I think I may be the last person in America – or at least the last one on social media – who hasn’t succumbed to the Wordle craze. That’s not unusual – as my kids are fond of telling me, my pop culture references are generally about 20 years behind the times. Anyway, since the NY Times’ acquisition of Wordle received an outsized amount of attention for such a small deal, I’ve been looking for a chance to blog about it. But the problem is, because it’s a rounding error as far as the NY Times is concerned, there’s nothing publicly filed that I could sink my teeth into.
Fortunately, Andy Abramowitz put together a nice blog on the deal, and he pointed out one of the important issues that eager sellers & their advisors should keep in mind when presented with a sale opportunity for a business that’s captured lightning in a bottle – the risk of leaving money on the table:
On one hand, I can see why he would take that deal: it’s a nice chunk of change for a few months of work, and maybe three weeks from now, game players will move on to another obsession, so he wanted to strike while the iron was hot.
However, let’s consider the other possibility, that it becomes an institution for years to come, even after the initial craze passes (something like Sudoku). In that case, letting it go for what seems like a nice cash payment won’t look so wise in retrospect, while the Times reaps many millions from it over the years.
If I was advising Mr. Wardle, I would have advised him to incorporate provisions in the agreement to enable him to benefit from the blowout success scenario. (Again, I want to stress that the agreement isn’t public, so I can’t say for sure that this didn’t happen.) The agreement could incorporate milestone payments, i.e., the initial seven-figure payment up front, but then additional payments if and only if the game is a big success for the Times, and the Times would be obligated to use reasonable efforts to make that happen. Or there could be some form of royalty-type payment, where he’d share in a small percentage of the Times’ earnings from the game.
It’s really hard to appropriately address future value through earnouts or other mechanisms, but it’s sometimes even harder for sellers to have to deal with the knowledge of just how much they may have left on the table.
– John Jenkins