Buffett calls EBITDA BS earnings: the case for royalty deals
In a December 2025 talk on advanced deal structures, Richard linked a Warren Buffett view to a structure his team uses. Buffett is wary of EBITDA. Royalty deals pay investors from revenue, before profit is in question.
Buffett on EBITDA
Richard says Buffett warns people to be very careful with EBITDA and calls it BS earnings. Buffett does not value it much. He wants to see actual cash flows.
How royalty deals work
Richard explains that a royalty structure usually pays the investor from top-line revenue. Whether the company is very profitable or just a little, the investor gets money back monthly or quarterly. Many investors like that.
An overlooked structure
Richard says most people only hear about royalties at conferences in oil and gas. His team has done 17 royalty deals with medical practices, med spas and consumer brands. He expects three to five times as many royalty offerings over the next 10 to 15 years.
In Richard's words
"Warren Buffett says to be very careful with EBITDA. He calls it BS earnings." (Richard C. Wilson, Family Office Club talk, December 2025)
"He wants to look at the actual cash flows." (Family Office Club talk, December 2025)
How to use this
- Ask for cash flow, not just EBITDA, when you review a deal.
- Consider structures that pay you from revenue, not profit.
- Look outside oil and gas for royalty opportunities.
- Match payout timing to what your investors want, such as monthly or quarterly.
Questions and answers
What does Buffett think of EBITDA?
Richard says Buffett calls it BS earnings and prefers to look at actual cash flows.
What is a royalty deal?
A structure where the investor is paid from the company's top-line revenue, usually monthly or quarterly.
Why do investors like royalties?
Per Richard, they get paid whether the company is very profitable or only slightly profitable.
How many royalty deals has Richard's team done?
He said 17 at the time of the talk.