawyer. You want to team with people who can get your film made. You don't want to dick around with someone that just wants to have your project on their "slate" so they look legit. Demand that they put money behind it. If they do, that means they're invested.

Bottom line is you need at least a lawyer. For me, credit was important, that's why we included the language to get as close as possible to receive credit. If my name isn't on it, it does me no good in getting into the WGA or other work.

You have to know when you will walk away. And when that point comes, do it.

I would also suggest watching Scriptfella's video on the subject matter. It gives you a good high-level approach.

[kintnerboy]

Thanks again. Very insightful.

[NoNeckJoe]

Very thoughtful of you to spell all of that out. I agree with almost everything with one important exception:

So, I had an initial 12 month option period for an amount. Then two 12 month extensions each for an increased amount. You can get increases on the extensions and you can get them to be free and clear of the purchase price. The first option will be against the purchase price, but your extensions can be negotiated so they are NOT against the purchase price. A writer without a lawyer might just sign that each option reduces the price. They may not agree with it, but in my case they did.

This is not always the case. My lawyer managed to negotiate my initial option with the caveat that none of the option money was applicable against the purchase price, and then my script was under option for years before selling outright. And the truth is it probably only sold because the producer didn't want to keep racking up option fees.

It's certainly not a given that you can negotiate this clause, but if you're going to pick a hill to die on, this is the one.

[finalact4]

Thanks for sharing your experiences, NoNeckJoe. Yes, that's true. I should have said, "in most cases." And that brings up a good point. Everything is negotiable. Apologies, I didn't mean to imply that this is the only way to negotiate a deal. If I've sounded "absolute" that's not my intention. You (anyone) may be successful at negotiating more than I did. You may chose not to negotiate these deal points at all. You might have a straight up standard deal, and face none of the issues we did. I don't think this deal (or the others) I had was standard at all, and that's the problem my lawyer had the entire time.

I am sharing my experiences and what I've learned, because I didn't have any insights and that would have been helpful. Some of the things they agreed to seemed arbitrary compared to some that were easy gives that didn't cost them really anything that they were being hard-nosed about. Every deal is going to be different. I would think that a producer would prefer to extend the option for as long as possible, because it is the least expensive way to hold onto the project. If they allow the option to expire without exercising it, they would have to renegotiate a NEW option. The risk is that you might not want to, or you might have another buyer.

To all, I'm not saying this is the ONLY way, or these are the only conditions that will happen or apply. Your option might be clean. I'm simply saying these are things you might want to consider/look out for/be aware of, when you have an option. There are people who will take advantage of a writer. Sometimes it's deliberate. Sometimes, maybe it's not. Some options are a lot less complicated. It seems these were out of the norm. Perhaps the reason the producers I've worked with wanted a long form is because they wanted to lock in all my fees, so that they could seek financing based on it. I'm not certain their motives, they kept that information to themselves.

It would be great for other writers to add their experiences too, that's really why I posted this. I still have a lot to learn, and would like to hear what other writers have been able to work out.