Who Gets Screwed by the Borders Bankruptcy?

Over the past month, I’ve been watching the discounts climb at our local, on-its-way-out-of-business Borders bookstore.  Recently I’ve picked up several novels by authors I’ve been meaning to read but have never seemed to get around to reading, like Charles Stross, Stephen Baxter, and Elizabeth Moon

I got to wondering yesterday about whether the authors of those books would ever see their royalties.  As someone who is an aspiring author, I’m a little disappointed that it took me so long to actually ask myself that question.  Authors live on their royalties and it seems that if the publishers aren’t paid for the books, then it’s likely that the authors will also not get paid for them.  (Publishers Weekly has the amounts Borders owes to some of the major publishers here.)  I wasn’t sure, however, if it would actually work that way because it’s the publishing houses that pay royalties to the writers, not Borders, and the publishers aren’t the ones in bankruptcy.  It seemed possible that authors would still get paid their due, but this certainly isn’t clear to me.

I did some searching of the interweb to see what I could find.  I’m disappointed to say that little has been published on it since February, when Borders first filed for bankruptcy.  At that time, speculation abounded and few concrete answers existed, and to the best of my searching, things haven’t changed.  Back in February, John Scalzi thought it would be a mixed bag on royalty payments.  Lawyer C.E. Petit painted a much bleaker picture, providing this pithy summation for authors: “[Y]ou’re screwed, but you should be used to that by now.”  That said, Mr. Petit noted that authors should still get paid, but that the publishers would likely do everything within their power to reduce the royalties paid to their authors, both now and through future contracts, to spread the pain.

So, will writers get their royalties from the books you buy at Borders?  The best answer I can come up with this is “sort of”.  It appears that writers will be paid royalties and that publishers, the ones who really got the shaft in the Borders bankruptcy, will be looking to share that pain.  That said, should you pass on the final days of the Borders sale?  Probably not.  People are going to get screwed whether you buy that book or not.  I say take a chance on an author you’ve never read before, and if you like the book, buy the author’s other books from places not in bankruptcy.  I think a lot of authors would be willing to make that trade.

About D. Thomas Minton

Writer of speculative fiction
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5 Responses to Who Gets Screwed by the Borders Bankruptcy?

  1. Jim Wiggin says:

    I’m told that most of the books at Borders were on the shelves under “sale or return” terms. That’s sort of like consignment, except that ownership of the books passed to Borders at the time of delivery, on something like 120 days payment, subject to Borders right to return the books if not sold. Books shipped on that basis are typically reserved by the publisher from the royalty calculation because of the possibility they will be returned. In the meantime, the books are subject to the claims of Borders’ creditors unless the publisher obtains a security interest from Borders’ and perfects it by filing a financing statement in the state in which the particular Borders is located. Large publishers may go to the expense of filing financing statements in all the states but small publishers probably do not. That means that upon liquidation the books will be sold off and the proceeds distributed on a pro rata basis to the general creditors after the secured creditors are paid off. Which means the small publishers probably received nothing. Which means no royalties.

    • Jim, thanks for this information. I’ve not been able to find anything concrete about the royalty payments. This will go a long way to helping the steady stream of readers who have been finding their way to this posting. So if I understand what you’ve written (I’m not overly knowledgeable of the bankruptcy laws), a publisher who has filed statement in each state and thus become a “secured creditor” will be first in line to receive a share of the liquidated assets and likely will pay some or all due royalties to their writers, assuming the liquidated assets are sufficient reimbursement. Those not obtaining “secured” status (likely small publishers) will probably not get much or anything, and thus will likely not provide royalties to their authors.

      • Jim Wiggin says:

        A publisher with a perfected security interest would have the right to recover unsold books or the proceeds from the sale of those books. So, if the books are sold they should be removed from the publisher’s reserved column and moved to the sold column on the royalty statement. If the books are returned then they will sit in the warehouse or be sent somewhere else with the royalty again postponed.

      • If you don’t mind me asking, how will the “going out of business” discounts on sale price affect the royality payments to authors? I asssume it would go back to the language in their contracts, but do you have any insight? You seem fairly knowledgeable about this situation, can you tell me your association with it? I’d be interested in learning a great deal more, would you be willing to email me through my contact form so we can continue this discussion (no problem if you would rather not)?

  2. Jim Wiggin says:

    Oh, you should be reading Charles Stross books in cyberspace anyway.

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