Eric frowned when he heard Hassenfeld's demand for a 20% increase in royalties. Does he think money grows on trees?
However, Eric had no choice. The rights to the brand belonged to Hasbro, and if they didn't sign a deal with him, they could turn to one of the other major studios. And if that didn't work, they could always find independent producers with the necessary resources. A large IP like that would always find buyers.
Note: IP means intellectual property.
Especially after the success of the X-Men and Spider-Man movies, companies increasingly realized the potential of comic book adaptations.
MGM expected Hasbro to try to raise the price, and they already had a response ready.
In the business world, it's common to overprice something initially, only to later settle on a compromise.
"Mr. Hassenfeld, I have a question. Why does Hasbro want to make a Transformers movie?"
Hassenfeld didn't respond, waiting for Eric to continue.
"In my opinion, you want to expand the brand's influence and breathe new life into the Transformers franchise. But the main goal is to boost sales of related merchandise and toys, as that is your core business, correct?"
"Correct, Mr. Cooper. And where are you going with this?"
Eric took a deep breath.
"I have a proposal. Let's enter into a valuation-adjustment agreement."
Note: In Chinese, "对赌协议" (duì dǔ xié yì) is known as a Valuation Adjustment Mechanism (VAM). I couldn't find a Russian equivalent, so I translated it simply and understandably. A VAM is a common clause in many Chinese private equity merger and acquisition deals.
Hassenfeld asked, surprised, "A valuation-adjustment agreement? What are you betting on?"
"It's simple. We'll bet on how the movie will affect toy and merchandise sales, linking the royalty fees to the performance of those sales and profits."
"If the movie doesn't affect sales, and they grow by less than 10% in a year, MGM will pay Hasbro double the royalty fee, meaning $100 million."
"If toy sales increase by more than 50% in a year, MGM will pay Hasbro 1.5 times the royalty fee, or $75 million."
"If toy sales increase by more than 100% in a year, MGM will pay Hasbro $50 million in royalties."
"If toy sales increase by more than 150% in a year, MGM will only pay Hasbro $25 million in royalties."
"If toy sales increase by more than 200% in a year, MGM will still pay $25 million in royalties, but Hasbro will give MGM 10% of the profits from toy sales."
"And finally, if toy sales increase by more than 300% in a year, MGM will pay Hasbro $50 million in royalties, but Hasbro will hand over 3% of its stock to MGM or 40% of the profits from toy sales."
"Of course, this is just a rough proposal. We can discuss the details, but I hope Hasbro sees our sincerity."
Eric proposed the valuation-adjustment agreement spontaneously.
You're greedy for my money, and I'm greedy for your company.
In 2002, the American toy market was divided between three giants: Hasbro, Mattel, and LEGO. Smaller companies could only dream of not going bankrupt or being acquired.
Chinese consumers were least familiar with Mattel, as their main product, Barbie dolls, wasn't as popular in China.
Of the three giants, LEGO, due to historical reasons, had chosen the right path by developing numerous licensed products from superhero franchises and Disney films, eventually becoming the largest toy company in the world.
But in 2002, LEGO was still in the background, trailing Hasbro and Mattel in market share.
Eric hoped that by penetrating Hasbro's leadership, he could gradually gain control. With his knowledge of the future, he could not only beat Mattel and LEGO, but also, within the boundaries of the law, acquire them.
Then he would invade Japan. Take control of Bandai Namco, and the global toy market would be dominated by one company. And what could be more profitable than a monopoly? Of course, this was just an ambitious dream for now.
In 2007, before his time travel, when the Transformers movie was released, his nephew begged him to buy an Optimus Prime toy. The price for the original toy was astronomical.
Intrigued, he studied Hasbro's financial report at the time. It turned out that Transformers toy sales had increased fivefold, bringing Hasbro incredible profits, far exceeding Paramount's earnings.
That's why Eric hoped Hasbro would agree to the valuation-adjustment agreement. He was even willing to make some concessions, as long as they signed the deal.
"Mr. Hassenfeld, please seriously consider our offer. I'm sure it's much more beneficial than just raising the royalty fee by 20%."
The room fell silent. Both sides, Hasbro and MGM, were taken aback.
Woolf was mentally screaming: "Could you guys have at least discussed this crazy decision with me beforehand?! We're supposed to surprise them, not ourselves!"
After a minute, Hassenfeld glanced at his watch and said:
"Mr. Cooper, though you are very young, your proposal is quite bold!"
"However, I cannot make such a decision alone. We'll need to discuss this with the board of directors. I think we can wrap up for today. Hasbro has certainly noted your sincerity."
"And since it's getting late, let's take a break. We've discussed plenty of business matters; now we can chat about other things, as friends."
Eric understood that decisions weren't made instantly, and the details still needed to be worked out. He cheerfully replied:
"Then I'll accept your invitation."
At 2:30 p.m., Eric and Chen Xin boarded a flight to Israel.
In first class, a beautiful flight attendant in uniform approached them and politely asked:
"Sir, what would you like to drink?"
"Just a glass of iced water, please. Thank you."
Eric rubbed his slightly throbbing head. During lunch, Hassenfeld had been very hospitable.
Despite being ten years older, he had shown great interest in Eric, and they had talked about a wide range of topics.
As the conversation became more animated, they had drunk a fair amount of alcohol. Don't think that there's no drinking culture abroad. That's why Eric felt a bit tipsy, with a dry throat.
"I'll just have a cola," said Chen Xin.
The flight attendant quickly returned with the tray and, seeing Eric, asked:
"Sir, are you feeling unwell?"
She touched his hand and asked:
"Should I call a doctor?"
Eric shook his head, feeling a slight tingle from her touch. He looked closely at the flight attendant, noting her resemblance to Brooke Shields.
Unlike in China, in the U.S., most flight attendants were middle-aged women, and only in first class could one encounter younger ones. The chances of meeting a beauty were even lower.
"I think yes, but not for a doctor. Could you help me?" Eric said as he headed toward the restroom.