ISSUES

Small Stakes: Reducing Risk in Spokesperson Relationships

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Small Stakes: Reducing Risk in Spokesperson Relationships

The right celebrity spokesperson can be a game-changer for an unknown brand in the direct response space, often delivering a 15 percent to 30 percent increase in leads and sales quickly. But celebrity campaigns also come with substantial amounts of investment and risk.

If a deal is structured poorly, an advertiser can spend as much as $1 million after the costs of production, media time, and celebrity fees are factored into the equation. In addition to variable costs, it’s inherently risky to tie a brand to a star in a guaranteed, long-term deal. But there are precautions an advertiser can take to minimize the risk.

Try Before You Buy

A sophisticated celebrity procurement agency will use survey and research tools to determine whether a prospective star resonates with an advertiser’s prospect base before a single penny is spent on a star or television commercial. InterMedia Entertainment (IME) uses the DR Star Index® to measure six key spokesperson attributes, for example, crunching the data to develop an understanding of each celebrity’s perceived strengths and weaknesses generally, and within key consumer segments specifically.

A second phase of analysis will look at a narrower field of the most promising celebrity prospects for the brand in question, often incorporating recent social media data to further establish the potential effectiveness of the top candidates or uncover subtler, negative attributes that might disqualify a celebrity from consideration.

As a final step, agencies can use in-person focus group testing to further qualify a celebrity’s potential, while also providing insight into targeted creative strategies. Care must be taken to ensure that the findings of these sessions aren’t skewed by a “groupthink” dynamic and/or prejudiced by participants’ subconscious desire to please focus-group leaders.

The Test Period

Once a star’s credentials are established, it’s time to try the celebrity on for size. An advertiser doesn’t need to commit to a full-scale rollout at this point, however. Short-term test deals are advisable and often negotiable.

By shifting risk from advertiser to spokesperson, short-range deals position an advertiser to test and assess his or her viability in true marketplace conditions. Ideally, agreements are structured to mitigate an advertiser’s risk, with a commitment of 20 percent to 30 percent of the negotiated rollout fee, often with no back-end royalty commitment during the test period.

Accordingly, the test should be limited to the campaign’s anticipated primary medium—usually television and associated digital components. To generate sufficient results, a reliable test period should last 60 to 120 days. At the end of this test period, a well-negotiated agreement will give the advertiser sole discretion to decide if the test campaign’s results are promising enough to warrant a widespread rollout, and whether or not to exercise a longer option period with the star.

Staying in Control

To mitigate the leverage a celebrity endorser might hold as the result of a successful test, option periods and compensation should be negotiated in advance and become part of the spokesperson’s contract. State laws may also come into play: For example, California’s labor laws contain a statute that restricts most personal service contracts to seven years.

If a spokesperson’s agreement has an overall length of five years or more, the terms should be divided into shorter time periods (such as one-year segments) to further control exposure. This allows the advertiser to decide whether or not to exercise its options to pay prenegotiated amounts.

If the ads don’t generate adequate leads or sales in any particular term, the advertiser can decide not to exercise the next option period. Or, based on actual campaign results, it could renegotiate a price that more accurately reflects the ROI generated by the relationship, correlating a fair risk/reward dynamic moving forward.

Limiting Advance Payouts

Most celebrity spokesperson relationships require a guaranteed advance for each term—an amount the advertiser must pay the celebrity to retain his or her services for the period. A smart deal-maker will limit the size of these advances by tying at least a portion of the celebrity’s compensation to actual campaign performance from any media using the star’s name and likeness.

These “royalties” are back-end payments tracked to actual leads or sales generated directly by the relationship, tying compensation to performance. A well-negotiated agreement will also make any advances recoupable against royalties, further reducing the dollar amounts at stake.

A DR advertiser will also want to negotiate a full buyout of all the celebrity’s rights that would otherwise occur under a union television agreement. The economics of direct response often make it impossible to pay standard residual and use fees to a celebrity over the course of an extended television campaign.

A well-negotiated agreement will supplant such fees with a fixed buyout price that’s fair to both parties. This is especially important if the campaign is successful, as the spokesperson’s commercial may run in heavier rotation than originally anticipated. Under these terms, the celebrity is satisfied because he or she receives a guaranteed payment to cover a fixed period of engagement, while also retaining significant financial upside through increased royalties if the commercials are used widely. The advertiser is also pleased, because associated costs are capped for ordinary circumstances, but it is only required to pay additional funds related to the campaign’s extraordinary performance.

Have a Plan B

Even with a well-structured, successful celebrity relationship, market factors can change, which can reduce the overall effectiveness of a partnership. Moreover, conditions may cause the advertiser to decide to add a new product or service that is targeted to a different customer segment, or shift its market emphasis entirely. These circumstances require an agreement that provides the advertiser with the flexibility to stop using a particular celebrity, or to concurrently employ the services of another spokesperson.

Traditionally, when a marketer evaluates creative with a new spokesperson, it is tested against an existing creative execution or “control” spot with a history of success. Further, having alternate, non-spokesperson-related creative available during all phases of a campaign can also be an important hedge against unforeseen changes in the marketplace. Non-celebrity messaging can help gauge the relative effectiveness of the spokesperson campaign for product-related and negotiation goals.

When alternate creative is available, an advertiser reaching the end of a celebrity spokesperson’s term has the option of discontinuing or renegotiating the relationship to reflect actual sales conditions. If it doesn’t plan ahead, the advertiser can end up painting itself into a corner by not having materials on hand, and since it’s caught with no viable alternative, end up overpaying its celebrity spokesperson.

Lastly, tragedies can and do happen. Many celebrities who agree to a DR deal are in their twilight years. The recent death of American Advisors Group (AAG) spokesperson Fred Thompson is just one of these cautionary tales. If you employ a celebrity spokesperson, health issues can derail your campaign quickly, and celebrity misbehavior can render a spokesperson completely ineffective. Any of these circumstances necessitate a spokesperson agreement that foresees and responds to the unknowns.

Effective Representation

Many advertisers that attempt to negotiate celebrity spokesperson relationships on their own fall into one or more of the traps identified above. If your company is considering a celebrity spokesperson relationship, it’s crucial to employ an agency that can leverage professional relationships with agents, managers, and counsel to determine the strongest celebrity for your brand—and has the experience to structure a deal that makes economic sense while anticipating the risks and reducing your exposure.

 

Hunington Sachs is vice president of Business and Legal Affairs at InterMedia Entertainment (IME), the celebrity acquisition and intellectual property development arm of the InterMedia Group of Companies, headed by president and CEO Robert Yallen. IME publishes the DR Star Index and provides custom research for advertisers pursuing a celebrity strategy for their marketing efforts. Contact Yallen and Sachs at (818) 995-1455 or via email at ryallen@intermedia-advertising.com and hsachs@intermedia-advertising.com.