Converting Royalties to Cash

Revenue royalty investors usually intend to remain invested in the royalty they purchased for the entire payment period in order to benefit from the expected increase in revenues of the royalty issuing company.

At the same time, royalty investors would like to be able to calculate the value they can realistically expect to receive from a buyer of their royalty, should they want to sell the royalty, for tax or other reasons.

Therefore, for this purpose we have developed the website calculator,, PV being for Present Value. The calculator, uses the royalty issuer’s projected revenues, royalty rate, and number of years of remaining revenue entitlement participation, in order to calculate the price which, the investor should receive in order to achieve the investor’s target Internal Rate of Return (IRR).

The calculator also shows the IRR of the buyer of the royalty if the projected revenues are achieved, as well as the number of years it will require for royalty payments to equal the buyer’s cost of the royalty.

Of course, the track record of the issuing company’s revenues and the economic outlook facing the company will be important determiners of the amount the buyer is willing to pay for the royalty. However, the buyer will at that point have the advantage of knowing the issuer’s revenue history during the period of the royalty’s existence. Due to the then-current level of revenues, it is expected the buyer will breakeven on the purchase of the existing royalty in a very few years and thereafter have the benefit of a substantial IRR if the royalty is held until maturity.

All of the above, including a number of sample cases, are available for study at and I strongly recommend that investors take the time to study the process and terms of converting royalties to cash as presented in the samples at the website.

We suggest that royalty investors subject to federal income tax consider selling the royalties they hold at the point they received royalty payments equaling their cost, because thereafter the royalty payments will be taxable as “ordinary income”, similar to dividends. The most logical buyers of the royalties at that point will be tax-exempt investors.

Even though there should be an appetite for seasoned, high-yielding royalty contracts among income-seeking tax-exempt entities the most logical buyer will be the royalty issuing company. This is the case because every dollar paid in royalties by a profitable company is a pre-tax profit dollar for that company.

The royalty issuer has a natural desire to repurchase the royalties which it has sold due to the resulting profit impact from reducing payments. Indeed, the issuer’s royalty redemption right is one of the key reasons for the attractiveness of royalties to business owners. In one of our royalty approaches,, there is a requirement that issuers repurchase annually an agreed amount of their outstanding royalties.

As is described at, RIAR stands for Royalty Issuer Assured Return, which is the possibility of the issuer “Crediting” and therefore retaining, rather than “Distributing” royalties, for the accrual of a higher royalty rate, is calculated. In the case of credited royalties, there is a required annual repurchase of outstanding royalties

When royalty income funds are established they will become natural buyers of existing royalties. Also, as the institutional, non-profit, investment community becomes familiar with royalties, it is likely that royalties will become their preferred investment structure and, as a result, individual investors will no longer have the opportunity to invest directly in royalties.

I welcome contact from investors having questions about and the subject of royalty liquidity.


Arthur Lipper, Chairman
British Far East Holdings Ltd.
+1 858 793 7100

© Copyright 2019 British Far East Holdings Ltd. All rights reserved.



Blog Management: Viktor Filiba

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.