Celebrity endorsement intimately links a brand and a celebrity. Negative publicity surrounding the celebrity can reflect badly on the brand and brand owners will want to ensure that they protect their brands against this risk. This article considers the key aspects of doing so and looks in detail at the steps brand owners can take to protect their brands, including ensuring that: full due diligence is carried out on the celebrity and alternatives are considered; the contract contains an appropriate "morality clause" requiring the celebrity to behave properly and other specific warranties preventing, among other things, adverse comment on the brand; the contract contains adequate remedies, including an immediate termination right on breach of the morality clause, an indemnity and crisis management provisions; and any relevant insurance is obtained. This article also considers reverse-morality clauses, performance bonuses and bonus insurance.
Close speedreadWhen the right celebrity joins forces with the right brand, the rewards can be great for both parties. Jamie Oliver's estimated £1 million-a-year contract to advertise Sainsbury's has been widely credited with single-handedly making the supermarket chain £200 million over two years. However, celebrity associations have their risks, as was illustrated by the recent news that Kate Moss had been dropped from some advertising campaigns following the publication of pictures alleged to show her using cocaine. "Ultimately," says Andy Korman, a partner at Hammonds who specialises in sports law, "entering into an individual relationship with a celebrity can be risky because you are intimately linking your brand to theirs."
According to Rita Clifton, Chairman of Interbrand and co-editor of The Economist series book Brands and Branding, those risks are increasing: "Human nature hasn't changed but today there are very discreet digital devices that enable celebrities to be caught in very vulnerable moments. New technology has bought all sorts of advantages but also presents all sorts of challenges for personal reputation and security."
For the brand owner, managing the risks may go beyond any hotly-negotiated endorsement relationships it enters into. A model, actor or employee in an advertising campaign may also present a risk. They may be engaged on "standard" terms and the brand owner will want to ensure that these terms are adequate to cover any reputational risk identified. As Brinsley Dresden, head of media, brands and technology at Lewis Silkin explains: "The critical thing for the brand owner to be aware of is that as soon as people get any kind of exposure the tabloid press will start investigating them and acquaintances may come forward with stories."
The key to protecting a brand lies in ensuring that:
The right due diligence is conducted.
The appropriate contractual protection is put in place.
An appropriate media management strategy is established.
Any relevant insurance is obtained.
Brand owners may be looking at anything from a long-term endorsement relationship with an individual celebrity to using a single group photograph in connection with the sponsorship of an event. Brand owners will generally work with public relations or marketing agencies to identify who and how they want to represent a particular brand. According to Clifton: "Due diligence starts at the strategic level, in ensuring that you have identified the right person for your brand."
Due diligence in relation to a person is a very different proposition traditional legal due diligence. However, good agencies should have a sense of both the pull of the celebrities involved and the risks they personally present. Most agencies would have known, for example, that Kate Moss checked into the Priory in 1998 and told Q magazine that she had been made miserable by drugs in the 1990s. They would also have known that this year she won damages against the Sunday Mirror in relation to false allegations that she collapsed in a "cocaine coma" while in Spain for a fashion show.
There is a limit to what can be done by way of due diligence as a practical matter and time can also be an issue, as Dresden explains: "It is vital to allow enough time not just to carry out proper due diligence but also to come up with alternatives. Unfortunately, time and alternatives are all too rare a commodity in these situations - there tends to be a focus on a single celebrity who is uniquely suited to the brand."
To complicate things, the brand owner may have reached the conclusion that the celebrity uniquely suited to a particular brand is one with an edgy or rebellious image. In those cases, it can be difficult to draw the line between acceptable and unacceptable behaviour. Brand owners can be reluctant to give up on the "right" celebrity even if questionable behaviour comes to their attention as part of the due diligence process. Both the persona of the celebrity and the extent to which questionable behaviour is known to the brand owner will be relevant to any "Death, Disablement, Disgrace" insurance (see below "Death, Disablement, Disgrace" insurance).
In practice, brand owners will normally keep 2 or 3 celebrities under consideration at the strategic stage. When questionable behaviour does come to light, the brand owner has to strike the right balance. As Clifton explains: "It is important that the brand owner does not get drawn into an unsafe compromise. A particular celebrity might seem perfect for the brand or campaign but that does not mean that there is not a good alternative out there."
There are two key areas to look at in the contract:
Representations and warranties.
Remedies.
The main protection for brand owners is in the "morality clause". In addition, special considerations apply in relation to:
Teams and events.
Behaviour of third parties.
Past behaviour.
Derogatory statements.
The key provision is commonly called the "morality clause". In essence, it imposes an obligation on the celebrity to behave themselves. These clauses sometimes list the things the celebrity is not permitted to do - such as committing criminal offences or taking illegal drugs. This approach offers a degree of certainty to both the celebrity and the brand owner, because it is clear whether or not particular behaviour is permitted, but there are two difficulties with it.
First, there is the question of timing. A story that a celebrity has been involved in a criminal offence might do damage to a brand or campaign long before the celebrity is convicted of the offence in question but the celebrity will want the contract to treat them as innocent until proven guilty.
Second, there is the fact that it is impossible to predict all the ways in which a person's behaviour can have a negative impact on a brand with which they are associated.
For these reasons, it is very common to supplement references to specific behaviour with wider, more general clauses that prevent the celebrity acting in such a way that their behaviour reflects badly on the brand (see box, Example clauses). The disadvantage of this approach for both brand owners and celebrities is that it can be unclear whether particular behaviour falls within the general words. Both sides tend to be, understandably, reluctant to put the matter to the test in the courts.
According to Nick Fitzpatrick, a partner at DLA Piper Rudnick Gray Cary, brand owners are reluctant to rely on these kinds of clauses for two reasons: "First, the costs of cancelling and withdrawing a campaign late in the day can be huge - you often have to be looking at a very serious problem indeed before it is worth doing that - and, second, the clauses are intentionally vague because they are trying to capture scenarios that have not been contemplated in advance. You have to rely on a broad concept such as 'devaluing the brand' to cover this, but then, inevitably, it may sometimes be difficult to show that the problematic behaviour has devalued a brand or campaign. For the celebrity, the concern is that a brand owner might make opportunistic use of a widely-drafted clause to exit a contract that, for reasons unconnected with the celebrity's behaviour, the brand owner no longer sees as advantageous."
John Kelly, a partner at Schillings, continues: "I have always advised clients that they need to be careful with morality clauses because they can be very wide. It may be tempting for brand owners to have clauses drafted as widely as possible but that isn't necessarily helpful because the wider the clause is the more uncertain the celebrity will be about whether they are complying with it. Where the clause is too wide, there must be a risk that the clause will be challenged on the grounds that it may be too uncertain to be enforceable."
As with most things, exactly where the contract ends up depends on the relative bargaining strength of the parties and the amount of money on the table. It is not unknown for brand owners to offer bonuses linked to compliance with the morality clause. In any event, brand owners tend to be in a fairly strong position because the celebrity will find it difficult to argue that they should have the right to misbehave. "One way of resolving the point," says Fitzpatrick "is to provide in the contract that the question of whether or not the clause has been breached should be determined in the opinion of the brand owner. The celebrity will argue, usually successfully, that it should be the brand owner's "reasonable" opinion." The brand owner may also want to consider using neutral wording such as 'the celebrity will not become involved in a public scandal'. This removes the notion of conviction, guilt or blame and will allow the brand owner quicker access to a remedy.
Different considerations apply to team or event sponsorship, where the relationship between individual team members or participants and the brand is less intimate. Control of the team or event is limited and brand owners generally have to content themselves with a watered down clause that covers only behaviour "on duty" or when a team manager has the team under his active supervision. Korman explains: "Basically, the closer you get to the individual, the tighter the clause needs to be, but the easier it ought to be to argue for that level of protection."
A difficulty for brand owners in relation to event sponsorship is that the counterparty will usually be the governing body of the sport, and governing bodies are reluctant to have someone else dictate to them how to run their sport. According to Fitzpatrick: "It will be a rare agreement which gives a brand owner the right to sue the governing body for material breach if a player misbehaves, although commonly governing bodies will regulate players' behaviour whilst on official duties, and sometimes you do see an obligation requiring a governing body to follow its own disciplinary procedures in practice. You might also see a termination right if there is sufficient player misbehaviour that the sport is starting to come into disrepute, but this will typically require quite a lot more than one player going off and doing something he shouldn't be doing in a nightclub."
The brand may not be the only thing that has an intimate relationship with the celebrity. Jamie Oliver's endorsement of Sainsburys, for example, came under the spotlight when his wife, Jools, was pictured with shopping bags from rival Waitrose in 2001. One question that needs to be addressed is to what extent the celebrity can be put under an obligation to procure that those associated with them do not act inconsistently with the morality clause. This is something celebrities will strongly resist for reasons similar to those that apply in relation to team and event sponsorship. It may, however, be addressed in a separate contract with the associate in appropriate circumstances, if the right price can be negotiated.
In addition to obligations in relation to their future behaviour, it is also common for celebrities to be asked to give a representation to the effect that "nothing has happened in the past that, were it to come to light in the future, would constitute a breach of the morality clause". This effectively imposes a burden of disclosure on the celebrity. It can provide some comfort for the brand owner where unsubstantiated rumours regarding a celebrity's behaviour have come to light during the due diligence. It can also provide comfort where an individual has not previously been in the public eye and so due diligence has not been possible.
It is also usual to see warranties preventing the celebrity making derogatory comments about or otherwise criticising the product, the brand, the brand owner, the advertising or public relations agency, the advertisements or the campaign.
Interestingly, stand up comedians will often object to restrictions on derogatory comments on the basis that, when doing unscripted work, they may unthinkingly breach them. The easy answer in negotiations is: "how hard can it be not to criticise a brand you have been paid to advertise?" However, brand owners will typically want to draft the clause widely and, with a widely-drafted clause, the objection is not seen as entirely unreasonable. Carve-outs for unscripted live performances by stand-up comedians are sometimes used, but these do not generally tend to extend to chat shows or scripted work.
In the event of a breach of the morality clause, the brand owner will want:
Immediate termination rights.
To withhold any future payments due to the celebrity.
To control the crisis.
It is also usual to seek an indemnity from the celebrity in respect of wasted costs so that the brand owner has an immediate right to payment without having to prove its losses.
As Dan Tench, a partner at Olswang, explains: "In theory, all sorts of actions may be possible on breach of the morality clause but essentially the brand owner will want the right to terminate the relationship and walk away."
Although the brand owner will want an immediate termination right, the contract should not provide for automatic termination because the brand owner may not necessarily want to walk away from apparently "bad" publicity. For example, Nike used Eric Cantona's famous kung fu kick to endorse the message about kicking racism out of football. Nine.com was quick to take a share of the publicity surrounding Kate Moss by making her an (unsolicited) offer to act as their spokesperson provided that she, among other things, participated in an anti-drugs campaign for teenagers.
Even if the publicity itself cannot be given a positive spin, the brand owner might decide to stick with a celebrity for any number of business reasons. Leaving aside the costs of withdrawing a campaign at the last minute, it could be that the brand owner decides that it would just add to the publicity surrounding the event if it seeks to dissociate itself from the celebrity (arguably, "model allegedly takes drug" is not much of a story without "and loses millions of pounds of modelling contracts"). The brand owner may even find that it attracts adverse publicity itself for kicking a celebrity when they are down.
Ultimately, much depends on whether the contract is still seen as offering good value for the brand owner. Korman explains: "The best protection a celebrity can have is success. If a relationship is working out for the brand owner, it is unlikely to look too closely at the morality clause if a celebrity misbehaves in a relatively minor fashion. On the other hand, if the relationship isn't working out for some reason, breach of the morality clause can provide a convenient opportunity for the brand owner to exit the relationship without further costs."
Brand owners will sometimes seek to stagger payments to celebrities over the course of a campaign. If that has been negotiated, the brand owner will want to ensure that future payments are not required after breach. In most cases, however, the best a brand owner will be able to secure is a 50:50 split payment with half being paid on signing and the remainder on launch (for example, the first airdate of a TV commercial). Staggering payments beyond launch is not common.
"It is vital for the brand owner to be able to terminate the contract," says Korman, "but it is also crucial for them to have control over how a damaging story is handled." When things go seriously wrong, the brand owner has a potential public relations disaster on its hands and it needs to be instantly involved in how the matter is handled. For the brand owner, this means not just managing its own internal media response but also being involved in how the matter is handled by the celebrity and the celebrity's public relations people.
A morality clause may well focus the attention of the celebrity to cooperate with the brand owner on such strategy. Kelly explains: "When a media issue blows up, there are two options. Either the celebrity and the brand can either work together on an agreed media management strategy, or, where the brand withdraws its support from the celebrity, or where the parties interests differ, the brand and celebrity can develop and implement their own media management strategy."
Managing the crisis may include taking legal advice and, if appropriate, proceedings. Kelly continues: "In appropriate cases, it may be possible to restrain publication of a damaging article - for instance where it contains confidential or private information or infringes copyright. Also, from a practical perspective, putting the media on notice of potential defamatory allegations may mean that the allegations are not made, or that a denial accompanies them. Post publication, damages for libel may well follow the publication of a defamatory article.” In practice, brand owners are unlikely to be able to secure a contractual right to require a celebrity to initiate libel proceedings or take other positive steps to protect their reputation. However, the brand owner may well be able to work with the celebrity to ensure that any damage to the brand or campaign is minimised.
As a practical matter, recovery of costs and losses is the real problem in relation to celebrity contracts. Some protection, usually treated as theoretical, is available under the contract. Insurance is routinely obtained.
As noted above, it is usual to seek an indemnity from the celebrity in respect of wasted costs so that the brand owner has an immediate right to payment without having to prove its losses. The brand owner will also want to be able to claim damages for breach. Neither right tends to be used in practice. It is generally accepted that, apart from difficulties of quantum, the chances of recovering anything significant in the context of a major campaign, even from the wealthiest celebrities, are low and the risk of adverse publicity in connection with such an action is high.
As Dresden explains: "If a reputational issue arises when you've built an investment in your campaign of millions over the months or years, that's the real nightmare for the brand owner because they can't begin to calculate their loss and the celebrity, wealthy though they may be, couldn't cover it anyway. Even if they could, the other big problem is that it can be difficult to take any kind of legal action without making the situation worse. If the celebrity is unwell (say, has a clinical drug addiction) and has acted properly (apologised and sought medical help) then an advertiser would look terrible taking legal action to bankrupt them, no matter how enormous their losses."
"Death and disgrace insurance is routinely obtained in relation to high-profile campaigns," says Dresden "but it tends to be handled by the brand owner directly and it is rare for the lawyer to get involved in heavy negotiation of the terms. The problem with insurance is that while it's great for what it does cover - lost costs - it doesn't actually save your reputation and it doesn't leave you in the position you could have been in if the campaign had run to plan." Tench agrees: "The real harm is the sort of nebulous damage to the brand that you can't really insure against."
The key features to look for are the scope of the cover, key exclusions and confidentiality provisions. In particular, insurance is likely to:
Define disgrace by reference to contemporary mores (for example, Lloyds defines "disgrace" as: "[a]ny offence against public taste or decency...which degrades or brings that person into disrepute or provokes insult or shock to the community").
Exclude actions that are not out-of-character (for example, the standard Lloyds wording excludes "any action of the insured person that is consistent with the known public persona or behaviour of that person which gives rise to offence, insult and the like").
Contain a requirement that it must be kept confidential - if the celebrity were aware of the insurance, it might affect their behaviour.
As always in relation to insurance, brand owners will need to bear in mind the principle of utmost good faith which requires an insured to disclose to the insurer, before a contract of insurance is concluded, all material circumstances pertaining to the risk which are known to the insured or which, with reasonable diligence, ought to be known. The remedy for non-disclosure of a material fact or misrepresentation is avoidance of the contract from inception.
Some celebrities ask for contractual protection against the brand or brand owner bringing them into disrepute (the so-called "reverse-morality clause"), but big corporates tend to be unimpressed and celebrities rarely have any say in how brand owners or sponsors conduct their business.
Occasionally, brand owners will agree to a provision that the directors of the company will not make derogatory comments about the celebrity personally. It is also fairly common to see the celebrity taking some control over how they are portrayed in advertising materials. Ideally, they will want to see and approve advertisements before they are used.
The question of how the celebrity is portrayed might extend beyond simply whether the materials show them in a flattering light. Kelly comments: “This is particularly true when the celebrity is being asked to say, or imply, that a product has certain qualities. So, for example, if the celebrity has a reputation for eating only organic food and they are asked to lend their name to a new range of organic produce, they might argue that the brand owner should warrant that any food it associates with the celebrity really is organic.”
In sports sponsorship, performance bonuses are often linked to increased coverage because success is quite easy to measure. So, for example, a brand owner might offer a bonus for winning a particular competition or link payment to satisfying certain performance guarantees.
Some brand owners construct bonus schemes around simple airtime. It is possible to do this by linking performance to media-monitoring agencies which monitor how often a particular celebrity has appeared in the press in a positive light in a given period. However, outside sports sponsorship, attracting positive attention to the brand is something that is quite hard to measure, so performance bonuses are rare.
Where performance bonuses are offered, brand owners may seek insurance against paying out. Korman says: "In the sports industry we see a lot of insurance against performance bonuses. A brand owner will offer a bonus to an endorsing sportsman if they win a particular competition and will then take out insurance against them winning in order to cap their exposure under the contract."
Sara Catley, Market Practice Analyst, Practical Law Company
[The celebrity] will not during the term or any time after termination of this Agreement for any reason, give any interview, provide any information, make any statement or do any act which is defamatory, derogatory or disparaging of [the advertising agency] or [the advertiser], or that may otherwise adversely affect any advertising or promotional campaign of [the advertiser].
[The celebrity] has disclosed any incidents in his past or personal circumstances that would be likely to bring himself, [the advertising agency], [the advertiser] or [the products] into disrepute.
Without prejudice to the generality of the foregoing, [the celebrity] expressly warrants that as at [date] he does not have a criminal record of any kind, is not subject to any outstanding criminal investigation and has never received or been recommended treatment for addiction to drugs, alcohol or gambling.
With thanks to Lewis Silkin