Lessons for sponsors: celebrity endorsements

28 November 2013

On 12 June 2013 the Spanish public prosecutor lodged a criminal claim against Barcelona footballer Lionel Messi for tax fraud. Messi is a worldwide celebrity, so the claim has attracted a lot of press attention.

News of the claim will have been unpleasant not only for Messi but also for his sponsors, as the negative impact of such a claim could extend to the reputation of the brands Messi was endorsing.

Sponsors may even argue that, in such situations, endorsement agreements might be rendered worthless because the purpose of the endorsement as originally pursued (to associate a brand with the positive values generated by the star in question) is defeated when the brand begins to be associated with negative publicity about them.

Sponsors might also wonder if claims against their stars could be a reason to terminate their agreements. This may be so, but this area is fraught with problems of interpretation where the parties’ rights in this regard are not set out precisely in the agreement or where morals or customs differ from one nationality to another. Sponsors face a difficult balance between a generic clause, which might not be sufficient as it could leave them unprotected from uncertain but still damaging acts, and a clause that attempts to set out specifically every act that might cause damage to the sponsor’s brand, which would always be incomplete.

Taking a recent example from the franchising world, The Body Shop’s franchise contract was the subject of a case in the Madrid Appellate Court. The contract provided a right to terminate where the franchisee, or any of the managers, executives, directors or partners acted in a way that could damage the repute or quality of the products, or in a way contrary to or in conflict with the values of the beauty care brand. The court held that this clause was sufficient to entitle the franchisor to terminate an agreement with a franchisee who was suspected of using the franchised shops for money laundering.

Sponsors, therefore, will need to carefully examine the particular circumstances of the parties, their respective values, the specific products and services to be endorsed, as well as the territorial scope of the agreement. The aim is to balance the risks of damage to the reputation of a house brand by an association with an external party’s activities which are beyond the brand owner’s control, with the benefits that come with the endorsement of an individual with a large public following.

This article is part of the BrandWrites Newsletter for November 2013