I recently did a presentation on option agreements for literary works, and, while I’ve mentioned them here before, I haven’t given much explanation as to what they are and what’s involved in them. So, it seems like a good time to give a brief primer on option agreements.
At its core, an option agreement is an agreement that gives the Purchaser the right to buy the media rights to the seller’s comic book for a set amount – the purchase price. The reason it’s called an option is because often the Purchaser does not immediately purchase the rights to the comic book. They pay the seller a fee to reserve the exclusive right (the option) to purchase the comic book for a set period of time. Once that set period of time has ended, they must either (a) pay the purchase price to acquire the rights to the book, (b) pay an additional fee to extend the time to pay, or (c) allow the agreement to end and the seller can shop the media rights to the comic book to others.
In general, the option period typically lasts between 12-18 months. The amount of the option fee can vary, but it often is equal to ten percent (10%) of the purchase price. If the purchaser exercises the option, the initial option fee is customarily included in the purchase price. For example, if the purchase price was $200,000 and the initial option fee was $20,000, then the amount paid by the purchaser when exercising the option would be $180,000. The fee paid to extend the option period, which is often for the same amount of money (or higher) and the same amount of time, is customarily not allowed to set off from the purchase price.
Next time, I will discuss some of the key things you need to be aware of when negotiating an option.