Analysts: No cause for concern over reported unpaid Modern Warfare 2 bonuses

Following the departures of two Infinity Ward executives, a related story has gained significant traction and deserves some attention. BingeGamer reports that the development studio "has yet to be paid a single dime in royalties for Modern Warfare 2," ostensibly to be paid by publisher Activision. As Infinity Ward is a wholly-owned Activision studio, we turned to some leading industry analysts to explain what appears to be a private contractual matter.

EEDAR analyst Jesse Divnich tells Joystiq, "I couldn't speak to what the royalty agreement between Activision and Infinity Ward is. If royalties haven't been paid out yet, I wouldn't consider that too alarming. The game has only been out for a little over 90 days. Additionally, it is common to see royalty agreements based upon factors such as hitting release date, review scores (a.k.a. 'Metacritic Clauses') or revenue milestones. I think if you just replace the word 'royalties' with 'bonus' it should make some more sense."

Wedbush Morgan's Michael Pachter explains, "I don't know the nature of [Infinity Ward's] contract, but my bonus is paid after year-end (in February), and theirs is likely the same. The idea that they haven't been paid 'yet' is not all that surprising. The year just closed, and the final SEC documents were filed yesterday." He continues, "IW sold itself to Activision back in 2004, Activision owns the [Call of Duty] IP, and the guys leaving were employees under some kind of contract. Activision appears to believe that they have breached this contract, and may or may not be justified in withholding bonuses."

Check out Pachter and Divnich's full analyses after the break.

[Editor's note: This post has been altered to reflect updates in the Infinity Ward leadership shakeup.]
Jesse Divnich, Electronic Entertainment Design and Research:

"It is common for publishers to reward developers with bonuses or royalties. Typically, a publisher will pay upfront for a game's development cost (especially when they own the studio), but they draw up agreements to incentivize the developers by paying out royalties. Usually royalties are not paid out until the publisher recoups all development costs. I've seen royalty agreements as low as 1 percent to as high as 20 percent. I couldn't speak to what the royalty agreement between Activision and Infinity Ward is. If royalties haven't been paid out yet, I wouldn't consider that too alarming. The game has only been out for a little over 90 days.

"Additionally, it is common to see royalty agreements based upon factors such as hitting release date, review scores (a.k.a. Metacritic Clauses) or revenue milestones.

"I think if you just replace the word 'royalties' with 'bonus' it should make some more sense."

Michael Pachter, Wedbush Morgan:

"It's really just a bonus formula. The term 'royalty' is used with third parties to indicate that it is related to sales or profits, but it's no different in concept than my bonus. The IW guys are employees, so it should be called a bonus. I am still an employee, but if I make my firm more money, my bonus is bigger.

"I don't know the nature of their contract, but my bonus is paid after year-end (in February), and theirs is likely the same. The idea that they haven't been paid 'yet' is not all that surprising. The year just closed, and the final SEC documents were filed yesterday.

"Obviously, I don't know what the alleged breach of contract is, either. I wouldn't rely on bingegamer for my 'facts,' as they appear to be confused. IW sold itself to Activision back in 2004, Activision owns the CoD IP, and the guys leaving were employees under some kind of contract. Activision appears to believe that they have breached this contract, and may or may not be justified in withholding bonuses.

"It is a shame that this dispute is playing out on blogs, especially those run by such financially unsophisticated guys like the ones at bingegamer. They don't understand employment issues, and are not accurately portraying facts. It is equally a shame that the Activision-IW relationship has ended up like this. They are a talented bunch, and deserve better."

This article was originally published on Joystiq.