United States: Advertising, Marketing & Promotions Alert -What Agencies And Their Advertisers Need To Know About Endorsement Agreements Prior To Engaging Talent

A threshold issue that emerges when advertisers and their agencies hire celebrities, musical artists, and other personalities to endorse and perform services for a brand is whether or not to enter into some form of preliminary deal document, as opposed to going straight to a longer form agreement, and how to structure such a document. While a "deal memo" or "term sheet" is often signed soon after the essential deal terms between the parties have been negotiated, it is important to consider the impact of that document before it is signed.

Term Sheet

If the advertiser wants to engage the talent in preliminary discussions, if only to gauge interest and get a feel for potential deal points (e.g., compensation, length of term, scope of use, and exclusivity), the parties can enter into a non-binding term sheet.

The term sheet can also provide that it is the intent of the parties to negotiate toward a binding agreement that will not deviate as to the agreed-upon terms contained therein. Of course, in that situation, the advertiser must recognize that there is no binding commitment on the part of the talent, other than to continue with the negotiations in good faith.

Deal Memo

On the other hand, if the advertiser wants a firm commitment on the talent’s part, a deal memo must include language that states it is a binding agreement between the parties that will govern unless and until a more comprehensive agreement is negotiated.

In this case, the advertiser must be willing to commit to paying the full compensation being negotiated with the talent, absent some contingency that can be built into the deal memo, such as the ability on the part of the advertiser to cancel unless it can procure certain third party rights, such as a particular piece of music or other content that is essential to the brand campaign.

While there will be some room for further negotiation of standard legal provisions within a full services agreement, having a binding deal memo signed upfront will make the overall business terms of the relationship fixed going into a services agreement. Very often, what is intended to be a binding deal memo that contains the business terms and vital legal provisions will become a more fully fleshed out services agreement through the negotiation and revision process. This is because most celebrity attorneys, once faced with a binding document, will err on the side of adding deal points and legal provisions, so as to protect against the parties’ potential failure to sign a long form agreement.

When entering into a binding deal memo, it is always important to try to negotiate a cancellation or “kill” fee that would allow the advertiser to walk away from the deal, for any reason, upon payment of a fee that is less than the agreed-upon compensation for the deal.

Given the opportunity to move from a deal memo to a long-form agreement, or in the event the parties go straight to the long-form agreement, below are a few key provisions for inclusion in such agreements.

Issues to Look for in Talent Services Agreements

Social Media Talent
who will, either as part of contracted-for services or on their own, make endorsements on social media or otherwise regarding an advertiser’s products or services must be contractually bound to make proper disclosures of their material connection to the advertiser in accordance with the FTC’s Guides Concerning the Use of Endorsements and Testimonial in Advertising. Posting on social media, speaking on a talk show, or answering press questions regarding products or services or the talent’s use of products or services likely trigger this disclosure obligation (unless the talent is a well-known endorser of the products/services) and should be identified in the services agreement. The advertiser or its agency should then provide practical instructions to the talent as to how to properly meet disclosure obligations.

When engaging talent on a “pay-or-play” basis, advertisers and their agencies are agreeing to pay the talent whether or not the results of their services are ever made public, or even if the advertiser decides not to utilize the talent’s services. “Pay-or-play” does not, however, contemplate full payment to the talent if the talent breaches the agreement (including by failing to perform his or her obligations or by committing an act that violates the morals clause). Though implied, it is best to include language, even if parenthetically, to the effect that “pay-or-play” applies provided that the talent is not in breach of the agreement.

Morals Clause
While talent attorneys often try to raise the standard that triggers an advertiser’s morals clause termination right to talent’s conviction of a felony offense, there is a broad range of conduct that can damage a brand and necessitate termination of a services agreement that falls short of criminal conviction.

Advertisers and agencies should try to negotiate a broader standard for what constitutes a morals clause violation, to include any act of moral turpitude under law and any act that may bring the brand into disrepute or that injures the success of the brand or the advertiser’s product. At the very least, talent’s arrest for a criminal offense (whether a misdemeanor or felony) should provide the advertiser with a right to terminate the agreement. Further, advertisers and agencies should ensure that a morals clause violation includes not only damaging conduct that talent engages in during the term of the agreement, but also any prior conduct that comes to light – which often equates to conduct that is reported by a reputable news organization – during the term.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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