What is a Most Favored Nation Agreement... and How Is It Used in Negotiation?

One of the tools of negotiation when it comes to rights and clearances is the Most Favored Nation agreement. The most favored nation idea is originally a political concept, which was a protection in trade. China, for instance, in hammering out a trade agreement with the United States, might demand a Most Favored Nation status, meaning that no other nation would be more favorably treated in its trade status with the US.

This status, in negotiation, is of course accorded to entities who merit it. It is a protection for them that, as negotiations proceed, they will not be left behind if some other party comes along and ups the ante in the negotiation.

In just this way, in the entertainment industry, Most Favored Nation, often shorthanded to "MFN" or "Favored Nations" - is a guarantee to the contracting party that his or her deal will be no less favorable than the deal of anyone else being similarly featured in the project or program. It can apply to footage, music, or talent.

The first question out of many talent agents' mouths, when offered a deal for their client, will be, "Is this Favored Nations?"

The wording of the deal can be tweaked in various ways - for instance, it can exclude certain parties by name, or name others. For example, an agreement could stipulate that the compensation will be MFN with the star actor... or no less favorable than any actor appearing in the picture with the exception of the star or stars. In this way, the producer can pay the top tier actors one level of compensation, and the second tier actors lower levels of compensation for reuse of their performances.

These very specific wordings are not common in agreements, as most producers don't want to make such guarantees in writing, but might be stated orally or in emails or side-letters.

More common are simple statements that no other actor appearing similarly featured in the movie/TV show/game shall be more favorably compensated than the client, the actor signing the contract.

Sometimes, the MFN guarantee extends to the credit accorded the actor. This is normally a negotiated point inserted at the request of the agent or lawyer negotiating the deal on the actor's behalf. Any element of the deal can be so stipulated: compensation, credit, royalty, etc.

MFN negotiations can be a two-edged sword. They can help keep costs down by assuring talent that, even though the money offered may not seem great... they won't be getting any less than anyone else is getting.

On the other hand, once offered, if costs start to spiral upward because someone holds out or drives the negotiated price up, everyone else that has been guaranteed MFN status will be entitled to a similarly high fee. Therefore, MFN is usually offered judiciously, and late in the negotiation process rather than at the outset, if it is used at all.

Some producers will not use MFN deals at all, as they feel that it endangers their ability to negotiate. When used, some producers will offer them only in guarantees not in the contract itself, but in verbal discussions or other communications.

However offered, these agreements are considered binding, and should not be put on the table unless they can and will be fulfilled. Agents, managers and talent will often communicate among themselves. Sometimes a law firm will have two or more clients that are connected to the project you are working on, and will be privy to negotiations. The adage, "It's a small town," certainly applies to Hollywood and the negotiation process.

Most Favored Nation deals are an important tool in negotiation, and it’s to a producer’s advantage to understand them. They shouldn’t be agreed or resorted to without thought and deliberation. Although they can greatly speed a negotiation, they can also sabotage it if all the consequences are not weighed.