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Royalties are equivalent to the lump sum cash paid for it. You should be indifferent to holding the cash vs. holding the rights to royalties.
by DwnVoteHoneyPot 5y ago
Royalties are equivalent to the lump sum cash paid for it. You should be indifferent to holding the cash vs. holding the rights to royalties.
- Consultant32452 5y agoCash is king, royalties may dry up tomorrow.
- spoonjim 5y agoThere is also an administrative cost to auditing and paying these royalties.
- kingcharles 5y agoRight, it's not insignificant. Buying up all the available royalties would reduce this factor to zero for JnJ.
- spoonjim 5y agoThere might be so many individual holders that buying up all the royalties would be infeasible and they are not even going to try. I can imagine with inheritances from 1881 the royalty stream might be owned by 100+ different entities by now.
- Traster 5y agoI could be wrong about this, but you, as a third party should be indifferent to holding it vs cash. J&J shouldn't - if they owned this it would change the cost structure of selling the product. Let's say they buy it, they're now paying $x less in cost per unit, which from a static perspective is the same as the cash value of the royalty, but it could allow them to drive more money into advertising, which would yield more sales of the product. Previously this would've increased the value of the royalty (which they don't own) but now they capture that value instead.