eBay 2000 Annual Report Download - page 80

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under the agreement, eBay acquired 1,439,040, approximately 3.3% of the equity of Autotrader for
approximately $11.0 million in cash or $7.63 per unit.
AOL
In March 1999, eBay expanded the scope of its strategic relationship with AOL. Under the amended
agreement, eBay was granted a prominent presence featuring it as the preferred provider of person-to-person
trading services on AOL's proprietary services (both domestic and international), AOL.com, Digital Cities,
ICQ, CompuServe (both domestic and international) and Netscape. In addition, eBay has developed or will
develop a co-branded version of its service for each AOL property which will prominently feature each party's
brand. AOL will be entitled to all advertising revenue from the co-branded site. eBay will pay $75 million over
the four-year term of the contract. eBay is recognizing these fees as sales and marketing expense over the
greater of: i) the ratio of the number of impressions delivered over the total number of contracted impressions,
or ii) a straight-line basis beginning with the initial delivery of impressions and extending over the term of the
contract. At December 31, 2000, eBay had advanced $37.5 million under the amended agreement, and had
recognized $28.5 million as advertising expense commencing with the launch of the co-branded program and
delivery of advertising impressions.
In conjunction with the expanded strategic relationship, AOL terminated its original contract with eBay
in August 1999. As a result, the remaining $8.0 million commitment associated with the original agreement
was waived. AOL continued to deliver impressions under the original agreement through August 1999.
Minimum auction guarantees
From time to time eBay, through its ButterÑelds subsidiary, guarantees the minimum net proceeds with
respect to the sale of properties at future auctions. Such guaranteed proceeds are often advanced to the
consignor prior to the completion of the auction. eBay is responsible for the shortfall, if any, between the
guaranteed minimum proceeds and the actual net proceeds upon the completion of the auction. Losses, if any,
are recognized at the conclusion of the auction. In 2000, ButterÑelds had entered into two such agreements
with guaranteed net proceeds of $1.25 million and $2.0 million. The $2.0 million agreement is shared with
another auction service, half of which is guaranteed by each party. In June and October 2000, the minimum
guarantee auctions took place, and at the conclusion of the auctions, the minimum net proceed amounts were
not obtained. ButterÑelds recognized an insigniÑcant loss for the shortfall between the minimum proceeds it
guaranteed and the actual net proceeds received.
Note 11 Ì Related Party Transactions:
In February 2000, a subsidiary of eBay entered into a service contract with a related party whereby the
subsidiary agreed to provide services with respect to the design of the related party's system. The related party
remitted payment totaling $1.5 million to the subsidiary of which $35,000 was treated as a cost reimbursement
for product development expenses, and the remainder was accounted for as revenue. Both amounts are
included in the accompanying consolidated statement of income.
In February 2000, a subsidiary of eBay entered in to a marketing agreement with a related party. Total
payments under this agreement were approximately $1.5 million.
In July 2000, eBay purchased shares representing beneÑcial interest of less than Ñve percent of a
company aÇliated with a director of eBay. In connection with the transaction, eBay received a warrant that
would, if exercised, increase eBay's beneÑcial interest to less than ten percent. eBay recorded the investment
at cost. Separately, eBay entered into a commercial agreement whereby eBay provided approximately
$1.3 million of advertising services to the related party. The amount is included in the accompanying
consolidated statements of income.
75