Article Story: CONTRACTS - THE PRICE OF FAME

Date: 8.12.2004

Charles Swan of The Simkins Partnership discusses celebrity contracts in advertising campaigns

The public’s fascination with celebrity is reflected in the advertising world by the enduring appeal of the celebrity campaign. Fourteen per cent of winning papers from the IPA Effectiveness Awards in 2002 concerned campaigns that featured celebrities. There is nothing new about the concept of getting a star to sell your product for you, but it clearly and demonstrably works.

Underpinning every celebrity campaign is a vital document which forms one of the cornerstones of the temporary relationship constructed by agencies between advertisers and celebrities – the contract. This article looks at the main elements of that contract and the commercial factors which influence the ways in which it is drafted and negotiated.

Key provisions

Parties

The first question, as with any other contract, is: who are the parties? Artist contracts vary in this respect. In practice, it will not make much difference most of the time, but advertisers and their agencies may have particular reasons for wanting, or not wanting, to be a contracting party.

From the client’s point of view it rarely matters much whether the advertiser, the agency, or both are the contracting parties. In many ways, it makes sense for both advertiser and agency to be parties, given the central role of the agency in creating the campaign and the many obligations on the client side which, in practice, will be carried out by the agency. On the other hand, it is the advertiser’s campaign and money, so it makes sense to include the advertiser as well. The agency may prefer to reduce its risk of liability by having the advertiser as the sole contracting party, although the agency will not be liable to the artist for breaches of contract if it contracts expressly as agent of the advertiser.

On the artist’s side, the contracting party will either be the artist (or the artist’s loan-out company) or the artist’s agent, in its capacity as agent. Again, in most cases it will make no difference whether the artist or the agent signs the contract, but it is safer to have the artist sign, thereby avoiding the possibility of disputes about the agent’s authority.

Rights periods and options

The drafting of rights period provisions varies in complexity. It may just cover a year’s use of a TV commercial in the UK, starting by a defined date and ending a year after the first broadcast. Alternatively, the inter-relation between rights periods in different territories, where a campaign is international, may make drafting the rights period clauses an interesting exercise.

After the initial rights period, typically one year, the advertiser may or may not want to continue the campaign. This will depend on a number of factors including the campaign’s success, future budgets and other uncertainties. If the advertiser wants a legally binding right to continue the campaign after the initial and any further rights periods have expired, options to extend the term of the contract will have to be included.

Options in talent contracts take two forms. Sometimes there is merely a provision for good faith negotiation if the advertiser wants to continue the campaign. Such clauses are unlikely to be legally enforceable. If the advertiser wants to ensure it will have the right to longer use of a campaign than it is prepared to commit to up front, the option must include the additional fee payable in the event that the option is exercised.

Territory

As advertising becomes more international, defining the territory for campaigns becomes more complex. Even when the territories are few and simple, there are some points to note.

One item that should always be covered in any artist contract is the question of spillage. Both in press and broadcast advertising, it is likely that an advertisement will find its way, to a small extent at least, into countries outside the agreed territory. This should be provided for in the territory clause, to ensure that spillage is not treated as a breach of contract, and to ensure that spillage from one country into another country does not trigger a rights period in the other country before any intended commercial exploitation at a later date.

Services

The advertiser will have the artist’s services for a few days at most, and the raw material for a campaign costing millions must be captured in this short period of time. The artist’s obligations must be carefully defined. These will typically include:

• The dates on which services are to be rendered. In case the artist is unable to appear on the agreed dates because of illness, injury or other causes beyond the advertiser’s control, the contract should provide for the artist to provide their services on the next mutually convenient date(s), having regard to the artist’s prior professional commitments.
• The number of hours to be worked on each day.
• Wardrobe and/or post-production services.
• Location of the shoot.
• Stills photography.
• PR services.

Remuneration

The payment clause should define when both the artist’s initial fee and any additional options payments which may become due later are payable. Payments are normally made in at least two stages. The artist will want a large instalment of money on signature of the contract, but the advertiser will want to delay some of the payment until the services have been provided or (preferably) until the campaign has started.

A major point to watch with US actors are the pension, health and welfare payments which have to be made to the actors’ union, the Screen Actors Guild. These are around 13% of the gross compensation paid to principal performers, although it may be possible to reduce this amount by apportioning the fees between services, audio-visual usage and print usage.

Media usage

The contract should define the precise scope of the media usage bought by the advertiser. All media required for the campaign (TV, cinema, press and posters, the Internet, direct mail, point of sale, etc) should be negotiated at the outset. Later additions are unlikely to come without a price tag, as it is the agent’s job to limit the exposure of the artist whilst extracting as much money as possible.

Exclusivity

The contract will normally exclude the artist from advertising competing products within the defined territory during the term of the contract. Sometimes there is no exclusivity, but sometimes the exclusivity goes beyond this to exclude the artist from all other advertising. Such provisions, being in restraint of trade, are only enforceable to the extent that they are reasonable.

Approvals

The artist will want approval rights over as much as possible – the script of any TV commercials, all photographs to be used, advertising copy and final versions of advertisements, press releases, the identity of photographers, directors, etc. The agency should limit the scope of these approvals as much as possible and, to the extent approval rights are granted, there should be a clear mechanism in the contract for getting approvals quickly.

Intellectual property

In most cases, the artist will have no IP rights (other than performance rights) in a TV commercial. In some cases, however, an artist will contribute elements of dialogue or other material which may attract copyright protection. The contract should therefore include an assignment by the artist, to either the agency or the advertiser, of the copyright and all other IP rights in the products of the artist’s services.

Disparagement and disgrace

Celebrities can be fantastically helpful to a brand, so long as their profile is right. If a celebrity gets involved in some scandal, however, things can rapidly go sour. The contract should contain warranties concerning possible existing skeletons in the artist’s cupboard, as well as future disasters.

More commonly in practice, a celebrity’s perceived sincerity in endorsing a product can be undermined overnight when adverse comments by the celebrity on the product are published. This is so common it sometimes seems that tabloids have departments whose job is to search out examples of stars shopping in rival supermarkets, buying competing products or confessing that they only did all those terrible ads for the money.

In practice, when an artist gets caught representing products in a less than favourable light, there is rarely anything the agency can do, apart from writing to the artist’s agent to remind them of their contractual obligations. It may be difficult to enforce the advertiser’s contractual rights using legal weapons – any publicity generated is likely to be more damaging to the brand than the disparaging remarks complained about. Celebrities are hired because the public like them. Any public disagreement is unlikely to do anything but harm to the brand.

Insurance

The contract should provide for the artist to undergo a medical examination if this is a requirement for death and disgrace insurance. Problems may arise if the artist dies, even after the services have been rendered. A campaign may have to be stopped if the star involved in it dies.

Confidentiality

Both parties will usually want the fee paid to the artist to remain confidential. The terms of the contract should be subject to express confidentiality obligations.

Even the existence of the relationship may need to be kept secret at first, so that the involvement of the star can be revealed to the public at the right time and in a planned way with the involvement of the advertiser’s PR agency.

The artist should also undertake to keep confidential information gained about the business, products or services of the advertiser and agency.

Warranties and indemnities

The artist should warrant that they have an unencumbered right to enter into the agreement and provide the services and grant the rights provided for in it without any conflict with existing contracts. If the contract is with the artist’s loan-out company, the company should also warrant that it has the right to provide the artist’s services.

The advertiser may be asked to indemnify the artist against product liability claims. This may be a more than theoretical concern for the artist if the advertising is to be run in the USA.

Inducement letters

The majority of artist contracts are between the advertiser and/or agency and a loan-out company owned by the artist for tax reasons. The contract is still in essence with the artist though, and the artist should not be able to escape personal liability by hiding behind a corporate veil. It is therefore standard practice for there to be a separate inducement letter, from the artist to the advertiser and/or agency, under which the artist agrees that if the loan-out company does not perform, they will personally step into its shoes. The inducement letter also confirms that the company has the right to the artist’s services, and creates a direct contractual relationship between artist and advertiser.

Drafting tips and negotiating strategies

Long or short form contract?

A decision which needs to be made at the outset is whether to have a short ‘deal memo’ (which can still be legally binding), possibly combined with a more detailed long form contract to be negotiated further down the line, or whether to negotiate a full, detailed contract up front. There will be cost considerations here – a detailed contract is likely to incur higher legal fees. But other factors may be more relevant:

(a)  Negotiations with artists’ agents are often painfully long-winded, with commercial details having to be agreed at a late stage. A short form contract would be more likely to
be signed before the shoot actually takes place.

(b)  Presenting the artist with a 15-page contract may potentially give the advertiser a higher degree of legal security, at least on paper, but it may also make it more likely that the artist’s agent will instruct a lawyer. Again, this can slow things down.

(c)  In practice, whilst a full contract will give the advertiser an additional degree of legal protection, a shorter contract is often preferable if, as is common, time is short.

The relationship between advertiser and artist is generally one in which tact and diplomacy play a larger part than strict legal interpretations. Even where an artist is in breach of contract in some way, it may still be impossible in practice to enforce the advertiser’s rights. Public disputes between advertisers and artists undermine the very thing the advertiser is paying for, the association between the advertiser’s product and the celebrity.

Can advertisers walk away?

As with any kind of deal, the relative bargaining positions of the parties needs to be worked out. Who needs the other more? With artist contracts, the negotiating power is often balanced fairly heavily in favour of the artist. It may take months to get an artist committed to the idea of the campaign. They may like the creative idea, and want the money, but the chances are that, until the contract is signed, the artist will be able to walk away without much pain. There will be other advertisers – possibly already waiting in the wings. If the advertiser has other options, fine. But often, given the need to plan campaigns and commit to budgets long in advance, the advertiser is already heavily committed to the artist long before the contract is agreed. To lose the artist at this late stage could have serious consequences. In these circumstances, the boot is often on the artist’s foot.

The advice is obvious. Try to advance negotiations as quickly as possible, and try to have other options.

It is important, however, to be clear at what point the contract is formed. It is not uncommon for contracts to be made by mistake. If the advertiser is not absolutely certain that it wants the deal, be sure to make it clear that negotiations are ‘subject to contract’.

Conclusion

The very different natures of individual stars and corporate brands make the contract between them a delicate one to negotiate at times. Fortunately, the sheer popularity of the celebrity campaign as an advertising method has resulted in contracts which vary in length and detail but cover essentially the same main areas set out above. A campaign will not succeed or fail because the contract was well or poorly drafted, but a good contract will help keep relations between advertiser and celebrity on an even keel, whilst protecting the advertiser from some of the more unpredictable and potentially damaging consequences of linking its brand with one gifted individual.

Charles Swan

Testimonials and endorsements

TV commercials are normally required to be pre-cleared by the Broadcast Advertising Clearance Centre (BACC). The BACC’s Notes of Guidance define a testimonial as ‘any expression of view, or statement of experience, of a real person, whether made by that person or quoted by somebody else’. They must be ‘genuine, relevant to the present characteristics of the product and not likely to mislead’. When a celebrity endorses a product as well as merely appearing in a commercial, signed statements are required by the BACC, for which there are standard forms.

There is also a similar requirement under the CAP Code for non-broadcast advertisements which include testimonials. Under paragraph 14.1, ‘Marketers should hold signed and dated proof, including a contact address, for any testimonial they use’. It is therefore advisable to include in the contract an obligation on the artist’s part to sign such a document.

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