SoftBank Is More Interested in Ending $240 Million Annual Fees to Yahoo Than in Buying It

While there have been rumors that Japan’s SoftBank is a possible bidder for Yahoo, sources close to the situation said it has not held any formal discussions with management as other potential strategic and financial buyers like Verizon, AT&T and others have been conducting this week and last.

Instead, those sources said, the company is more focused on what are described as increasingly tense discussions with Yahoo management in recent months over ending the annual payments that SoftBank makes to the Silicon Valley Internet giant. Those now total around $240 million and are related to fees for branding, technology and search.

As described in its regulatory filings, Yahoo said it “records revenue from Yahoo Japan based on a percentage of advertising revenue earned by Yahoo Japan.”

Half of that money is related to search — Yahoo Japan ended its search relationship with Yahoo many moons ago in the Carol Bartz era, moving to Google in a deal struck by former exec Nikesh Arora. He is now president and COO of SoftBank (and, fun fact, Arora also once worked with Yahoo CEO Marissa Mayer when she was at Google).

Since Yahoo Japan dumped Yahoo search, SoftBank has paid what amounts to an annual $120 million vig as recompense for getting out of that deal. Simply put, free money for nothing.

But that sweet arrangement is ending in 2017, which will mean a big hit to Yahoo’s results since the fees are pure profit.

That’s good for SoftBank, of course. But it also wants to end the second half of the annual payment for technology and branding that it must continue to pay to Yahoo for an unlimited time. According to sources close to the situation, SoftBank is arguing that Yahoo has not kept up its tech innovation for Japanese products as promised — which is sadly true — and that its branding has also become worth less (also, yep!).

“The deal was struck 20 years ago and things have changed,” said one source about the 1996 agreement. “Yahoo Japan gets hardly any benefit from the relationship anymore.”

It’s not clear if SoftBank can convince Yahoo to renegotiate the deal, said sources, but it has been applying pressure to do so. This is obviously not great timing for Yahoo, since it is already under massive financial duress.

And how! Earlier today, Re/code reported on Yahoo’s “book” that has been sent to potential buyers that showed what everyone already knows: Its results get worse and worse, confirming already dire warnings that upcoming results will be simply awful.

For those just tuning in, it’s the same drill under Mayer as with all the other fire drill of CEOs who have run Yahoo over the last decade: Declining revenues; declining earnings; declining product innovation; declining declines.

In other words, if Yahoo were a ski resort at Lake Tahoe, all that downhill would make it a vacation hit!

But it is not, and now the lucrative Asian assets cannot mask the truth of the situation to investors. While Yahoo’s shares in those two entities make up all of its value — $30 billion for China’s Alibaba Group and over $8 billion for Yahoo Japan — what’s more problematic is that the gravy train of fat fees from Asia is pretty much over.

In fact, while not addressing Yahoo Japan, the slides reminded possible buyers that $200 million of payments that Yahoo has dubbed TIPLA from Alibaba went poof in 2015 after its IPO and they are not coming back.

Now, SoftBank is looking to be completely free of those payments too. And while some speculate that it could also be a buyer of all of Yahoo — thus, getting rid of the fees, taking back its shares and acquiring a nice shot of traffic and content for its Sprint unit — another source notes that the complexity and difficulty of fixing Yahoo’s weak core might be too much.

“This is a bankers’ fantasy more than anything,” said one person.

(I don’t agree — while bankers exhaust me with their endless machinations, SoftBank is an obvious and interesting buyer of Yahoo. Even if such a deal might never come to pass, you can never count it out.)

Still, SoftBank declined comment to me on banking, dreaming or anything else above and Yahoo has not commented to me since 2012.

This article originally appeared on Recode.net.

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