Sponsorship Agreements

A sponsorship agreement or endorsement agreement is a contract that allows a company to use a person’s name, likeness and reputation to promote a service or product. The person endorsing the product or service is typically a well-known celebrity, actor / actress, or sports figure. The company pays a fee to the celebrity in return for his or her endorsement.

A person with new-found fame may jump at the opportunity to get paid to endorse a product. However, there are a number of factors that a celebrity should consider before agreeing to an endorsement deal.

A celebrity should make sure that their sponsor’s brand or mission aligns with his or her image.

If you are a celebrity, your brand, reputation or image is everything. Before determining whether to accept a celebrity endorsement agreement, make sure that the company’s brand, reputation or image aligns with your brand, reputation or image. Find out what the company stands for and who they have sponsored in the past. The brand might be repugnant to a certain cause the celebrity stands for (ex. the company might use sweatshop labor) or it might expect you to live a certain lifestyle that you are not willing to live (ex. Disney expects some of its actors and actresses to live a certain clean cut lifestyle).

A celebrity should also consider whether their endorsement contract gives them any creative control over the content produced. For example, if a celebrity agrees to make a commercial for a product, does the endorsement agreement allow them to have a say in how the footage is edited? The endorsement agreement may even grant the company the right to alter or modify images of the celebrity as they see fit. This could go beyond bad photoshopping. Reality TV is a classic example of a situation in which footage can be edited in a manner to create drama and portray distorted images of a celebrity’s personality.

A sponsor may require a celebrity to make certain public appearances.

Celebrity endorsement contracts often have a public appearance clause. This type of clause requires the celebrity to make certain appearances at designated events. An entertainment lawyer should negotiate clearly defined parameters regarding a celebrity’s obligations. For example, will the sponsor pay for first class airfare, ground transportation, hotel accommodations and meals? Will the celebrity get to choose what they wear? Will the celebrity be compensated for time spent in wardrobe and makeup? Will the celebrity be required to speak or perform at the event? Will the celebrity be required to pose for pictures, shake hands or sign autographs?

A sponsor might have a lot of control over a celebrity’s social media.

Endorsement deals often require celebrities to promote the endorsed product or service on social media. While traditional marketing forms, such as television and print media are still in use, they are rapidly being replaced by a demand for social media influencers. As part of a celebrity endorsement, a celebrity influencer will likely be requested to post a certain number of tweets, photos, videos, stories or other items on social media in connection with the sponsorship.

The company sponsoring the celebrity might also have a say in what the celebrity can and cannot post. The company may even have access to the celebrity’s social media in order to take down posts that they find objectionable. At the very least, a celebrity should expect that their sponsors will be closely monitoring all of their social media accounts.

Celebrity endorsers must be careful to follow disclosure laws, such as those put in place by the United States Federal Trade Commission. This includes letting their social media followers know that they are being paid to promote a product or brand. Failure to comply with these laws can result in personal liability to the celebrity and to the sponsor.

A celebrity may be prohibited from buying, promoting or using competing products.

Often signing an endorsement agreement with one company will prevent you from endorsing the products and services of another. An obvious example would be if you endorse Nike, you should not be seen wearing Adidas.

These types of exclusivity clauses are frequently found in celebrity endorsement agreements and can have significant impact on a celebrity’s day-to-day life. Perhaps a celebrity likes to drink both Pepsi and Coke, but if he or she is sponsored by one of them, he or she better not be seen in public drinking the other. A celebrity should keep this in mind when determining which products and services to endorse.

Before signing an endorsement agreement that is exclusive to one product, a celebrity should inform their entertainment attorney of all other sponsorship agreements that they have to make sure there are no conflicts. Not all conflicts are obvious. For example, if you are the sponsor of a stereo company and get approached to do a commercial for an automobile, the automobile could have a different stereo system incorporated into the vehicle. The celebrity should have their entertainment attorney negotiate with the automobile company to make sure that the other stereo system is not mentioned or shown in the same commercial with the celebrity.

Actions a celebrity takes in their private life can impact his or her sponsorships.

Most sponsorship agreements usually contain a morals clause that will prohibit certain behaviors in the celebrity’s personal life. These behaviors can include sexual acts, drug use, scandal, statements on social media or elsewhere, or any other behavior that may bring the sponsoring company into public disrepute.

As a celebrity, it is important to remember that something you do in your personal life can quickly cause you to lose your sponsorships. In some cases, a celebrity may have to pay back a significant sum of money to their sponsors. These morals clauses often give wide discretion to the sponsoring company to determine whether a specific statement or behavior is sufficient to terminate the contract.

There is usually no requirement that something be proven in a court of law. Even the rumor of a scandal can be sufficient. Sometimes a sponsor can force a celebrity to give a public apology or press conference to address an issue.

A celebrity should be careful to review sponsorship terms regarding merchandising.

If branded products will be sold with a celebrity’s image, the product endorsement agreement should address merchandising. For example, the sponsorship agreement should specify who can create and sell the merchandise, in what markets the merchandise can be sold, how the price will be set and whether the celebrity receives a portion of the revenue. This is another situation where a celebrity should seek some level of control over product design and marketing.

Sponsorship agreements can offer various types of compensation.

Not only should a sponsorship agreement state the total amount of compensation, but it should also state how and when fees will be paid. Will payment be made in one lump sum or in installments attached to specific milestones? Will payments be made through the celebrity’s agent or another third party such as a player’s association or actors guild (ex. SAG, AFTRA or other entertainment guild)? Is the amount of payment tied to the sale of merchandise?

Celebrities often get free products or services as part of their compensation.

Often times a celebrity will be compensated in part with free product or services. This could be anything from a lifetime supply of shoes, to free hotel rooms and private jet flights for the celebrity and their friends and family. They may even be required to gift a certain amount of the product to influential friends. A celebrity should be aware that payments in kind are likely taxable.

A celebrity should consider other value adds that their sponsors can provide.

Sponsors can add value to a celebrity beyond the money that they pay for the endorsement. Sponsorships can help a celebrity’s entertainment career overall. It can positively (or negatively) impact a celebrity’s relationship with their fans. Sponsorships can help celebrities reach a wider audience and provide certain networking opportunities.

Lastly, celebrities can often negotiate charitable clauses into their endorsement agreements. Perhaps the sponsor can donate product or services to a charitable cause that the celebrity supports.

Entertainment law issues are best addressed by an entertainment attorney.

The issues addressed above are mainly "soft" issues that a celebrity can determine on their own. However, a typical endorsement agreement will also include plenty of complex legal issues that are best negotiated by an entertainment attorney. This includes ownership of intellectual property, confidentiality provisions, limitations of liability, exclusivity rights, termination rights, indemnification and insurance.

A celebrity should have an entertainment lawyer to guide them through these more complex legal elements.

Do you have a sponsorship agreement that needs to be reviewed by an entertainment lawyer? The entertainment attorneys at Business Lawyer Austin can help you.