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What would make sense to me is taking the contract for the three books, getting the $120K and the cachet that comes with being a traditionally published author.
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Yes, but that is what YOU want. You'd be willing to give up your rights to a book you wrote for 35 years in exchange for $$ up front, keeping in mind that some of that money is not guaranteed. She wants control over her work. She is also willing to bank on that she can do as well, if not better. It's a business decision. We may or may not think it is a smart business decision, but as a reader, we don't care. Our business is deciding whether we are going to buy it or not.
Nothing sells like success. If her self-published books are successful, these publishers are more likely to approach HER with a contract that she can live with. An established author is a much easier sell.