What Founders Miss About Revenue Share Deals

Revenue share deals look simple on the surface: both sides earn when the game earns. The reality is that the specific terms determine whether the arrangement is genuinely fair or quietly one-sided. Caps, recoup clauses, the definition of net revenue, and the length of the share period all matter more than the percentage itself.

Why the percentage is the wrong thing to focus on

Most founders start by comparing the revenue split. A 70/30 deal looks better than 60/40. That comparison only holds when every other term is identical, which it never is.

A 60/40 deal with gross revenue and no recoup can pay out more than a 70/30 deal on net revenue after marketing costs. The math depends entirely on what counts as revenue and what gets subtracted before the split.

The split percentage is the least important number in a revenue share contract. The definitions underneath it are what determine the payout.

Net versus gross, and what gets subtracted

The single most important clause in a revenue share contract.

Gross revenue means all money the game brings in before any deductions. Simple to calculate and hard to manipulate.

Net revenue means gross minus certain costs. Which costs depends entirely on the contract.

Common deductions in net revenue deals:

• Platform fees (store takes 30 per cent)
• User acquisition spend
• Server and hosting costs
• Payment processing fees
• Localisation costs
• Quality assurance after launch

Each of these is reasonable on its own. Stacked together, they can reduce the revenue pool by 60 to 80 per cent before the split applies.

The question to ask: what specific line items are subtracted, and is there a cap on any of them? Without a cap on marketing spend, one side can spend freely and reduce the other side's share as a side effect.

Recoup clauses and how they change the deal

A recoup clause means one side recovers their costs before the split begins. This is standard, and the problem is not the concept but the details.

Three things to check in a recoup clause.

1. What is being recouped. Development cost only, or development plus marketing plus overhead? The broader the definition, the longer you wait.
2. Whether the recoup is capped. An uncapped recoup on a game that underperforms means the split may never activate.
3. What you receive during recoup. Some contracts pay nothing to the non-recouping party until the recoup completes. Others split revenue at a reduced rate during the recoup period.

A common structure: the studio recoups development costs from 100 per cent of revenue, then splits 50/50 after. If the game earns slowly, the founder sees nothing for months or longer.

The alternative worth proposing: a reduced split during recoup rather than a full hold. Both sides earn something from day one, and the recoup still completes.

Duration and termination

Revenue share deals need an end date or an end condition.

Lifetime deals look generous when the game is unproven. They become expensive if the game succeeds, because the share continues long after the original contribution has been repaid many times over.

A sunset clause is a reasonable middle ground. The share might start at 40 per cent, drop to 20 per cent after two years, and end after four. Both sides benefit early, and the long tail belongs to the owner.

When a flat fee is the better deal

Revenue share is not always the right structure. Three situations where a flat fee works better for the founder.

You are confident the game will earn well. If you have strong test data, a flat fee caps your cost and keeps the upside. Revenue share in this case transfers value from you to the studio.

The studio contribution is bounded. If the studio is building to a fixed spec with no ongoing involvement, the value they deliver is known and a fixed price reflects it accurately.

You want clean ownership. A flat fee means no ongoing accounting, no revenue reports, no disputes about deductions, and no shared decision-making about the game's future.

Revenue share makes more sense when the outcome is genuinely uncertain and both sides are contributing ongoing effort. If only one of those is true, the structure may not fit.

Red flags in revenue share terms

Five patterns that indicate the deal is skewed.

• Net revenue with uncapped marketing deductions. One side controls the spend and the other absorbs the cost.
• Recoup with no cap and no interim payments. The founder carries all the downside risk.
• No audit rights. If you cannot verify the revenue numbers, the split is whatever the other party says it is.
• Lifetime duration with no sunset. The share never ends regardless of how much has been paid.
• Vague definitions of included costs. "Reasonable expenses" without a list is an open door.

Any of these alone is worth negotiating. Several together suggest the terms were drafted to favour one side.

How to negotiate a fairer structure

Four changes that make a revenue share deal more balanced.

1. Define revenue as gross, or list every net deduction explicitly. Remove ambiguity about what gets subtracted.
2. Cap the recoup amount and include interim payments. Both sides earn something from the start.
3. Add a sunset clause or a revenue cap. The share should end or reduce once the contribution has been fairly compensated.
4. Include audit rights. Both sides should be able to verify the numbers, annually at minimum.

These are standard asks. A partner who resists all four is telling you something about how the deal is intended to work.

What we would do

Model the deal before signing. Take three revenue scenarios (weak, moderate, strong) and calculate what each side receives under the proposed terms. Include every deduction, the recoup period, and the full duration.

If the moderate scenario pays the studio more than a flat fee would have, and the strong scenario pays them several times more, the structure may not be in your interest.

Then compare it to a flat fee quote for the same work. The gap between the two tells you how much risk premium is built into the revenue share, and whether that premium is reasonable given the actual uncertainty.

The short version

• The split percentage matters less than the definitions of revenue, recoup, and duration.
• Net revenue deals can subtract 60 to 80 per cent before the split applies.
• Recoup clauses should be capped, with interim payments during the recoup period.
• Lifetime deals become expensive if the game succeeds; sunset clauses are fairer.
• A flat fee is better when you have strong test data or the studio role is bounded.
• Model three revenue scenarios before signing to see what the deal actually pays.

Run the numbers on your current offer before you sign. If you want a second opinion on the terms, start a conversation.