Shared-Upside Risk Reversal
Remove the buyer's fixed risk by trading fees for shared ownership
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 5
- Confidence
- 96%
Shared-Upside Risk Reversal addresses a buyer's objection by moving risk back onto the people proposing the uncertain project. When studios resisted Schwarzenegger's move into comedy, he, Danny DeVito, and Ivan Reitman offered to work without salaries. The studio would fund only the production budget, while the three partners would receive 37.5 percent ownership and earn money only if the movie succeeded. This changed the decision from paying expensive stars to test a risky genre into sharing upside with partners willing to lose alongside the studio. The mechanism aligns incentives: creators sacrifice guaranteed compensation, the buyer caps fixed exposure, and everyone benefits from the same commercial result. It requires genuine confidence and enough financial security to survive failure; otherwise, exchanging fees for uncertain backend participation transfers more risk than the proposer can bear.
Origin
Schwarzenegger, Danny DeVito, and Ivan Reitman used this structure to persuade Universal Studios to make Twins.
Core principles
- 01Understand why the other party resists
- 02Share the downside instead of asking one side to absorb it
- 03Remove fixed compensation when confidence is high
- 04Align every participant around the same outcome
- 05Earn disproportionate upside only by accepting real risk
How to run it
- 1
Diagnose the objection
Clarify the loss the buyer fears rather than arguing only for the project's potential.
Pro tip State the counterparty's risk in terms they would accept.
Watch out Do not assume resistance means they dislike the idea; they may dislike the exposure.
- 2
Cap the fixed exposure
Separate unavoidable project costs from fees the proposing partners can put at risk.
Pro tip Make the maximum fixed cost explicit.
Watch out Hidden overruns will undermine the risk reversal.
- 3
Put compensation at risk
Offer to forgo guaranteed fees so the proposing side also loses if the project fails.
Watch out Only risk compensation you can afford to lose completely.
- 4
Negotiate the upside
In return for absorbing downside, agree on a meaningful and precisely defined ownership share.
Pro tip Define the revenue base and accounting rights, not just the headline percentage.
Watch out A vague backend promise may never produce usable proceeds.
- 5
Align the partners
Place the key creative and commercial partners under the same success condition so cooperation improves the shared result.
Pro tip Confirm that every essential participant understands both the downside and upside.
In the wild
Studios did not want to risk large salaries on Schwarzenegger's first comedy. Schwarzenegger, DeVito, and Reitman offered to take no salary, hold production to $16.5 million, and share 37.5 percent ownership. If the movie failed, neither the trio nor the studio would earn the hoped-for return.
→ Twins earned about $250 million worldwide, and the aligned partners shared substantial upside.
Common mistakes
Taking backend without runway
Forgoing guaranteed compensation can create damaging financial pressure before any upside arrives.
Negotiating only the percentage
A large percentage is weak protection if ownership, costs, reporting, and revenue definitions remain unclear.
Is it for you?
Best for
Experienced partners with strong conviction, financial runway, and reliable accounting access.
Not ideal for
People who need guaranteed income, cannot absorb a total loss, or cannot verify the backend economics.
From the transcript
“Why don't we go to them and say, instead of us getting the big salaries, why don't we just say we do the movie for…”
“If the movie goes through the roof, we all make money. The movie goes in the toilet, none of us make money.”
From the episode
#696: Be Useful — Arnold Schwarzenegger on 7 Tools for Life, Thinking Big, Building Resilience, Processing Grief, and More
Arnold Schwarzenegger