McAfee & Taft tIP Sheet - June 2013: When the stars align: Negotiating celebrity endorsement deals

by McAfee & Taft
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So you’ve decided your brand could use a little shine, and you’re considering hitching your brand to a star. You are presumably a fan of the celebrity, and with a little luck, it’s mutual. Whether this is a short-term “hook up” for a single event or seasonal promotion or a potentially long term “marriage,” there are a few things to keep in mind to avoid a cosmic crash when seeking a celebrity endorsement.

The services and the rights

Does the celebrity have to actually do anything other than permitting use of a name and likeness? If so, spell out the specifics: e.g., photo or film shoots, voice taping sessions, appearances at events or trade shows. Where, when and how often? Will any services be subject to guild jurisdiction for taping radio or TV commercials (e.g., Screen Actors Guild, American Federation of Musicians, etc.)?

What will be most effective in promoting the brand or event? Consider what use of the celebrity’s name and image as well as which media will be most effective in reaching your audience: print, TV, radio, billboards, websites, mobile apps, Twitter feeds, etc. The audience for your brand (age, gender, geographic location, etc.), whether it’s the celebrity’s fan base, a niche demographic, or the general public, may also help determine what the contract with the celebrity needs to cover. Keep in mind that case law and the Federal Trade Commission require the celebrity disclose any commercial relationship with advertisers when making endorsements outside the context of traditional ads, such as on talk shows or in social media.

Think about whether you want an express endorsement where the celebrity is shown using or praising your product or services, or a soft (i.e. “indirect”) endorsement where the celebrity name or photograph appears in your advertisement, but without a direct link to the product? FTC guidelines provide that in direct endorsements, the celebrity must actually be a client or user of the endorsed service or product.

Will the celebrity have any right to approve the scope of the endorsement (selected photographs or film, the ad, or commercial layout) or elements of the product? This may be important to the celebrity in light of revised guidelines that place liability on both the brand owner and the celebrity for false claims in an endorsement.

If the celebrity’s name or likeness will appear on the product or its packaging, or will become part of the brand (e.g., “George Forman Grill”), who will own the trademark rights, and what happens to that brand after the endorsement contract is over? Licensing a longer-term use of the celebrity’s name as a permanent part of a brand or expanding the endorsement to several products or even the whole company is likely to change the price point and other material items of the contract.

Other factors to consider:

  • Where will the campaign appear – local, regional, national, international?
  • Do you want to restrict endorsements for competing products/companies/markets?
  • Do you need confidentiality and non-disparagement provisions to protect the brand (or the celebrity)?

One area of tension can be that most brand owners entering into endorsement agreements will insist that the celebrity waive any right to stop distribution or advertising of the product or service if a dispute arises, while the celebrity will typically insist that mere money can’t compensate for reputational damage if something goes awry with the product, the promotional campaign, etc. Also consider that deals with celebrity musicians will generally require separate negotiation with a record label and music publisher for use of the celebrity’s recordings and musical compositions (so-called “master” recording use and “synchronization” licenses) for inclusion of music in the celebrity’s commercials.

Term and termination

What’s the initial period (short for an event/season or perhaps for a year or longer)? Keep in mind that once a celebrity or expert has endorsed a product, the advertiser has an obligation to make sure the endorsement continues to reflect the endorser’s opinion. If it doesn’t, what sorts of “out clauses” will the parties require? Since the goal is to tie the brand and the persona together, changes in the celebrity’s appearance, behavior, artistic or athletic reputation, or activities may be triggers for terminating the contract. Likewise, the celebrity may need an out in the event that the brand’s “behavior” or reputation (e.g., a product recall, major lawsuit or corporate scandal) tarnishes the image of the celebrity linked to it.

Show me the money

Recently revised FTC guidelines require that “material connections” (payments of cash or free products) between advertisers and endorsers – connections the FTC believes consumers have a right to know about in making purchase choices – must be disclosed. Both the brand owner and the celebrity may be liable for failure to disclose material connections between the advertiser and endorsers.

Endorsement agreements can be for fixed, all-in fees, where payments are tied to actual work/appearance days, and/or the launch of a single buyer ad/media campaign or product, etc. for a fixed duration. Structuring compensation can be creative (and sometimes complex): you can fix a set price, include a percentage of gross or net revenue associated with the company or product, set an initial fee as an advance against some contingent royalty or bonus, or utilize some combination of these strategies to build incentives into the contract for both parties to incentivize their performance.

If the deal is for an extended length of time, you can build in increases in guaranties and royalties over time, or tie performance bonuses to the brand’s or product’s success, which can be measured by sales or other revenue targets. Or, you can structure performance bonuses based on the celebrity’s success. A celebrity athlete being named MVP, or an artist being nominated for or winning an Emmy, Oscar or Grammy, whether he’s wearing your athletic shoes or wristwatch or driving your car to the red carpet or not, may add to the brand’s cache if he or she has endorsed it.

Be sure to also address housekeeping items like expense budgets, reimbursements, and accounting and audit rights. A celebrity contemplating the deal will take into account perceived value to him/her in forfeited “opportunity costs” (other deals that may have to be rejected because of scheduling, territory or category exclusions, for example), as well as how the engagement will impact his/her image and fan base (i.e., is the tie-in a natural extension of the celebrity’s own brand, or will it be perceived as a “sell out”?). There are licensing consulting services that publish annual surveys of royalty structures and typical percentages for endorsement deals, as well as agencies that serve as matchmakers for these relationships, which are worth consulting in advance.


 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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