Chargers,
You said "do the math," so let's talk about that some more since everyone seems to have brushed off my prior post about how there's no way AdvisorShares is going to pay out the huge sums you and others have tossed out. I work in the asset management industry and value equities for a living, so I believe I have an informed perspective to add here.
You've provided the basic formula to arrive at the revenue generated by an ETF manager, which is AUM * average advisory fee. This can be verified by looking at the financials of WisdomTree, which is publicly traded. Their 2014 average U.S. listed AUM was $35.3B and their revenue was $183.8M, or 0.52% of average AUM. That's exactly in line with their average advisory fee of 0.52% (see p. 38 of the 10-K). The company earned $73.5M pre-tax (40% of revenue) and $61.1M after tax (a 17% tax rate aided by a one-time valuation allowance reversal). The company's baseline tax rate is ~38% per the latest 10Q, so a normalized net margin on the 2014 numbers would be roughly 25%.
If you calculate AdvisorShares' weighted average advisory fee, you will come up with a figure of roughly 1.15%. At a recent AUM of $1.273B, that would be a revenue run rate of $14.6M. That's almost 50% higher than the $10M in revenue posited in your simplified example, which is good news.
You go on to claim, however, that AS would thus owe FNDM $6-10M per year, which would be 60-100% of AdvisorShares revenue using your example. That is clearly wrong for two reasons. The first is that the most FNDM could possibly claim to own is 60% of AS. The actual fair stake is hard to determine, since FNDM never made the additional milestone payments it was required to make to maintain that 60% ownership, but I hope we can at least agree that FNDM does not have a claim to more than 60% of AS. Second, FNDM is an equity owner and as such has a claim to a portion of AS earnings, not revenue. So to say FNDM is owed an amount based on AS advisory revenue is wrong, because you are ignoring expenses.
I don't know what AdvisorShares' expense structure looks like, so we need to make a guess regarding profitability. As noted, WisdomTree looks like it's running around 25% normalized net margins. AdvisorShares is, in my opinion, unlikely to be at such lofty levels given its much smaller asset base. There are huge economies of scale in this business. If AS is achieving 15-20% net margins vs. WisdomTree at 25%, then we're looking at $2.2M to $2.9M of run rate net income. Call it $2.5M. FNDM's share of that earnings stream would be, at most, $1.5M. Over 5 years, that's $7.5M. Not $30 million, and definitely not $50 million.
At under $3M of estimated annual earning power, I hope this demonstrates how unlikely it is that AS is sitting on tens of millions of dollars of profits to be forked over to FNDM via settlement or court order.
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