4.6
Sample term sheet walkthrough
A term sheet is a short summary of the main business points of a license, agreed before lawyers write the full contract. Reading one line by line is the fastest way to see how all the terms in this module fit together. Below is an illustrative term sheet for a fictional deal.
Key terms
- Term sheet
A brief, usually non-binding summary of the deal's key terms.
- Long-form agreement
The full, binding license contract.
- Marketing date
The date by which products must be on sale.
- Approval rights
The licensor's right to review and approve products and marketing.
The sample term sheet
All figures are illustrative only.
| Item | Terms |
|---|---|
| Licensor | Sakuraba Rights Co. (fictional), on behalf of the Starlight Paladins committee |
| Licensee | Moonfox Apparel (fictional) |
| Property | Starlight Paladins Season 1, style guide artwork only |
| Products | Adult T-shirts, hoodies, and caps |
| Territory | United States and Canada |
| Channels | Licensee e-commerce, specialty retail, conventions |
| Exclusivity | Non-exclusive |
| Term | 2 years from signing |
| Royalty | 12% of net wholesale; direct sales at 12% of deemed wholesale (50% of retail) |
| MG | $30,000 over the term |
| Advance | $10,000 on signing, credited against MG |
| Marketing date | Products on sale within 9 months |
| Approvals | Concept, pre-production, and final sample |
| Reporting | Quarterly statements and payment |
| Sell-off | 90 days, non-exclusive, no new production |
Reading it line by line
The top rows define who and what: the licensor is acting for the committee, and only Season 1 style guide art is included. The products, territory, and channels rows set the boundaries of the business; notice mass retail is not listed. Non-exclusive means competitors may launch similar apparel.
The money rows define cost and risk. The MG is your firm commitment; the advance is the first installment. The royalty row names both the rate and the base, including a special rule for direct sales. The marketing date is easy to overlook, but missing it could allow the licensor to terminate.
What a term sheet does not cover
Term sheets leave out details like warranties, insurance, quality standards, audit rights, and termination triggers. These come in the long-form agreement. A term sheet is often non-binding, but treat it seriously: reopening agreed points later can damage trust, especially with Japanese licensors.
Example
Before signing, Moonfox reviews the term sheet and raises two points. First, it asks whether caps are cross-collateralized with shirts and hoodies against the MG; the licensor confirms they are. Second, it notes that nine months may be tight given approval rounds and asks for twelve. The licensor agrees to eleven. Both sides then move to the long-form agreement.
Common mistakes
- Treating a term sheet as a formality and skimming it.
- Missing what is absent, such as a channel you planned to use.
- Reopening agreed business points during the long-form stage.
- Signing the long-form without having a licensing attorney review it.