Deductions

Deductions: Deductions are contractually permitted reductions applied to gross sales before the royalty rate is applied. The licensing agreement specifies what is allowed — typically returns, allowances, freight, sales tax, and sometimes trade discounts and defectives. Disallowed deductions are a common source of audit findings.

Different licensors allow different deductions. CLC, Fanatics College, NFL, MLB, NCAA, and event licensors each have their own list of allowed deductions, often with caps on what percentage of gross sales can be deducted before being disallowed.