The Scrabulous Deal Snag: Money

Update on the Scrabulous saga, which pits two Indian brothers against Electronic Arts (ERTS), RealNetworks (RNWK), Mattel (MAT), and Hasbro (HAS). All four U.S. companies have some claim to the rights of Scrabble, the game the Indian duo have turned into a successful Facebook app, but all four say they’re willing to work with the brothers to keep a version of their game up and running.

The hold up? Money. A source familiar with the negotiations say Rajat and Jayant Agarwalla want too much.

What’s the gap? The brothers say they’re generating $25,000 a month, or $300,000 a year in revenue. A 10x-20x multiple on that would make Scrabulous worth $3-$6 million, but for argument’s sake let’s say they’ll have a hockey stick growth curve, and that their game project could be worth more than $10 million.

Sound fair? Maybe. But our source says the brothers want a “multiple of several times that” $10 million, and the four corporations they’re negotiating with think that’s ridiculous.

Do the corporations have a vested interest in portraying the brothers as greedy IP pirates? You bet. Could the brothers make a claim that they’ve got the right to sell a game that uses the same rules as Scrabble, but under a different name? Maybe. On the other hand, if they fight this and lose, they could end up with nothing. So we’d bet this stand-off resolves sooner than later.

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