The morality of celebrity contracts

By Ashley Blake, Hamlins LLP Solici

June 4th 2009 at 12:19PM
The morality of celebrity contracts

Why celebrity brands are anything but risk-free.

Foreword, by Ian Down

Below, Ashley Blake takes you through what steps can be taken to manage celebrity exposure.

Of course an unblemished performance by the celebrity is a pre-requisite for the relationship, but as Ashley points out, if the celebrity isn’t a good fit or used to good effect, there’s still no guarantee of success and the ill-effects can be enduring.

Who doesn’t remember the Griff Rhys Jones and Vauxhall campaigns stretching back ten years? Campaign voted their as the worst of 2000, but the ill effects for Vauxhall were reflected in poor sales for years afterwards, arguably as was the value of ‘brand Rhys-Jones’.

 

Celebrity contracts, by Ashley Blake

Celebrity endorsement and celebrity branding are not new concepts, but in a climate where competition for custom is ever more fierce and brands are looking for ways to stand out from the crowd, it is often the tried and tested methods which are the best.

A successful celebrity tie-in can be hugely rewarding for a brand – Nike’s substantial (reported $100 million) investment in Tiger Woods, for example, has ensured that the sports brand is a key player in a golf market which many previously believed could not be penetrated; and the lending of George Foreman’s name to a kitchen grill has enabled the sale of over 100 million units of the Lean Mean Grilling Machine since its introduction in 1994.

However, celebrities must be chosen with caution - as various large brands in Asia found out last month, when popular (and previously unblemished) Japanese boy-band member Tsuyoshi Kusangi was arrested after being found drunk and naked in a park. Even the most ‘safe’ of celebrity deals comes with its risks; the media attention which followed the Kusangi episode forced Toyota to immediately withdraw an advertising campaign featuring the singer, presumably at great cost to the carmaker.

Whilst most brand owners are aware of these dangers, they are not necessarily aware of what steps they should be taking to protect the brand in advance of entering into any such relationship.

When contemplating a celebrity endorsement, a brand owner (or agency) must initially carry out extensive due diligence – firstly to identify a celebrity or shortlist of celebrities who would be a ‘good fit’ for the brand and secondly to determine what risks may be involved with that celebrity.

Careful due diligence will allow the brand owner to know exactly what they are dealing with and minimise the risk of unpleasant surprises later down the line. Brand owners should also satisfy themselves that, where appropriate, they have had full disclosure from the celebrity of any matters in the celebrity’s past which may potentially affect the brand.

A balancing act will then need to be carried out for any celebrity who may be considered a risk - the brand owner must essentially consider whether it is a risk worth taking. Some brands (for example those with particular appeal to children) are likely to be far more affected by a celebrity who endorses their products becoming embroiled in a scandal, particularly if that scandal involves drugs or other illegal behaviour, and therefore need to take even greater care at this early stage.

Even the most thorough of due diligence will not necessarily enable a brand owner to foresee some of the indiscretions which have befallen celebrities – it is essential that brand owners seek legal advice to ensure that they are afforded the maximum protection possible in their contracts with celebrity endorsers.

The primary form of protection in a contract is a clause known as the ‘morality clause’ – which imposes an obligation on the celebrity to behave or not to become involved in certain activities. Negotiation of such clauses can be a fairly drawn-out process, with the brand owner/agency on the one hand usually wanting a widely worded clause that prohibits the celebrity from engaging in any activity or making any statements which could reflect badly on the brand. The celebrity on the other hand will want a far more narrow scope and will often insist on greater certainty as to exactly what behaviour is prohibited (and to specify certain activities, or certain criminal offences, which are to be excluded from the scope of the clause).

This is a delicate exercise as it is impossible to identify all possible matters that may effect the brand. It is not just an association with bad behaviour or illegal activity which could be damaging – it could, for example, be a matter of a celebrity advertising healthy food being exposed as having had gastric band surgery, as Ryvita discovered with its brand ambassador, Fern Britton. The exact scope and wording of a morality clause will, like any contractual provisions, to a large degree be dependent on the bargaining positions of the parties – the financial incentive and prestige offered by the brand owner on the one hand versus the commercial ‘pull’ of the celebrity on the other.

A brand owner might also consider linking bonus payments to compliance by the celebrity with the morality clause, providing a financial incentive to behave.

It is important, though, to consider what will happen in the event that the celebrity does become involved in a scandal that would affect the brand. Termination of the contract may seem like the obvious answer but it will quite often not be the most desirable option (although I would recommend that it is one which is expressly open to the brand owner).

Firstly, this is because the brand owner is likely to have invested a great deal of time and money into the arrangement and could well have commissioned advertising and promotions specifically involving the celebrity. Secondly, the initial adverse publicity may not necessarily turn out to damage the brand as anticipated (Kate Moss, for example, recovered fairly quickly from the allegations of drug taking which threatened her career in 2005 and now appears to be more sought after by brand owners than ever).

The speed at which damage can be done once a story emerges - with the help of social networking and video sharing sites, blogging and other tools of the Web 2.0 age – makes after-the-event damage limitation extremely difficult. The wrong response or a failure to act quickly enough can make a small story into a very large and damaging one. It is therefore often a good idea to include appropriate provisions in a celebrity contract which allow the brand owner to be involved in the management of any crisis which may arise. Understandably, however, celebrities will often be extremely reluctant to allow a company to have any control over how their PR matters are handled.

In order to protect against at least some of the possible financial damage a celebrity scandal could do to an associated brand, many brand owners will seek to stagger payment of fees to the celebrity, with a right to withhold payment if the morality clause is breached (much in the same vein as the ‘carrot’ of bonus payments, the idea is that this ‘stick’ will also discourage any breaches on the part of the celebrity). It is also possible for the brand owner to obtain ‘Death and Disgrace’ insurance, which can cover the costs of the endorsement campaign in the event that the celebrity does fall foul of the morality obligations.

The marriage of a celebrity with a brand can be a match made in heaven and can bring huge rewards to both the brand owner and the celebrity. However, it can also end up, like so many celebrity marriages, the subject of scandal and an expensive divorce. It is therefore essential that brand owners are fully prepared for either outcome and have the necessary contractual and commercial protection in place to protect them both reputationally and financially.