ByteDance Ltd, the Beijing-based parent company of TikTok, appears poised to secure approximately half the profit from the video platform’s U.S. operations. This comes even after the sale of a majority stake to American investors, according to reliable sources familiar with the matter.

The evidence suggests that ByteDance will collect a licensing fee on all revenue generated by TikTok’s algorithm, which will remain under its control. Alongside this, profit linked to its remaining equity stake will also be gathered. The significance of this should not be overlooked. Combined, these arrangements could reportedly provide ByteDance with 50% or more of the U.S. division’s profits once the new ownership structure is implemented. For clarity, the sources have requested anonymity due to the private nature of the terms.

This story unfolds within the backdrop of a high-stakes saga involving several U.S. administrations, including that of President Joe Biden, who signed legislation necessitating ByteDance to divest TikTok’s U.S. operations or face closure. Donald Trump, upon his return to office, has frequently extended the deadline while negotiating a compromise, often attributing TikTok for augmenting his 2024 re-election campaign.

Reports from last week indicate that Trump claimed to have reached an agreement with Chinese President Xi Jinping during a call, although Beijing has not yet confirmed this. The terms of the proposed deal suggest that TikTok U.S. would remit approximately 20% of incremental revenue to ByteDance for the rights to employ its algorithm—a key driver of the app’s phenomenal growth.

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This profit-sharing setup may clarify the perceived discrepancy in the proposed sale value. ByteDance’s projected equity stake would garner about 20% of profit from the remaining business. The balance, approximately 80%, would be shared amongst a consortium led by U.S. interests, including Oracle Corp, Silver Lake Management, and Abu Dhabi-based MGX, along with existing investors.

The distribution of profits underscores why the proposed $14 billion valuation has been met with skepticism. And yet, it remains that the final purchase price will be determined by the acquiring investors, and the timeline for finalizing terms remains uncertain. In response to these developments, the Chinese embassy in Washington reiterated its longstanding position, calling for an open, fair, and non-discriminatory environment for Chinese investors.