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Celebrities Still Powerful Licensing Engine, But Risk/Reward Equation is Shifting image

Celebrities Still Powerful Licensing Engine, But Risk/Reward Equation is Shifting

The large advances and guarantees that were once hallmarks of celebrity licensing are increasingly giving way to joint ventures and other deals that deepen a personality’s financial stake in a program, say licensing executives involved in celebrity deals.

The change has been gradual, they say, but has picked up speed in the face of the recent spate of sexual harassment claims that have dimmed the star of many celebrities and caused licensees and retailers to be more cautious in signing deals.

Ariana Grande Licensed HeadphonesAriana Grande Licensed Headphones

The joint ventures are designed, in part, to safeguard against a celebrity’s behavior damaging his or her brand and are being paired with increased requirements that the stars promote their wares on social media and, in the case of apparel, wear them during events and other public appearances, says memBrain’s Jennifer Sullivan, whose firm has worked with Ariana Grande, Demi Lovato and other celebrities. Celebrity agreements historically have typically run 3-5 years with an median 8% royalty and annual guarantee, with a quarter to a half of the first-year guarantee paid in advance, says Ferdinand IP’s Jed Ferdinand.

Virtually all celebrity agreements include some form of morals clause, but the devil is in the details, regarding such aspects as when a clause might kick in – Arrest? Conviction? Two weeks of bad press? Sharp drop in Q scores? – and potential (if any) remedies.

“Licensees and manufacturers are not as willing to give those giant advances and guarantees and they want the celebrity to be a partner,” says Coastal Limited’s Paul Leonhardt, who has represented NBA star Dwight Howard and other athletes. “They will pay a higher royalty, but they want to see” an investment on the celebrity’s part and “are not as willing to pay a large amount up front. [For the celebrity], taking a lower advance but a bigger piece of the upside can be a good move if you are interested in building a brand.”

Mario Batali Pasta SauceMario Batali Pasta Sauce

That push for celebrities to share the risks and rewards came to the fore with flood of allegations of sexual harassment by prominent men in fields ranging from sports to entertainment and politics. That included Chef Mario Batali, and reaction in the business community was swift. Target and Walmart removed Batali’s pasta sauces from its shelves. Licensee Zidian Manufacturing Inc. severed ties with the Batali, but not before reaching an agreement under which the chef agreed to donate any profits from product sales to a “to-be-determined” non-profit group that empowers women, Zidian said in a statement.

One licensing agent recalls losing “a boatload of money” when the celebrity for whom he was setting up a broad program got caught up in a raft of extremely damaging personal accusations.

“The morals clause is important and you want to be able to untie yourself from anyone that does a wrongful act,” says SHR Jewelry’s Scott Rauch, whose firm specializes in celebrity licensed jewelry and has worked with hip-hop mogul Russell Simmons in the past. “But that said, if you want to sell retailers, they are going to make you eat the product if something goes wrong and you may never get product in there again. We go for people with a much deeper resume and proven track record of being a good person, who are philanthropic and give back and are smart business people.”

Yet many of the issues with celebrities come as brick and mortar space available to them is shrinking. To offset that, many celebrities are turning to direct-to-consumer programs that leverage social media to reach fans likely to buy their products, says Sullivan. The direct-to-consumer programs typically promise better margins than are found at brick and mortar retail which in turn can be invested in marketing, say industry executives.

Jake PaulJake Paul

For example, YouTube stars and brothers Logan and Jake Paul entered licensing last year, but have since been sharply criticized for several actions. Jake appeared to use a racial slur in a rap video and is alleged to have terrorized neighbors with furniture bonfires. But Jake Paul, who is represented by Brand Central Group, has since landed a licensing agreement with Trends International for posters that are being sold through Walmart.com and had a pop-event in December in Los Angeles with his Team 10 group of YouTube influencers.

But his brother, Logan, however, had had a more difficult time landing licensing deals despite his high-profile YouTube channel, which attracted 315 million views in December. That largely has to do with his coming under fire late last year after posting to his 15 million viewers a video of a lifeless body in the Aokiashara forest near Mount Fuji in Japan that is known as a location for suicides. Last week, YouTube temporarily deleted advertising from Logan Paul’s channel after joking on Twitter about swallowing Tide Pods, a delicate issue given his audience is mostly teenagers, and tasering a dead rat. He also is being sued by outdoor clothing supplier Maverick Apparel, which has alleged his apparel brand – Maverick by Logan Paul – has “infected the good name” of its company and affected sales.

Yet because the brothers have a rabid fan base of pre-teens that, unlike retailers, may ignore the controversy, a direct-to-consumer program could work, say industry executives.

Maverick by Logan PaulMaverick by Logan Paul

“There has always been a risk for manufacturers and licensees when partnering a celebrity personality,” says Sullivan. “Still, for many manufacturers/licensees, the reward of leveraging the passionate fan base of a celebrity to sell products – particularly when they are reaching millions of potential customers via social media — outweighs the risk of a possible ‘issue.’”

Yet with celebrity brands coming under increased scrutiny, licensees are delving ever deeper into celebrities’ background to protect against potential downsides. SHR Jewelry relies on face-to-face meetings to gain insight into their beliefs, what they hope to achieve and the strategy behind their business, says Rauch.

Those meetings are typically supplemented by Q Score and E-Score reports to gauge the celeb’s familiarity and appeal, says Rauch. In seeking to strike deals, Membrain provides potential licensees with data supporting a celebrity’s “viability and stability” as it relates to a brand and forecasts how relevant and newsworthy that person will be during the next 1-2 years, says Sullivan. And for brands that will be marketed to children and families, “we are far more stringent,” says Sullivan.

In addition, analytics firm Delmundo recently partnered with the artificial intelligence software company Uru on a platform that scans videos from YouTube, Facebook and Instagram to rate influencers’ content according to their level of brand safety.

In addition to providing data to potential licensees, celebrities also are in many cases narrowing their focus to categories that resonate with their fans. For example, Grande had an exclusive with Brookstone with Bluetooth-enabled wireless headphones that played to her music background. And Lovato signed a licensing deal with model Kate Hudson’s Fabletics company for a line of athleisure apparel where she also is a brand ambassador.

“Celebrities are being very selective about the types of products they want to present to their fan base and don’t want to be seen as promoting products that aren’t authentic to them and true to who they are,” says one licensing agent. “That may mean fewer, bigger and better-type relationships with licensed products rather being spread across a broad swath of categories.”

Contacts:

Coastal Limited, Paul Leonhardt, Partner, 619-518-5808, paul@coastallimited.com

Ferdinand IP, Jed Ferdinand, Senior Managing Partner, 203-557-4224 jferdinand@24iplg.com,

SHR Jewelry, Scott Rauch, Pres., 917-446-3133, scott@shrjewelrycompany.com

Membrain LLC, Jennifer Sullivan, Pres., 323-376-9653, Jennifer@membrain.com

Zidian Manufacturing Inc., Tom Zidian, CEO, 330-965-8455

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