Revenue sharing

Revenue sharing is the distribution of revenue, that is the total amount of income generated by the sale of goods and services, among the stakeholders or contributors. It should not be confused with profit shares, in which scheme only the profit is shared, i.e., the revenue left over after costs have been removed, nor with stock shares, which may be bought and sold and whose value may fluctuate.

Revenue shares are often used in industries such as game development, wherein a studio lacks sufficient capital or investment to pay up front, or in instances when a studio or company wishes to share the risks and rewards with its team members. Revenue shares allow the stakeholders to realize returns as soon as revenue is earned, before any costs are deducted.

In business

Revenue sharing in Internet marketing is also known as cost per sale, in which the cost of advertising is determined by the revenue generated as a result of the advertisement itself. This method accounts for about 80% of affiliate marketing programs,[1] primarily dominated by online retailers such as Amazon and eBay.

Web-based companies such as Helium, HubPages, Infobarrel, and Squidoo also practice a form of revenue sharing, in which a company invites writers to create content for a website in exchange for a share of its advertising revenue, giving the authors the possibility of ongoing income from a single piece of work, and guaranteeing to the commissioning company that it will never pay more for content than it generates in advertising revenue. Pay rates vary dramatically from site to site, depending on the success of the site and the popularity of individual articles.

In professional sports leagues, "revenue sharing" commonly refers to the distribution of proceeds generated by ticket sales to a given event; the amount of money distributed to a visiting team can significantly impact a team's total revenue, which in turn affects the team's ability to attract (and pay for) talent and resources. In 1981, for example, the Scottish Premier League changed its policy from splitting a match's receipts evenly between its two competing football teams over to a system in which the hosting team could keep all of the proceeds from matches hosted at its facilities. This move is generally believed to have negatively affected the league's parity and enhanced the dominance of Celtic F.C. and Rangers F.C.[2] In contrast, the National Football League distributes television revenue to all teams equally, regardless of team performance or number of viewers.

In taxation

In Canada, "revenue sharing" refers to the practice in which one level of government shares its revenues with a sub-jurisdictional government. For example, the Canadian federal government has an agreement to share gasoline tax revenue with its provinces and territories.

The United States government implemented revenue sharing between 1972 and 1986, in the form of congressional appropriation of federal tax revenue to states, cities, counties, and townships. Revenue sharing was extremely popular with state officials but lost federal support during the Reagan administration. In 1987, it was replaced with block grants in smaller amounts to reduce federal revenues given to states.

References

1. AffStat Report. 2007. A study based on survey responses from almost 200 affiliate managers in the marketing industry
2. Jennett, N. & T. Barmby, M. Chalkley, T. Kirsanova, G. Koop, & C. Montagna (Eds.) (1984). "Attendances, Uncertainty of Outcome and Policy in Scottish League Football". Scottish Journal of Political Economy. Hoboken, NJ: Wiley-Blackwell. 31: 176–198.CS1 maint: multiple names: authors list (link) CS1 maint: extra text: authors list (link)