Downside-Covered Upside Retention
Keep uncertain upside when present needs are already covered
- Difficulty
- Moderate
- Time to result
- ~ongoing to results
- Steps
- 5
- Confidence
- 90%
Before the first Tony Hawk's Pro Skater launched, Activision offered Hawk a reported $500,000 to surrender future royalties. He says the amount sounded enormous after lean years, but his current position gave him room to decline: he had other income, endorsements, a skate company becoming profitable, and a manageable home loan. He retained the uncertain upside, and later called it the best financial decision of his life after the game succeeded. The transferable rule is not simply to reject buyouts. It is to define what is being surrendered, assess whether immediate needs and downside are already covered, and preserve long-term participation only when the current position can carry the risk. Hawk also notes that different timing might have changed his choice.
Origin
Extracted from The Diary of a CEO
Core principles
- 01A large immediate number must be compared with the rights surrendered
- 02Current financial stability changes the value of a buyout
- 03Manageable downside makes retained upside easier to justify
- 04Timing and personal need belong in the decision
How to run it
- 1
Define the surrender
Clarify which royalties, rights, equity, or future payments disappear if you accept the cash. Compare the offer with what is relinquished, not with zero.
Watch out Obtain appropriate legal and financial advice before transferring valuable rights.
- 2
Audit present needs
Check whether housing, debt payments, operating costs, and essential obligations require the immediate payment. Include the reliability of other income.
Pro tip Hawk's manageable mortgage and other earnings materially affected his decision.
Watch out Do not risk essential security merely because the upside story is exciting.
- 3
Bound the downside
Describe what happens if the future asset produces little or nothing. Confirm that declining the offer would still leave the current position survivable.
Watch out A tolerable downside is not evidence that the upside will occur.
- 4
Value retained participation
Identify the future economic participation preserved by declining. Use available product, market, or contractual evidence while keeping uncertainty explicit.
Pro tip Treat pre-launch interest as evidence, not a guarantee.
- 5
Make a timing-specific choice
Choose based on the current balance between immediate security and retained upside. Revisit the reasoning if personal needs or deal terms change.
Pro tip Write down why the downside is acceptable before declining a guaranteed payment.
In the wild
Activision offered Hawk a reported $500,000 before launch in exchange for no future game royalties. Because he had other income, a manageable home loan, endorsements, and an increasingly profitable skate company, he decided he did not need the cash immediately and retained the royalty exposure.
→ After the game and later titles succeeded, Hawk described declining the offer as his best financial decision.
A hypothetical creator offered cash for all future catalogue royalties first checks debt, living costs, and other reliable income. If those needs are covered, they compare the buyout with the rights and long-term participation they would permanently surrender.
→ The decision is based on affordable downside and explicit opportunity cost rather than the emotional size of the cheque.
Common mistakes
Comparing the offer with zero
A buyout purchases a future claim, so the relevant comparison includes the participation being surrendered.
Ignoring immediate obligations
Hawk says he might have chosen differently if the offer had arrived while he needed money for a house.
Treating one success as a rule
The game's later success does not prove that retaining uncertain upside is always the correct decision.
Is it for you?
Best for
Creators or founders offered immediate cash in exchange for royalties, equity, or another continuing claim.
Not ideal for
It is not financial advice and is unsuitable when essential obligations depend on taking the guaranteed payment.
From the transcript
“I'm gonna take a risk because I'm doing okay and I don't need that money right now.”
“That was definitely the best financial decision of my life.”
From the episode
Tony Hawk: The Man With The $1.4 Billion Name! Burnout, Obsession & Regrets