In a new filing with the SEC, Yahoo spells out the terms of the search-advertising agreement it announced yesterday with Google. Most of the filing fleshes out known details about the agreement. But it also discloses something Jerry Yang and Sue Decker didn’t want to talk about yesterday. The deal includes an $83 million escape clause for Google:

Google may terminate the Services Agreement if, after ten months after the Services are first launched, and each month thereafter, the gross revenues recognized by Google under the Services Agreement are less than $83,333,333 for the four prior calendar months.

In other words, Google has a minimum guarantee of serving at least $83 million worth of ads through Yahoo on a rolling 4-month basis, or else it can walk away. That’s a pretty tiny threshold, considering that Yahoo’s quarterly U.S. revenues are $1.3 billion. The amount comes to about one percent of Yahoo’s total projected revenues for 2008. (When Yahoo president Sue Decker was asked about minimum guarantees yesterday during a conference call, she wouldn’t comment).

Google also negotiated a $250 million kill fee if the agreement is terminated within two years because of a “change in control” of Yahoo (i.e., a sale). Curiously, if Yahoo is acquired by Microsoft, it doesn’t have to pay the fee. Thus, this single clause means that anyone other than Microsoft might have to pay up to $250 million more to buy Yahoo.

If the Services Agreement is terminated by either party within 24 months of the Effective Date as a result of a Change in Control of Yahoo! (other than a Change in Control triggered only by Microsoft …), Yahoo! is required to pay to Google the sum of $250,000,000

The agreement also explains Yahoo’s discretion in deciding how, when, and where to display Google ads. It also goes into how the deal is structured. There are two portions. Google is to pay Yahoo both a variable and fixed percentage of the gross revenues it generates through the deal. The variable percentage is based on monthly targets, presumably on top of a fixed percentage. The actual percentages of the revenue split was not disclosed:

Under the Services Agreement, Yahoo! has sole discretion to choose which search queries to send to Google and is not obligated to send any minimum number of search queries. Yahoo! also has sole discretion to decide on which pages to display ads provided by Google through its AFC Services. In addition, the Services Agreement is non-exclusive, and expressly provides that Yahoo! is not prevented from implementing any other advertising, promotion or marketing service or monetization method, including any that are the same as or substantially similar in nature to the Services or displaying comparable advertisements. Yahoo! also has sole discretion with respect to the placement and location of ads generated from the Services, the number of ads requested and the formatting of ads. Additionally, Yahoo! may serve its own ads or third-party ads alongside Google ads.

Google will pay Yahoo! a percentage of the gross revenues generated from AFS Services on the Yahoo! Properties, with such percentage adjusting based on specified monthly gross revenue thresholds, and with respect to the Yahoo! Partner Properties will pay a similar percentage of gross revenues less a separate specified percentage. Google will also pay Yahoo! a fixed percentage of gross revenues generated from AFC Services on the Yahoo! Properties and a fixed percentage of gross revenues for AFC Services on Yahoo! Partner Properties.

Tags: Google, Yahoo