Shopping Agreements vs Option Agreements - Romano Law

Shopping Agreements vs Option Agreements

Shopping Agreements vs Option Agreements

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Should You Use a Shopping or Option Agreement for Your Creative Work?

If you have written a book or screenplay, you may be interested in turning it into a film, play or television series.  However, you may not have experience pitching a project to buyers or financiers.  As a result, it is a good idea to find a producer interested in either obtaining the right to “shop” the work or “option” the right to purchase it.  Deciding whether a shopping agreement or option agreement is best for you can be complex.  An experienced entertainment lawyer can help you evaluate the pros and cons of each one.

What Is a Shopping Agreement?

A shopping agreement is a contract between the owner of the creative work and a producer, which gives the producer the right to shop the work to studios, networks, distributors and financial backers.  The producer has the (usually) exclusive right to pitch the work and find backers for a defined period of time set in the agreement.

Compensation

The parties to the agreement do not pay or receive compensation unless the producer succeeds.  A shopping agreement is beneficial to producers because they can attach themselves to a project without risking any money.  If a backer is found, the producer can negotiate their own agreement with the buyer for their producing services.  However, where a project is not successful, the producer receives no compensation for the time and effort put into pitching the work.

With a shopping agreement, owners of existing work hoping to create an adaptation can leverage the experience and connections of a producer.  Further, if a buyer is found, the owner can negotiate directly with that party to obtain the best deal for themselves.  The downside of this arrangement is that a producer may be less motivated to seek backers because they do not have a financial investment at stake.  In addition, if there is no interest in the project, the owner receives no compensation, unlike if a producer had paid for an option agreement.

Term

Generally, shopping agreements are for 9-18 months, with exclusive contracts tending to be shorter in length than nonexclusive ones.  In addition, there is usually a clause that allows for extension of the term if the parties are negotiating with a buyer when the agreement expires.

Ownership Rights

The producer in a shopping agreement has no ownership rights in the source material.  This can allow the owner to have a great deal of control over whether the producer can move forward with a particular buyer and the terms of the deal with the buyer, as compared to an option agreement.

What Is an Option Agreement?

An option agreement gives a producer the exclusive ability (“option”) to purchase the rights in a work during a limited time and for a specified price.  The rights owner receives compensation in exchange for holding the rights exclusively for the option holder and not offering the rights to anyone else during this period.  Such an arrangement benefits producers because they have time to secure financing, develop the project, and determine whether it is something they want to pursue and make only a limited investment.  Owners receive some compensation for agreeing not to sell the project to anyone else.  If the producer doesn’t exercise the option by paying the purchase price, no ownership interest is transferred, and the owner keeps the option fee.

Compensation

The producer is required to pay an option fee to the owner for the option.  In addition, the agreement will set forth an execution or purchase price which is the amount due to the owner if the purchaser exercises the option. Owners are paid for each option and renewal with renewal prices generally higher than the initial option.

Term

The term of an option agreement is longer than a shopping agreement at 18 – 36 months.  Options can be renewed and/or automatically extended.  The option agreement should indicate when the owner can terminate and when rights revert back to the owner if the producer does not purchase the work or produce the project within a certain period of time.

Ownership Rights

Producers have an exclusive option to purchase the rights to the work and can usually sell to any buyer.  This means the owner has less control over the sale, but the producer is incentivized to get the best deal.  If the option is not exercised, the owner maintains the rights to the underlying work.

Which Agreement Is Right for You?

Shopping agreements usually require less investment and provide more flexibility as compared to option agreements.  Producers typically do not have to pay for the right to shop the project.  In addition, both parties have more freedom in deciding whether to work with and negotiate a deal with a buyer.  The term is also shorter, so the parties are not tied to the project for as long a period.

However, producers do not have a financial stake in the project with a shopping agreement and may not be as motivated to find backers, which may be detrimental to an owner who wants to make sure their work is adapted.

Option agreements tend to provide more security to both sides than a shopping agreement.  Owners gain a producer incentivized to pitch the project, but if no deal is found, the owner keeps all rights.  Further, the owner receives some compensation for the option and a pre-set purchase price if the option is exercised.  Producers benefit from having an exclusive option right but a limited investment in case the project goes nowhere.  They also have more control over selling the project.  However, option agreements are more complex and require negotiation of numerous terms including the option fee, option period, purchase price, rights granted/reserved, set-up bonus, contingent compensation, and reversion rights.

Ultimately, which type of agreement is best for you should be determined in consultation with an experienced attorney.

Photo by Kenny Filiaert on Unsplash

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This Blog is made available by Romano Law PLLC for general informational and educational purposes only, not to provide specific legal advice. By using this Blog you understand that there is no attorney client relationship between you and Romano Law PLLC or any individual contributor. You should consult a licensed professional attorney for individual advice regarding your own situation.

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