Licensing Engine
Finding it yourself
versus being found
are not the same event.
One you manage. One manages you.
You signed a licensing agreement. NFL, NBA, NCAA, entertainment. That agreement has rules on every page: approved categories, approved channels, approved styles, royalty minimums, renewal deadlines. You agreed to all of them.
Orders are going out. Invoices are being paid. And somewhere in that activity a violation is forming. A 20-year empirical study across the licensing industry found that 89% of licensees audited are found to have underpaid royalties. In more than 40% of cases the underpayment exceeds 25% of what was owed.
The Licensing Engine reads every order line the moment it ships and checks it against your agreement. The violation surfaces before the auditor does.
89% underpayment figure: Invotex Group, 20-year empirical study 1997-2016, cited by Business Valuation Resources
Know who you are dealing with
The auditor is paid to find violations. Their business depends on it.
The standard audit engagement looks like a flat fee. It is not neutral. Two mechanisms create a direct financial incentive to find as much as possible and to interpret every ambiguous clause against the licensee.
The rights holder hires a firm whose financial interest is to find underpayments. The licensee has had nobody on the other side of that equation. Until now.
That asymmetry is the entire reason the 89% finding rate exists. The Licensing Engine is the first system on the licensee's side of that table.
Mechanism 1: Audit cost recovery
If the deficiency exceeds 5%, the licensee pays the full cost of the audit. The rights holder commissioned the audit at zero net cost. The bigger the finding, the more audits they commission. The more audits commissioned, the more revenue for the firm.
NBA Properties license agreement, SEC Edgar filing 1434110/000139843208000163
Mechanism 2: Contingency arrangements
Some royalty audit firms take a percentage of recovered royalties on top of their base fee. The documented range is 15 to 30 percent of recoveries. At that structure the auditor earns more the more they find. A style in an ambiguous category gets flagged. A borderline deduction gets challenged. You fight it in legal or you pay.
This arrangement exists in both sports and entertainment licensing.
The gap in every licensing department
The order data exists. The agreement exists. Nothing is connecting them.
Licensing departments run on Excel for royalty calculations, their ERP for order data with no compliance module, email chains for style approval tracking, and SharePoint folders for approval forms. None of these check whether an order going out the door is covered under the agreement.
The check happens for the first time when the auditor pulls your data and runs it themselves. By then the violation is two or three years deep. The royalty reports have been filed. The product has shipped. The window to manage it has closed.
The auditor is not looking for what you know you did wrong. They are looking for what you do not know you did wrong.
What they use today
What the auditor requests on day one
Two outcomes. Same violations.
The difference is who finds it first.
Audit cost provision: NBA Properties license agreement, SEC Edgar filing 1434110/000139843208000163
On the record
Sports Illustrated lost its license in 2024. A $3.75 million missed payment ended a 70-year publication.
Authentic Brands Group terminated The Arena Group's license to operate Sports Illustrated after a quarterly royalty payment was missed. The license was revoked immediately. The publication stopped operating within weeks.
That was a payment default. Visible and traceable. The violations that do not show up in a payment are harder to see: wrong channels, unapproved categories, approval forms not renewed. Those accumulate for months or years with no signal until the auditor presents the finding.
A missed payment is the exception. Most licenses are terminated or fined for what the brand shipped and never knew was a problem.
Source: Darrow Everett LLP analysis · Sports Illustrated licensing dispute 2024
What the auditor requests
What it costs when they find it
What the Licensing Engine does
For the first time, you know your violation exposure before anyone else does.
The engine reads your license agreement and maps every term that can be violated: approved categories, approved channels, approved styles, royalty rate, minimum guarantee pace, approval form status. It watches every order that ships against those terms in real time.
When a violation is found you see the flag, the dollar exposure, the accounts involved, and the risk classification. Two documents are generated: the account notice and the rights holder letter. Legal reviews and approves. Nothing drafted from scratch.
Most brands find violations in the first scan they did not know existed. That is Situation 1. That is the only place you want to be.
Royalty position
Your accrued royalties against your minimum guarantee at any point in the agreement period. No spreadsheet. No end-of-quarter surprise.
Violation history
Every flag across your full order history, categorized by type, severity, and financial exposure. Organized and ready if you need to disclose.
Termination scenario
Exactly which active orders stop shipping on day one if the rights holder terminates. The pipeline impact calculated before anyone makes a call.
What a violation looks like inside the engine
Each violation generates two ready-to-send documents. Access requires a subscription.
What we found in one brand's data
Three numbers. One season. None of it on their P&L.
One question
If the auditor walked in tomorrow,
what would they find that you don't know about?
Every brand believes it is compliant. The auditor is paid to prove otherwise. When they find a violation, you owe back royalties, penalties up to three times the royalty rate, and the full cost of the audit. You have no advance notice. You have no time to prepare. You just receive the number.
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