Cadbury hired Amitabh Bachchan to promote the brand when their sales dropped by 30%. Soon after, the advertising revived people’s passion for the brand and improved Cadbury’s sales to the point that it was able to restore its sales crisis in just 8 weeks. Similarly, MakeMy Trip , a travel portal, uses Ranveer Singh and Alia Bhatt in its advertising campaigns because of their easy-going, and happy-go-lucky personality that aligns with the brand’s values. This type of advertising refers to celebrity endorsement, where a brand uses a celebrity to promote a product or service as the audience is highly impacted by the fame and lifestyle of the celebrities. This article aims to provide an overview of the celebrity endorsement agreement, its pros and cons, essential clauses in a celebrity endorsement agreement, and the points to consider while negotiating this agreement.
A marketing technique including the employment of one or more celebrities to promote a certain product or service is known as celebrity endorsement. In this case, the major goal is to reach a larger audience, which is represented by the celebrity’s fan base. These sponsorships not only result in billions of dollars for the corporations (and steady paychecks for the celebrities), but they also increase positive publicity, exposure, and engagement.
A celebrity endorsement agreement is a contract between a well-known celebrity and a company or organisation that wants to advertise their company or products using the celebrity’s name. The company pays the celebrity compensation or a fee in exchange for the celebrity’s fame and goodwill. This endorsement can happen as a result of a celebrity’s appearance in a commercial or simply by wearing the brand’s (company) product. For example, Shah Rukh Khan promotes a well-known online education application company called ‘Byjus’, by promoting their services in their television commercials.
The major purposes of a celebrity endorsement agreement as are as follows-
By selecting and promoting the correct celebrities and celebrity endorsements for their products, businesses gain increased credibility. Celebrity endorsement has its own niche, which can vary from music and cinema to fitness, fashion, and sports. So, a business should take advantage of this and hire a celebrity whose expertise matches the product or service you want to promote. For instance, a fitness trainer or author might be a good fit for supporting a health and fitness product or service.
Celebrity endorsements tend to bring a lot of value to a company’s public relations because they immediately draw the attention of the paparazzi and the media in general. Therefore, the most effective way to sell your product is to have a celebrity speak about it. When a celebrity does this, it generates a lot of buzz in the media and draws a lot of attention from the general public.
The following are the essential clauses of a celebrity endorsement agreement for having a good deal for the celebrity and organisation:
The length or the duration of the agreement is determined by this clause. The term can vary from some months to several years, generally, the term will be at least stipulated for 12 months. With the expiry of the term, it should be noted that there will be some clauses in the agreement like confidentiality, cooling-off periods, etc. which will be automatically invoked. These clauses survive even after the termination of the contract.
The agreement shall have an indemnification clause to make the other party responsible for any loss that may occur due to the following acts of the party-
This clause must carefully set out the scope and procedures for using the clause. The clause shall only cover the direct damages rather than remote ones. A commercial cap can also be inserted in the clause to limit the obligation of a party when liability arises.
The Company hereby agrees to indemnify and hold the Artist, harmless with respect to all liabilities, claims, damages, costs, and expenses including reasonable attorney’s fees and disbursements(s) arising out of or in connection with the breach of any obligation, warranty or representation made by the Company.
Further, the Company also agrees to indemnify and keep indemnified that Artist against any claims, damages, losses, liabilities, costs, and expenses (including attorney’s fees and disbursements) that may arise due to any undertakings, representations, promises, made/provided by the Company to the buyers of the Endorsed Product with regard to the quality of the Endorsed Product, committed to the buyers.
The maximum aggregate liability of the Artist, including indemnities, damages, costs, expenses, claims, etc. arising under this Agreement, for any reason whatsoever, of the Artist arising out of or related to this Agreement, shall be limited up to an amount equivalent to the Fee received by the Artist till the date when such liability arises.
This clause shall include the duties of the celebrity which is supposed to be performed by the celebrity as per the needs of the organisation. The points which can be included in the clause are-
The celebrity-
The methods and schedules of payments are included in this clause. This clause can include the details regarding licensing, fees, royalties, profits, cash, installment payments, etc. the companies can put certain conditions which are to be fulfilled by the celebrity before getting full payment. If the celebrity fails to perform the required conditions, then the company can cut the amount as per the rules of methods and schedules for the payment. The amount of consideration is mutually decided by the parties.
In consideration of the rights granted to the Company, as per clause 3, and the services to be rendered by the Artist, the Company shall pay the Artist, towards Services to be rendered by the Artist for Endorsed Product under Brand, a compensation of Rs. 5,00,00,000/- (Rupees Five crores only), along with the applicable service tax or applicable succeeding tax (“Compensation”) payable as under:
The force majeure clause includes acts that are out of the control of the parties, e.g., the Act of God, war, terrorist attacks, natural calamities, etc. If the force majeure stays for a longer period time than expected then the parties have the right to terminate the agreement between them. In case of a pandemic, such clauses should be adequately negotiated because the celebrity would not be able to endorse the product.
Moral clauses shall be considered as one of the essential clauses in this kind of agreement. It can also be termed as a ‘harmful behaviour’ clause. This helps the parties to terminate the contract unilaterally. This permits the brand to terminate the agreement with the celebrity who has been engaged in any illegal, immoral, indecent, scandalous or harmful behaviour or activities.
The Company has the right to terminate this agreement if the Celebrity commits a crime or engages in any situation or activity (including the use of illegal or illicit drugs) that, in the reasonable opinion of the Company, brings the Company into disrepute, contempt, scandal, or ridicule, or shocks, insults, or offends the public, or reflects unfavourably on the Company’s reputation.
Insurance policies are required for the corporation to cover money paid to the celebrity in case the celebrity dies or gets any permanent injury. This clause will save the corporation from the expenses incurred by them for booking the television commercials, the cost of production, print advertisements, and other promotions. Some insurers also cover the replacement cost like, for booking new celebrities or commercials.
During the Term, the Company shall at its own cost, charges and expenses bear all cost towards obtaining appropriate insurance policy for the benefit of the Artist, of value not less than the Fee payable to the Artist, for the health of the Artist against any injury, accident, illness, sickness, mental incapacity, physical incapacity, death, and other incidences, etc. arising out in connection with the Services to be rendered by the Artiste. The Artist shall be the sole beneficiary of such policy. The liability of the Company in any such eventuality is restricted to the extent of taking an appropriate insurance policy.
There are certain obligations that are required to be followed by the company while entering into the agreement-
The Company:
Intellectual property clauses in such agreements play a significant role as to limit the use of the endorser’s name, image, signature, etc. by the company. Both the parties under the agreement shall respect the intellectual property rights of each other. The ‘right to retain’, i.e., the right of the celebrity for which his prior approval is required for any promotional material can also be included under the clause.
Confidentiality is also considered a standard provision for endorsement agreements. The parties shall agree to keep the financial and contractual related matters confidential even after the termination of the agreement subject to a few standard exceptions.
This restriction mentioned above does not apply to:
The stake in the celebrity endorsement agreement is high as compared to any other agreement. Both the parties’ name, fame, and reputation are put on the paper, thereby proper due diligence shall be taken while drafting the terms and conditions of the contract. Some points which are recommended to be noted are:
First and foremost, an important aspect which shall be kept in mind is regarding the parties which you want to be on the table while agreeing. While selecting a celebrity, the company would not be directly entering into a contract with the celebrity, rather they have to connect with the agency or management company of the celebrity. Therefore, keep in mind the requirements of the parties with whom you are entering into a contract.
This skill is important to negotiate the terms and conditions which are to be included in the contract. For example, while entering into the consideration topic, the company will always pitch a lower amount than their budget. And the celebrity side will pitch more than the normal range. Therefore, it is on the parties to understand the skill regarding tailoring the pitch as per the requirement.
While negotiating, make sure to Byjus put a definition of the ‘endorsed product’. A proper definition will be helpful for both parties and can save both from future negotiations. The definition can include the kind of endorsement required, the territory boundaries, quality details of the products, any controversies that have surrounded the product in the past, etc.
The duration of the agreement shall be made as long as possible by the company, however, the celebrity can negotiate on the terms of duration or else can ask for flexible ways to terminate the contract when required.
The services which are required need to be specifically mentioned in the agreement. How many appearances, when, where, duration of serving notice, scheduling procedure, all such criteria are to be mentioned in the agreement.
As per the new Consumer Protection Act, 2019 (“Act”), there is a liability on the endorser for endorsing products or services which are against the interests and safeguards of the consumer. Earlier, there was the Advertising Standards Council of India (ASCI) Code, which used to provide certain guidelines for celebrities, but was not considered as a comprehensive law to regulate or monitor such misleading celebrity advertisements.
So today we have the Consumer Protection Act, 2019 which covers the statutory sanctions or penalties for such misleading advertisements. Under Section 21 of the Act, the central authority may order discontinuation/modification of a misleading advertisement that is prejudicial to the interest of the consumer or in contravention with consumer rights. The central authority may impose the following punishments on the endorser in the event of any misleading advertisement-
The only defence available to the endorser is that they had conducted due diligence and had checked the veracity of the claims made in the advertisement regarding the product or service endorsed by them.
Some of the advantages of engaging in a celebrity endorsement agreement are-
Despite the advantages, there are few cons of a celebrity endorsement agreement such as-
Using a celebrity’s image to promote a brand makes the advertisement alive, appealing, and intriguing, as well as attention-getting, because the public views the celebrity as a role model, and these celebrities, in turn, have an impact on their lives. Therefore, through a celebrity endorsement agreement, a company gets proper consent from the celebrity and uses his/her name and reputation to promote their products or services. In this agreement, it is to be noted that the above-mentioned essential clauses are included as they highly affect the scope of services of the celebrity and the company. Additionally, while negotiating the agreement, obligations of the celebrity/company, compensation, and indemnity should be carefully considered to avoid future disputes.
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