There’s no doubt that the arrival of The Wizarding World of Harry Potter has been a huge success for Universal Parks around the world. The new rides and lands have seemingly changed the theme park landscape, bringing immersive worlds to life in new ways. But at what cost? And does Universal get to keep the rights forever?
Thanks to public records from the U.S. Securities and Exchange Commission, we are able to see how the theme park rights contract is structured, when it is renewed, and how often all parties are paid. Let’s dig into some of the highlights from the contract, to try and learn more about how it works, and maybe even how long it will last.
Type of Contract
In looking over the contract (and all of its legalese speak,) it starts to become clear that this agreement is far different than Universal’s contract with Marvel. Written in the 1990s for the theme park rights at Islands of Adventure (along with Universal’s international parks,) the Marvel contract seems to give ALL of the power to Universal, and very little to Marvel.
The Marvel agreement, for example, is in perpetuity. In other words, Universal never has to give up the theme park rights to Marvel at certain parks if they don’t want to. There are no renewal dates. Universal just has to keep up their end of the bargain, which mainly comes down to maintaining the attractions in a timely fashion.
By comparison, the Potter contract appears to have recurring renewal dates after an initial period of 10 years. And yes, that initial term did end back in the summer of 2019.
The contract we’re talking about, which can be viewed online here, is between Warner Bros. Consumer Products Inc and Universal City Development Partners, Ltd. It is a licensing agreement, where Universal is granted the license to utilize the Harry Potter property in all of their theme parks.
The contract does include J.K. Rowling by name at the start, but she is listed as “Author” for the rest of the document. It says that Rowling, along with Warner Bros., must approve of every aspect of Universal’s use of the license, including, but not limited to any artwork, design, logo, slogan, video element, audio element or other item containing an element of the Licensed Property.
So yes, that does mean that they had to approve the Hermione voice actor used on the Hogwarts Express and Escape from Gringotts rides.
There are two main ways that Warner Bros. et al. get paid from Universal according to this contract. The first one is a “Guaranteed Fee,” which is paid every year on July 1st.
Confidential treatment has been requested for this agreement, so actual money amounts are not disclosed in the public version of this document. It is still interesting to see how often payments are made, and perhaps more interestingly, when the agreement is renewed.
The initial term of the agreement lasted 10 years, from 2009 through mid 2019. The first renewal term covers 5 years, beginning in 2019 and lasting through mid 2024. (That’s where we are now.) The second renewal term ends in 2029.
The set amount paid annually actually increases every 3 years, beginning in 2012, to keep in line with inflation over time. According to the agreement, the increase is a percentage equal to the percentage increase in the Consumer Price Index, published by the United States Department of Labor, Bureau of Labor Statistics.
It’s worth noting that this guaranteed payment schedule appears to say that Warner Bros (and in turn, J.K. Rowling,) are NOT paid a percentage of the door. They do not receive some set percentage of all ticket sales. They are paid a set amount annually, regardless of the number of visitors to the parks.
While the Potter rights holders do not appear to earn a cut of ticket sales, they do earn a cut of EVERYTHING earned from anything purchased that is even remotely related to the Harry Potter rights themselves.
Every time you purchase a Butterbeer, licensed product, on-ride photograph, or even a bottle of Gillywater from one of the Wizarding World lands at a Universal Park around the world, a percentage of that sale will go directly to the rights holders (Warner Bros. and J.K. Rowling).
And speaking of Gillywater, the contract explains how every single item for sale within the Wizarding World lands that IS NOT a Harry Potter licensed product, must be approved in writing prior to being sold. It is this clause that helped keep Coca-Cola products out of the Wizarding World.
It can be assumed that Warner Bros. and J.K. Rowling would benefit greatly by keeping other beverage offerings out of the themed lands, because now guests are left with only themed drinks, which they presumably receive a cut of the profits from.
Pretty much every drink or food item that has a little trademark logo next to it on the menu, or was created for use within the books and films, is an item that a portion of your purchase will go to the license holders. (It’s worth noting that this is my personal reading of the available information, but most of the consumables section has been redacted from public viewing.)
Merchandise on the other hand, isn’t so straightforward. If the merchandise was created specifically for Universal Parks, then a percentage of the wholesale price is paid to the rights holders. If the piece of merchandise already exists in the world, and is not exclusive to the parks, then Universal is not obligated to pay the rights holders for its sale, because the company that manufactured the item already had to fulfill their own license agreement.
On-ride photo purchases, and other photo experiences, also require a royalty payment to the rights holders. This includes the Shutterbutton’s experience at Diagon Alley. The agreement specifically mentions: Clips and Stills in which images of guests are incorporated through “green screen” technology and then sold to such guests as souvenir merchandise.
It doesn’t appear that Universal Express entry to the Potter rides requires a royalty payment to the rights holders. HOWEVER, if Universal were to charge for individual ride Express entry, (similar to Individual Lightning Lane at Disney Parks,) then they would have to pay a percentage of that fee to the rights holders according to this agreement.
Universal is required to report all merchandise, consumable, and other licensed item sale every quarter of every year, including the total number of units sold and a calculation of the royalty fees generated.
In a section of the agreement entitled “Capital Expenditure,” some specific language is included for how the theme park areas will have to be expanded in the future. These requirements were originally written while Warner Bros. still had two more films to release, so much of the focus was placed on integrating those stories into the areas.
The agreement states:
Licensee shall pay particular attention to incorporating within the Themed Area elements from the final two Movies, and shall implement such elements into the Themed Area such that elements from the final two Movies are represented in the Themed Area in a generally similar per-Movie proportion as elements from the first five Movies.
This statement alone pretty much guaranteed that a massive expansion would be necessary to stay within Universal’s contractual terms. We received The Wizarding World of Harry Potter – Diagon Alley a few years after the film series concluded, which incorporated specific story moments from the end of the series.
Another interesting statement from this section of the agreement is incredibly similar to some of the wording found in the Marvel contract from 1994. The agreement requires that the Harry Potter themed areas be kept at a “world class level.”
But the language in this contract takes it even further, literally saying the first land should be a “first class, world class level themed area unsurpassed by any other themed area in any destination theme park worldwide.”
In case you ever wondered why Universal Parks rarely build any attractions or themed areas as incredible as the Wizarding World areas, it appears that they’re contractually required to literally make the Potter areas better than the rest! And these areas must be maintained at the highest level, at all times, or they risk losing their license.
After the opening of the Themed Area, Licensee shall continue to expend on the Themed Area such sums as are necessary to maintain the Themed Area as a first class, world class level themed area unsurpassed by any other themed area in any destination theme park worldwide (at a minimum, equivalent to the quality of the Theme Park as of the date of this Agreement)
This part of the agreement also lists an amount of money that the first land must cost to design and build, at minimum. As is the case with monetary amounts in the rest of the document, this amount is redacted for confidentiality reasons.
The agreement lists more than a dozen ways that Universal could be in breach of contract. And it states that if any one, or more, of these rules is broken, they could lose their license agreement.
The good news is, if Universal is found to have defaulted in any way, they will have 10 days to rectify it before termination occurs. If termination of the agreement were to occur, (or the agreement expires without renewal,) Universal would have to “cease operation of all attractions within the Themed Area until all Licensed Property is removed.”
While the contract does allow for the rides to reopen once they have been re-themed, any uses of, or references to the licensed property would need to be COMPLETELY stripped away. And that includes “architecture, equipment, props, dressings, stages, scenery, entrance gates, character representations, and any and all uses of the Licensed Property from rides, attractions, stores and any other themed areas.”
Maybe I am reading it wrong, but it looks like Universal would only have 90 days to strip the licensed materials from everything!
…remove any and all other uses of, or references to, Licensed Property from the Themed Area and the Theme Park… and any and all uses of the Licensed Property from rides, attractions, stores and any other themed areas, within ninety (90) days following expiration or termination of this Agreement
Universal would have a few months after termination to continue to sell any remaining licensed products or foods until the supply runs out, or 120 days, whichever comes first. (So, if this day ever comes, I suppose we can expect to see a pretty big blow out sale a few months later?)
So, what are the rules that Universal would have to break to default? Most of them are about failure to pay fees or royalties, failure to get approval for use of the license, other breaches including not maintaining the themed areas, or selling theme park specific merchandise outside of the resorts (except for the gift shop at the Orlando International Airport of course, that is always allowed,) etc.
Renewal Options and Closing Thoughts
When this contract was being written back in 2007, the owners of the Universal Parks were not who owns them now. Since then, Comcast has taken 100% control of the parks. It’s possible that this contract had to be amended in some way (as it does mention Vivendi and The Blackstone Group in the original agreement, who were prior stake holders in the company).
Since the contract has likely been updated in some way over the past 14+ years, none of this should be taken as how the agreement is currently structured.
The initial agreement we have been discussing today offered two renewal terms, one that would last through July 1, 2024 and another that would expire on June 30, 2029. Clearly Universal has renewed the contract for that first renewal option, as the lands are still open today.
Seeing the company continuing to build Wizarding World lands in theme parks around the world, including their newest park in Beijing, (and a new land is rumored for Orlando’s upcoming park, Epic Universe,) it’s clear that Universal intends to keep the licensing agreement in place for the foreseeable future.
We don’t know what the current agreement between Warner Bros. and Comcast looks like—and if it has already changed since this document from 2007—but we do know that this iteration of the agreement ends in the summer of 2029. So, we most likely still have at least 7 and a half more years of Potter at the Universal parks.
Please note: I am not a lawyer, and the above is only my interpretation of publicly available documents. Subscribe to the news feed or enter your email below to never miss an update. Photos: Alicia Stella