At the time of writing, Rory McIlroy looks set to sign a sponsorship deal with Nike worth a reported $250m. Even by Nike’s standards that is a lot of money, but they are obviously confident that McIlroy’s endorsement of the brand over the ten year term will generate a return on investment well in excess of that amount. Of course, they also have some spare bucks lying around after they terminated their deal with Lance Armstrong because of what they called the “seemingly insurmountable evidence that he participated in doping”.
Those two examples nicely illustrate the upsides and downsides of celebrity endorsements. If it goes well, the brand basks in the reflected glory of a world beating athlete or A-list actor. But, if the celebrity falls from grace, the brand might find itself associated with things that do not fit quite so well with its brand values: allegations of cheating, recreational drug use, or, in the case of Tiger, Herculean amounts of extra-marital sex.
Of course, most brands look for celebrities who appear to be squeaky clean; but humans are fallible, and the risks of being caught doing something naughty are greater than ever before. Just ask Prince Harry. Brands cannot just hope for the best when signing up a celebrity any more, they also need to prepare for the worst.
What to do? The first step is to research whether the proposed celebrity has done or said anything in the past that might harm the brand. This needs to go beyond getting the summer intern to type a name into Google and cast an eye over the first few results. It needs to be detailed, professional, thorough research. If you are an agency proposing the celebrity, present the results to the client. Show them that you have done the due diligence, and, if anything has cropped up, let the client be the one to take a view on whether or not to proceed.
The second step, and possibly the most important, is to ensure the brand has proper contractual protections. Coming from a lawyer who does celebrity endorsement deals, this may sound self-serving, but it is also true. These can be high value deals with very real risks attached. If done properly, the contract will provide significant practical protection.
For example, an endorsement contract should include a term stating that the celebrity has disclosed all incidents in their past that could affect the endorsement value. It should state that they will not say anything defamatory or derogatory about the brand or the product sector and that they will not engage in any activity or conduct in such a manner which might bring the brand, the agency, or the campaign into public disrepute or offend public morals. All statements regarding the endorsement should also be pre-approved by the brand. Usually, the contract would provide that the celebrity cannot endorse the brand’s competitors. Finally, and most importantly, it must clearly set out the circumstances in which the brand can terminate as a result of the celebrity’s behaviour, and, in that event, what happens to the endorsement fee. It is a good idea to ensure that the fee is paid in stages throughout the term. If the celebrity is deemed risky, a significant part of the fee might be paid at the end of the deal as a ‘bonus’ for good behaviour.
Conversely, when acting for a celebrity on an endorsement agreement, I might look for a promise that the brand will behave as a ‘good corporate citizen’; commonly called a ‘reverse morality’ clause. The celebrity is a valuable brand too, and they should not be damned by association if, for example, the brand is busted using child labour to make its products.
Third, the brand should have a pre-planned ‘crisis management’ media strategy. The immediate response should be to try to gain some control over how a damaging story is handled and to establish whether or not the allegations are true. Next, they need to decide whether to stand by the celebrity or terminate the association. There are a number of reasons not to terminate: the cost of withdrawing the campaign might be too great, they might not want to be seen to be kicking someone when they are down, or they might take the view that all publicity is good publicity. Nike stuck with Tiger Woods, but terminated its deal with Lance Armstrong. Their view was that Tiger was never accused of any activity that related directly to his achievements on the golf course, so they decided to stick with him; although it has been reported that they slashed the value of his deal.
Lastly, the brand might look to insure itself against the risks. There are policies, such as death and disgrace insurance, that can provide some recompense; but they can be extremely expensive, and obviously they do not protect the perception of the brand, only the money spent on the endorsement.
As smart phones and social media make celebrities’ private lives less and less private, the risks inherent in endorsement deals are growing. Brands need to be better prepared than ever. That means doing proper due diligence at the outset, engaging an experienced professional to negotiate the contract, and planning an effective media strategy if a crisis materialises.
Jeremy Roberts, Partner and joint Head of the
Brand Management practice at Sheridans
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