Disney budgets $180M for Character.AI staff, nine times its $20M bid
Disney’s agreed $20 million opening bid for Character.AI’s technology is the smaller half of this deal. The same Chapter 11 filings put Disney’s bill for the 66 Character.AI employees it had already made offers to at about $180 million over three years. That’s roughly nine times the price the bankruptcy auction is being fought over, by our arithmetic. The people were bought first, and they were bought outside the auction.
Those staffing numbers come from a Chapter 11 filing in the US Bankruptcy Court for the District of Delaware, which Business Insider read on 16 October. It reports $60 million a year in compensation for the 66 workers, plus $30 million set aside as an “aggregate retention pool”, and a three year total of $180 million for “total compensation and retention”. Of those 66, 56 had already resigned from Character.AI. The other 10 are waiting on US work visa updates.
| What Disney is paying | Amount | Timing |
|---|---|---|
| Payment to Character.AI | $5.5 million | September 2026 |
| Refundable good faith deposit | $2 million | September 2026 |
| Closing payment if Disney wins the auction | $12.5 million | At closing |
| Stalking horse bid, total | $20 million | Combined |
| Annual compensation for the 66 hired staff | $60 million | Per year |
| Aggregate retention pool | $30 million | Set aside |
| Compensation and retention, three year total | $180 million | Three years |
The $20 million is not one cheque either. Wired reported that Disney paid $5.5 million in September along with a refundable $2 million good faith deposit, leaving $12.5 million due at closing. That first transaction, including the hiring, happened before Character Technologies filed its petition on 12 October. The bankruptcy came second.
Even so, what the money buys is a licence rather than a company. Wired’s account of the filings describes a perpetual, worldwide, nonexclusive licence to Character.AI code, documentation, frameworks and tools, including its trust and safety moderation stack, training infrastructure and age prediction technology. Users’ data and the Character.AI website aren’t in that list. PPC Land’s reading of the term sheet adds nine patents, and puts the minimum rival bid at $21.7 million once bid protections are counted.
What a rival bidder would actually have to beat
On paper the floor is low, and TechCrunch noted that another company could still come forward with a higher offer. The catch is that a rival would be buying technology whose authors now work somewhere else. Rebuilding that team is the $180 million line, not the $20 million one.
Disney did agree to leave a door open, and it’s a narrow one. To “preserve a competitive process”, per Wired, Disney agreed to let the winning bidder interview and potentially extend offers to up to 80 percent of certain newly hired employees. Disney has the right to select which employees those are. A rival therefore gets at most four in five of the people, chosen by the company it just outbid.
There’s decades of corporate law that developed to deal with the problem of a buyer who always wants to take on all the assets and never wants to take on any of the liability.
John Newman, law professor at the University of Memphis School of Law and former deputy director of the FTC’s Bureau of Competition, to Wired
The estate keeps the lawsuits
Wired reports that Disney required the deal be “fully consummated” through bankruptcy because of Character.AI’s “diminishing cash reserve and significant litigation and regulatory risks”. A draft order prepared by Disney would confirm the process isn’t a merger and that Character.AI stays responsible for its own liabilities. When the company filed, 46 states and territories were part of a multistate investigation. We counted the unpriced litigation rows on the creditor schedule in an earlier look at the same petition.
Character.AI’s own update to users mentions none of this. It doesn’t name Disney, the $20 million or the staff costs, and it says the platform will be wound down if no actionable bid turns up. The company expects the court supervised sale to finish by the end of November or perhaps early December 2026. The petition itself lists the debtor as Character Technologies, Inc., case 26-11603.
That payroll figure lands harder against two bits of context. Business Insider notes Disney laid off several hundred workers in late September, some of them tech employees, about two weeks before it hired the Character.AI group. It also reports that Disney sent Character.AI a cease and desist last autumn over chatbots using its copyrighted characters, which the startup removed.
Rival bids are due on 20 November, and PPC Land puts the auction on 23 November and the sale hearing on 24 November. The thing worth watching isn’t whether someone tops $20 million, because that’s cheap. It’s whether anyone wants a moderation stack from a company that was still negotiating with the states investigating it when it filed. That matters because state child safety cases have produced settlements as large as Meta’s deal of up to $18B.
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