Business Negotiation February 12, 2014

The Switch-Where One Word Made a Big Difference

This happened to a close friend I advise from time to time.   He is a prominent lecturer who was asked to make a video training film for a big studio...

This happened to a close friend I advise from time to time.  He is a prominent lecturer who was asked to make a video training film for a big studio.  The studio offered him a generous 18 percent royalty based on gross revenue.  I advised that he accept because, among other reasons, the usual royalty rate varies from 3 percent to 15 percent.  Since there were no other serious differences in their positions my friend agreed to the settlement.

Two weeks later a neatly typed five-page contract arrived from the studio.  It was exactly as agreed except for one word well hidden in the contract text.  Instead of reading, “18 percent of gross revenue,” it read, “18 percent of net revenue.”  Luckily, my friend caught it.  Had the contract been signed, he would never have received a dime.

In the movie business, the name of the accounting game is never to show a net profit unless they absolutely have to.  After he found the error, negotiations started over again.  In the end they settled at 14 percent of gross revenue, which the studio did pay as agreed.

I have said, “Never trust your assumptions.”  One of the most dangerous assumptions we make is that the agreement we shake hands on is the one that will be written into the contract.  I don’t want to be cynical, but a safer hypothesis would be that the contract you are asked to sign is NOT the agreement you made.  If it was written by the other party, it would probably favor them in some way.  Rarely, if ever, will it favor you.

Some people will deliberately test whether you are alert.  They will switch a word, a phrase or a number in their favor.  If you catch the switch they will claim a typist made the mistake.

From now on, remember my friend when reviewing a contract.  Had he not caught the switch of a single word he would have earned nothing for his hard work.
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