This is huge. Unreal Engine 3 was used in a lot of AAA games, including the Arkham games, Borderlands etc. And this is the new version. Basically, the state of the art 3d game engine for 5% gross royalties.

Also, this gives you access to the engine source code, which for Unreal Engine 3 meant paying a fee on the upper scale of six figures (some engines are even more expensive, CryEngine costs over a million bucks).

5% (even considering it's gross) is really really competitive, considering what you're getting in return.