The Startup CPG Podcast

Hillary Hughes
So usually when we're representing the brand, if we're asked to remove, we try and get, we can leave them in the feed where they appear historically but won't re interact with them. So that's one of the things that's negotiated. And you, of course, you always want to provide in your agreement that any content they create is owned by you as the brand other than you know their name and their image that appears in it. But you want it to be your content and owned by you because you don't really want them using it in another way or owning it and preventing you from using it.

00:42
Daniel Scharff
Hello, everyone. At my last brand, we'd approached a celebrity for a big ambassador deal. But I was totally lost when they asked me to send over a proposal. I didn't know where to start, what to put in the contract, and most importantly, what could go wrong. So lucky for you, today we've got the perfect guest to lay all of that out. It is the one and only Hilary Hughes. She's one of the best known lawyers in the space. She leads the consumer sector and sports and entertainment industry groups at Foster Garvey, which is one of the best known law firms in cpg. So today we're going to talk about key components of celebrity and influencer agreements. We're going to go through common pitfalls you should watch out for and Hillary's recommendations for any brands that are going to go down this route.

01:22
Daniel Scharff
Her incredible experience can save you tons of headaches, believe me. If you want to chat with her team, head to foster.com. All right, let's do it. Enjoy. All right, Hillary, I'm excited to just jump in on this topic. So let's start out with some obvious examples everyone knows about. So like when you see George Clooney's tequila or like the rocks energy drink, Katy Perry's Non Elk, what is the business relationship actually like in those cases?

01:52
Hillary Hughes
Well, I don't know the specifics of those. Right. Cause that's all kind of confidential information. But they usually take a number of different forms. Either the celebrity decides that it wants to found its own brand and it has usually an operating partner, or it can staff up from scratch and build its own separate entity and business operation. Or it's more of a kind of paid endorsement arrangement. And those can fall into two buckets. One is just pure cash compensation, one is equity partnership, and then there can be combination of both. And cash can be just a straight fee for services. It can be a royalty deal, it can be more of a Traditional affiliate marketing type arrangement. So they can take different structures, but those are the most common.

02:40
Daniel Scharff
Okay. And let's take the instance where they're getting paid in cash and or equity to do stuff. What are you paying them to do?

02:48
Hillary Hughes
Usually it's a combination. It's the right to use their name and image. Could be even more than that, their autograph or something on a product. It's their brand, right. You're paying for their brand. It's almost like a co branding arrangement. Right. Where you're the main brand and you're bringing in another brand to help promote and endorse and get some visibility on the product or the overall brand and you're paying them maybe to make appearances they can show up. A good use of them would be to get them to show up at buyer meetings or at trade shows. Right. Everybody's going to want to stop at the booth that has celebrity X, Y or Z there signing autographs or talking about the product. But buyer meetings is another good use that people don't often think about. Right.

03:31
Hillary Hughes
Because it's easier to get the right people in the room at a Target or a Walmart or something if you say, hey, we're bringing our celebrity endorser in tow and everybody wants to meet them. So that's another good way to use them. And then of course, events, if you're holding an event, you can have them do autograph signings at a retailer, which is another thing buyers love. When you can do an, what's called an activation at a retailer and get people to the store to obviously see the celebrity get an autograph, buy some products and then go shopping and buy a bunch of other things too. So it's a real win for a retailer if you can deliver something like that.

04:06
Daniel Scharff
Yeah, you can kind of back into it if you think like, well, what would be important to the buyer? Okay, they would want like X number of videos filmed in their store, maybe of the celebrity going in there, posted on their channel or doing demos there and everyone else is going to post about it. And it makes like ultimately what do buyers want? They want more people going into their store. Right. People who, people who shop other places or in other channels or whatever. Just like new shoppers from their store, but also who don't shop their set, all of that stuff. Right?

04:34
Hillary Hughes
Yeah. And also it extends into the online world too. Right. They don't just want shoppers going into their store, but they want them checking out their social media, their websites, buying products online. So it all just the partnership is announced and then there's almost an implied endorsement of that buyer, that retailer as well by the celebrity. It's indirect, but it's still, hey, they're endorsing a brand that maybe has an exclusive or is launching just at Target or at Walmart.

05:02
Daniel Scharff
So what are some of the ranges that you've seen on like cash equity? In some of these different scenarios, it's.

05:10
Hillary Hughes
Ranges in terms of amounts. I mean it really varies. Right. So celebrities, they're different caliber celebrities, right. You hear, you know an A lister, right? That's often said. But there's up and coming celebrities too. And, and so they tend to have a quote for what their services cost. But all of that has to be scoped out. You're going to have to kind of define or put parameters on what you're envisioning, what your wish list is. And the more services you're requiring or the longer the term or the larger the scope of exclusivity, which we should talk about too, typically the more expensive it is. So signing a deal with an up and coming personality will cost you less than one that's already really established.

05:52
Hillary Hughes
And then using them for in person activations versus just social media posts cost you more because that's their time, right. They have to fly somewhere, go somewhere, or be tied up for however many hours. So how you're using them is directly related to the cost. Are you putting them just on social media or do you want print advertisements in magazines? Do you want large billboards in Times Square? So usually how you're using them in terms of their services, what channels you're going to use their name and image and then of course what the scope of exclusivity is that you're going to require them.

06:25
Daniel Scharff
Okay, so this really gets to like the one of the key elements of the contract that you would have with them. Right. So the actual payments and like what are the channels, the exclusivity which can be duration but also what is the scope of it? Like if you are candy bar, are they just excluded from any other candy bars or any other snacks or anything that would be like sugary or looked at as an energy source. Right?

06:47
Hillary Hughes
That's right. And that's the exact scope that costs more or less. Right. So if you're a beverage, are you blocking them out and all beverage, are you just blocking them out in waters and sparkling waters or is it soda? All soda. I. You really have to. As you drink your, as you drink your soda?

07:06
Daniel Scharff
Yes. I'm not being paid to drink my soda.

07:07
Hillary Hughes
Unfortunately, you have to really scope out because the broader the scope of exclusivity, then it's the less deal opportunities they're going to have during the term of your partnership with them. So that means arguably revenue left on the table. So they need to be earning more from this partnership.

07:24
Daniel Scharff
Okay, so when I'm creating the contract, those are the kind of things that I need to put down. Obviously, number one, how are you going to be compensated? But that should be basically a function of like, what are you actually asking them to do? So what do you want to use of theirs? Their likeness, their name? Do they actually need to show up to things? Are they going to need to go and actually do like meet and greets at a trade show or at a store? And obviously that's a big opportunity cost for them. Busier that they get, the more it will cost them to do that. And then, yeah, compensation, which can be, yeah, cash equity. I also have seen like royalties negotiated in some of those or like affiliate stuff built in.

08:01
Hillary Hughes
You want to figure out what makes sense for your brand and where your brand is at the point in time that you're working with a celebrity or an influencer and where you're going to be and where your growth, areas of growth are where you're going to get the most bang for the buck. And much of that relies on your own analysis of your brand and where it is and its positioning and where your target demographic is. Choosing the right celebrity is also part of the challenge. You need to figure out who's got an audience that's in your product or your brand's target demographic. And so that is going to expose you to new, likely viable customers. So you really need to align there. And there are things to evaluate.

08:37
Hillary Hughes
Each celebrity has something called a Q score, which, you know, all cp drink, G brands are familiar with, you know, Nielsen IQ and spins and that sort of thing. It's a similar data, but instead of on a product, it's on celebrities. And it basically tells you survey data on their familiarity. So so consumers familiarity with the celebrity and then their positive association with them. So it's two different components to this Q score. So that can be very helpful. But really taking a look at their social media and who's commenting on them, how they're engaging with their fans and followers, that's something you want to see. And make sure it's good brand alignment there too.

09:18
Hillary Hughes
And when you're structuring the compensation and thinking about sort of more of an affiliate marketing or royalty Arrangement, those can get more complicated because you want to really tie it to the value that the celebrity's bringing. You know, separate in part from whatever momentum the brand has on its own before the partnership. So you want to try and structure the compensation in a way that's really adding compensation for value they're bringing and adding that you didn't already have and weren't already on track for. So that can be hard to structure and measure. And also on the affiliate side of things, asking a celebrity to post a website or a link or a code, some celebrities are.

09:58
Hillary Hughes
Don't want to do that because they feel like it makes them appear as a walking billboard or endorsement for a product, and then it doesn't feel organic or as organic and can erode what you're trying to accomplish. So when you're looking at the affiliate side of things, like, be aware that the celebrity and their team and they have a large team of advisors, usually they'll have an agent, maybe a manager, they have a lawyer, publicist. All these people get involved in negotiating and structuring their deals, and they are also not going to want the celebrity to appear like a walking billboard that's throwing out purchase codes and that sort of thing.

10:34
Daniel Scharff
Yeah, and I've worked with ambassadors like that where they're just like, no, we got this. Like, we know how to integrate your product. It'll be very subtle and organic and grassroots. It'll be really cool. And then you're like, did any of them actually know that was a video about our product? I don't think so. We didn't get any followers and any sales. So it can go both ways. Right. Which I think also comes back to, why do you partner with the ambassador? What do you actually need out of them? Because there can be a lot of benefits. Right. One, I actually, I mean, just being associated with them will get you some meetings with retail buyers who know who they are, who are fans of theirs. Or it just might, like, check a box with an investor.

11:09
Daniel Scharff
Like, yes, they have an association with a celebrity, but then, I mean, really, like you mentioned, they really have to fit with your brand. Right. So it is a kind of a partnership that makes sense and gets you access to actually what your core consumer is. Right. Which should be part of your overall marketing strategy. But then, like, really, what is the thing that they're doing for you at that point? Like, are you even in enough retail where if they do an Instagram video, people can actually then find your product and they've seen it on that person's page or post and now they can see it in the stores. Otherwise that could just be some media that goes out into the ether after the video scrolls down their feed a little bit.

11:44
Hillary Hughes
Really need to not just go with a gut of oh, I this has always been one of my favorite celebrities. Let's bring them on as a brand ambassador. Really should be a thoughtful process of making sure their brand is aligned and their messaging and, you know, how they interact with their fans and how their fans and followers respond to them because you truly want it to add value.

12:06
Daniel Scharff
So tell me, this is what I've heard basically from some brands who do a lot of these kind of deals. They said, okay, if this was a more mature brand. And I was asking them how much some of these different kinds of contracts cost them. And they're like, well, like if you're giving them equity and you're at a more mature stage, they're a fan of the brand. They just think of it as cash, you know, so they'll do some kind of a calculation based off the equity that you're giving them and they would be charging X amount for whatever. So you can do a kind of like, okay, if you have 100,000 followers or you have a million followers and you want one post from them, they kind of know what the value of that is.

12:38
Daniel Scharff
You know, whether it's 5,000 bucks or it's 50,000 bucks, depending on how many followers and the kind of engagement they have. So basically, if you're just trying to give them equity, it needs to be an amount that would kind of compensate them for the amount of risk that they're taking. If they're willing to take on the equity, it means they must also kind of believe in your company and think that the equity is going to be worth something. I've seen companies where it would have been very hard for them to raise, but they were just dishing out equity, getting a lot of people to post about them. I don't know how that worked out for anyone in the long run. But yeah, that was one strategy.

13:09
Daniel Scharff
And then I also have been down the road where I was talking to the talent agencies, trying to get AAA level talent. You know, we're talking about the like Chris Pratts of the world, like really expensive people of like, wouldn't it be cool? Like, couldn't we, you know, have a really nice thing with them? And that was actually such a difficult path to go down. Especially I think when you get the top tier, you know, united talent, like CAA is involved because, well, now they got to have their cut, too. And so what they were asking is, they're like, send us the proposal before you even talk to the person. Like, before you even find out if they like your product or whatever, they're just like, send us the actual cash and equity proposal.

13:48
Daniel Scharff
And by the way, this person's opportunity cost is millions of dollars per year. So it just became like, why don't you just give them the whole company? And then that's it. It was like, almost impossible to do a deal with a big celebrity in that way. And I don't know, but the other company that I was talking about, they had a lot more success in working through personal relationships to get in touch with celebrities, I would say, or through investors or friends and found them to be more engaged that way also.

14:14
Hillary Hughes
Yeah, it's important to keep in mind the. The talent agent's role. They don't want to be in a position of bringing a deal to the celebrity or the rest of their team that is not kind of vetted in market. So they're not going to go waste their client's time with a proposal that is, they know is not going to be accepted or is not market for that celebrity. So they do want it fleshed out before they'll even consider it. Other times, you start with the product being tried first to see if they're even open. So discussion, it really depends on the agent. And that can vary within a talent agency from agent to agent, how they like to interact with their client. So you have to remember that.

14:56
Hillary Hughes
And if you're trying to get an equity deal done, that's a tough one, too, because again, agents all get compensated with the percentage of what the celebrity makes. So if you're paying only in equity, the agent is also looking at getting their commission in equity. And sometimes that takes the form of a transfer of shares from the celebrity after they receive them to go to the agent. And sometimes the celebrity basically holds them in trust for the agent and they're paid out when they're monetized by the celebrity. So if the. If there's an exit in a few years, the celebrity gets their cash amount and then they pay the cash commission to the talent agent. It depends on the agent and agency how that's handled.

15:39
Hillary Hughes
But you have to go into the discussion knowing that's one of the factors you're dealing with, that agents are probably going to prefer to receive compensation in their commission and cash and have to wait multiple years to monetize it in an exit. So those dynamics are kind of there in the background as well.

15:56
Daniel Scharff
Yeah, when I was going through the talent agencies, it was, yeah, like you might be sending product, but it was their team that was going to try that first, I think to decide if they do not want to go to their client with a deal that's not material, that's not a serious offer, then they'll look like idiots, obviously, when you back out later because you get gun shy about the amount that it's going to take. Right. So I see why they put all.

16:16
Hillary Hughes
That pressure at the front on the equity side too. Keep in mind that you may get different level of effort out of a celebrity if you're giving equity versus cash. It's unfortunate, but that sometimes is the case. Pure equity deal is very far removed from when they're going to realize the gain from that. And it's not that they, you know, they're typically not in a position where they need money right now and so they're not going to do anything unless they have it. But it's sort of more tangential what the value of it is to them. They don't know it's speculative. The company could go under. The company could exit distress. The company could exit for a modest amount. It could exit for a huge amount. So they don't know what it's going to net them.

16:55
Hillary Hughes
And sometimes your value and effort you get may be calibrated to that as well. So, you know, you have to keep that in mind too. And again, it goes to the celebrity. You want to do your own due diligence too and understand how they've structured their deals before. And then go back and take a look at some of those partnerships and the degree of effort and brand alignment that you can find publicly available, whether it's social media, articles, that sort of thing. To get an idea of how those equity partnerships went.

17:21
Daniel Scharff
I've heard from brands who did have a big equity deal and they're like, we really thought that they were going to do more and they don't post about it a lot and they don't really seem to care. Like, yeah, these celebrities have a lot else going on. Right. Even if they're like taking a lottery ticket on this for sure and you.

17:36
Hillary Hughes
Have to structure your deal that way. Right. So if you're saying, well, they only want to be contractually committed to, you know, two posts a year or whatever, you as the brand have to decide if that's all they did. Would I be okay with this and feel like I got my money's worth, that's all you can count on what the hard contractual commitments are. So if you're negotiating for, you know, two contractual posts per year, but then somehow you're expecting, oh, but they're getting equity so they're going to do much more than that. That's not a smart way to proceed with structuring the deal because you may never get more than that and you have to be okay with that. So negotiate terms that you actually would be comfortable living with if that's the minimum you get.

18:19
Daniel Scharff
Okay. So if you're talking to a new brand, let's say they're just getting going here, they've got some nice revenue, they've got some good retail distribution, online sales, that stuff. What do you think a successful kind of approach for them is going to look like at the beginning? Like, hey, we're interested in working with, I don't know, influencers or celebrities. What are you recommending them to start doing and asking for from the start?

18:40
Hillary Hughes
Well, on the influencer side and the way I distinguish between the two is a celebrity is more widely known and influencer is usually just a off the street person who has developed a following with a certain demographic or for certain type of post or product or service, that sort of thing. Those deals will be easier to get done typically because you're usually not dealing with a, a huge team of professional advisors and competitive bidding and that sort of thing. So from a administrative perspective, it's probably easier to just work with an influencer and likely cheaper. They're also used to it, set up for it and are, you know what's required. There's a little less sort of education on an alignment of expectations. So picking an influencer that really seems to move the needle or have a lot of influence in your space. Right.

19:28
Hillary Hughes
If you're a skincare brand, you want somebody who is doing a lot and has a lot of followers who are interested in skin care. Baby product would be moms that are influencing choices of selecting baby products. So you want to align with the right kind of influencer and then really dig into how they interact. Again, same with a celebrity. They interact with their followers and fans and find on the right one and then approach them to see how they do their deals. Are they interested, you know, would they be interested in affiliate type arrangement where they're just getting paid on direct sales generated by them or do they want compensation for any overall lift in sales that you can't specifically attribute to their influence or not?

20:09
Hillary Hughes
And so there's a particular type of demographic you're trying to grow, then an influencer can move the needle for you. If you're already doing really well, then maybe it's not a good use of funds to bring on an influencer. But if you're trying to go from like one tier to the next, it can sometimes mean the difference or the at least the speed that you get there.

20:28
Daniel Scharff
So what are all the things that can go wrong in that scenario with an influencer? Let's say, like, hey, this is a contract that consists of a certain number of posts or videos or them just representing you somehow. The kind of things that immediately come to mind for me are like, you posted, I barely could even see the product or understand that this was an ad for us in some way. Or like, you know, you didn't say that you liked it, which is what I was really hoping that you would do. What are some other things that could go wrong there?

20:54
Hillary Hughes
Well, on that front, and how to protect against that is just having mutual approval over anything that's posted. You also want to negotiate for them to share the data on the post, the analytics behind it, so you can get a sense of how it's doing and maybe calibrate how you utilize them going forward based on that data. So you want to make sure you get access to that. Other problems could be they're just not posting on the schedule you contemplated, so agreeing on what that post schedule is going to look like. One other common pitfall is that there's no limitations on what they can post before or after it. So let's say they have multiple deals and they're posting your product one hour and then for another one the next hour. So yours is already out of the feed and. And don't see it.

21:39
Hillary Hughes
So, you know, sometimes putting what's sometimes called an embargo on the post. And brands they can promote for a window before and a window after each post to give yourself to make it stand out in their feed. So there's some things you can do to get to increase the likelihood of eyes on it as part of negotiating the terms.

21:57
Daniel Scharff
And then there's also, I guess, a question of a little bit of, like, I don't know, brand risk or like, what else are they actually promoting before yours, even if it's not an exclusivity thing, but like just some weird stuff you don't know what they're going to get into. Right?

22:10
Hillary Hughes
Well, weird stuff, undefined, it's hard to kind of protect against. But most celebrity deals do have what's called a Morals clause, which says that if they have any kind of scandal essentially associated with them, that you can terminate the deal, maybe get some or all of your money back, be able to disassociate yourself with them. And that includes an inequity deal, being able to claw your equity back if something happens. You know, things come as celebrities may say something that offends people or do something and you want to be able to have that lever. And those clauses are fairly common and not unexpected in celebrity deals. So you want to be able to protect the brand by distancing yourself if something goes wrong.

22:50
Daniel Scharff
You obviously have a lot of experience. Do you see those morality clauses or whatever getting acted upon more now? Just like, hey, people get canceled like all the time now. Do you feel like that is a greater risk today than it was, I don't know, 10 years ago?

23:04
Hillary Hughes
I think the things that offend people have gone up. The number of opportunities to offend people and so that they get called more often are things that maybe you wouldn't have anticipated could offend or have backlash do. And so we see them getting invoked a little more often than they used to be or. And on the flip side, having them negotiated in more detail right where it just used to be. Okay, there's a morals clause and they're standard now. We're like fine tuning those and negotiating them. Does it have to be one bad article about it or does it have to be a sustained amount of press and the press national versus local in some small town somewhere? Like, you know, there are ways to sort of moderate how a celebrity is going to get tagged with it.

23:49
Hillary Hughes
On the brand side, you obviously want a broad morals clause that allows you to pull the rip cord if you need to at any point that there's any kind of hint of scandal or public outrage about something.

24:01
Daniel Scharff
Okay, so let's say you're looking at this long term relationship and you know, we talked about exclusivity and over how many years and like, actually one of my ambassadors explained that to me of like, hey, by the way, you know, it's not just about how long we work with you, because it's not like we can really go in enthusiastically with your product and then stop working with us. And then the next day we start enthusiastically endorsing a competitor. Like that doesn't work for us. It doesn't work for our fans, our followers that like looks weird. So like they really like to commit long term to stuff. How do you see brands having experiences with that? Do you? What's the typical duration you see on contracts or that you would recommend. And how has that worked out for brands?

24:40
Hillary Hughes
I think one to three years is probably the most common that I see. Getting longer than that is unusual. And obviously the larger or the longer the deal, the more it costs. You're absolutely right. It usually doesn't play out that as soon as the deal's over in beverage for this brand, they're on to the next beverage brand. And there's the seamless transition where they're going from promoting one to another. There is usually a gap in between. Although when talent agents know a deal and a category is expiring, they often start discussions before that deal is over so that they're better positioned to pick something up shortly after. It's usually not done immediately, but a good agent is kind of planning that out if they're successful in that category.

25:23
Hillary Hughes
Trading up to a brand that will pay a little more based on maybe some of the success they had for another brand. So yeah, one to three years I'd say is most common. Again, longer term deals cost you more, but you may not get the value of having a long term association with between the brand and the celebrity.

25:42
Daniel Scharff
Okay, so let's say in this era of chat GPT that I want to do one of these deals and I chat GPT of a contract. I know it misses a bunch of stuff just based off experience. What do you think it's really going to miss?

25:56
Hillary Hughes
Well, that'd be a good experiment for me to try. I have not tried to ask ChatGPT to generate a celebrity endorsement agreement, but that might be an interesting experiment. Some of the nuances we've been talking about, I imagine, you know, nuances in a morals clause. Nuances of what's expected of the celebrity in terms of scope of services and appearances and things to ask for. Right. It'll know the obvious, it'll know social media posts, it'll know appearances, but it won't likely have the experience to say, you may want to consider asking the celebrity to attend buyer meetings or pitches with you. It may not have. You may want to ask for autograph merchandise that you can then gift to your largest customers or your buyers or that sort of thing.

26:44
Hillary Hughes
It may not say, make sure you get some media opportunities that they're going to agree to a certain number of interviews. I think it might not have a full repertoire of things to ask for or things that might be most meaningful to a brand or help you pick a celebrity that fits. Right. So, and then, you know, of course we work with celebrities as well. So you may want, on the celebrity side, if there's a royalty component, the celebrity, you know, may not think to ask. I want a marketing plan. I want a marketing budget to show that you're committing dollars to market this product line that I'm endorsing so that I can be assured it's going to generate royalties since that's a huge part of my compensation.

27:23
Hillary Hughes
So some of these strategies based on sort of things we've seen go right and go wrong. I think can really be value added if from a lawyer advising you on it as opposed to just generating some rando contract from a software program.

27:37
Daniel Scharff
Yeah. Hard to imagine it would make you think about like, well, do you want them to sign merch and how much? Exactly. And you know, I've had that built into deals and it was pretty useful because then we just had stuff that we could use. We could talk to retailers about it, like, hey, we're launching with you. Do you want to do on your social media this giveaway with them? And wouldn't that be cool? And that ended up performing actually really well. And the retailers like it. And you don't know if, like which buyers are going to secretly be huge fans of the person you're partnered with. And I've seen other companies, a well placed signed jersey can go a long way for a lot of people for sure.

28:11
Hillary Hughes
And then there's also like a gifting component. A lot of the deals we structure are you're going to ask the celebrity, you know, for names of either celebrity friends or people in their network that you can then send the free product to and hope that they give some positive review or some photo of them opening it or something like that to get it in the hands of other celebrities and kind of have sort of a secondary network of celebrities using and trying the product. Now I will give one big caution there that a lot of times brands see a celebrity using a product somewhere online. Sometimes the celebrities even organically post it that they are using a product. And you have to be super careful with that. It's okay to like it's okay to say thanks, you know, give a shout out.

28:56
Hillary Hughes
But you don't want to make it the cornerstone of your marketing campaign because they all have a right of publicity, that is a commercial right to license the use of their name and image. And they have not done that for you just because they used it and there's a publicly available photo of it. So you cannot do that without their consent. And brands get into trouble with that a lot.

29:19
Daniel Scharff
That is interesting. I actually have never heard that. It makes a lot of sense that's a rule. So just because you see a photo of Kim Kardashian eating your product or using your whatever, you can't just go around and start marketing.

29:31
Hillary Hughes
That's right. You can't say, look, Kim Kardashian loves our product. Cannot do it. You can like it. You can say, thanks, maybe you can repost it, although that there's a little risk to that.

29:44
Daniel Scharff
So you obviously have seen brands get in trouble for this.

29:46
Hillary Hughes
So people, oh, my God, I've negotiated settlements for it. Yes, I have.

29:50
Daniel Scharff
That's interesting. And what was the outcome in some of those.

29:53
Hillary Hughes
And I've been the one sometimes sending the nasty letter on the celebrity side of my practice.

29:59
Daniel Scharff
I only like to think about your powers being used to help brands, but that makes sense. So what was the outcome in some of those scenarios? It was just like a cash amount.

30:08
Hillary Hughes
It depends. Right. On the extent of the use. Right. And does it? As a matter of fact, we just did one on behalf of a celebrity this week, and the brand took it down. It was one quick post. Sorry, mea culpa. That was the end of it. It also depends on the celebrity and their team and how aggressive they are. Sometimes they want to make an example out of a brand so that it serves as a deterrent from other brands doing it. Some brands think, let's just do it once, and then if we get the legal letter, we're take it down and we'll be all good. That is not a safe strategy because while many times just taking it down is the end of it, many times it's not. And they want to be paid, so. And that can be expensive.

30:47
Daniel Scharff
Yeah. Depending on the celebrity. And, you know, it's for probably a lot of brands, it's just, you know, ignorance is the reason they do it. It's not intentionality.

30:55
Hillary Hughes
You think so? And so publicly said they like my product. Why can't I tell the world about that? You can't, because that's their right to say whether they like something or not and then to get paid for endorsing it if you want to use them.

31:11
Daniel Scharff
Yeah, that's a pretty interesting one. So speaking of legal battles, what are some of the ones that you've been pulled into when you have these contracts, like, when it's gone bad and things end up litigious or just, you know, with the lawyers of the respective parties talking about, what are some of the things that you guys have had to go to battle over.

31:29
Hillary Hughes
Yeah, most of the time it's about whether the equity has been earned. So if there, you know, if you're granting equity and it's subject to vesting. Right. There could be time based. As with any employee grant as well, it could be time based vesting. That's just merely the passage of time. It could be other KPIs key performance indicators of achieving milestones. So once our sales reach X amount, you'll vest into this. Whether it's attributable to you know, your efforts or not. It could be based on you making this appearance. Are you doing that? So a lot of times the disputes are whether something has fully vested or not. Did you know, you had to cancel this appearance? Did you reschedule and do another one? Were you supposed to? Is that earned?

32:10
Hillary Hughes
So a lot of times it's about whether equity has vested or whether they fully perform their services or satisfactorily perform their services. I'd say those are kind of the most common disputes that we see.

32:22
Daniel Scharff
Yeah, it's hard to define some of that stuff. I think even I've done contracts where you didn't really know exactly what you were going to ask them to do. Their team also knew some things they just don't like doing. So we might end up putting in something that's not like, you must do this thing this year, but like, we need a couple days of service from you and we'll agree later on what those things are. But then I could see that being like, well, we want you to do this, we don't want to do that. Okay, now we have a battle.

32:48
Hillary Hughes
That's right. That can be a big one. If you're not specific about the services that are required and also if you're not specific about scheduling and what happens if something has to be canceled. Sometimes the brand is canceling an appearance for whatever reason. Sometimes the celebrity has something come up and they're canceling, making sure that gets rescheduled during the term and that there's a clear rescheduling obligation or there's an adjustment of the compensation if you aren't able to reschedule. So we've also seen force majeure situations. Celebrity gets sick, celebrity gets hurt, someone in their family gets sick or hurt and they can't go, or there's security concerns, maybe there's some, I don't know, terrorist activity wherever they're supposed to go, or terrorist threats and they don't want to go because they don't feel safe.

33:32
Hillary Hughes
So just having a framework in your deal with them that deals with what happens if something gets canceled or delayed. Do you get it rescheduled? Does the term get extended so that you can fit it in? Does the compensation get adjusted? And ideally for the brand, you want that to be the brand's decision. Right? Because the celebrity might just decide, I'm not getting enough from this partnership, let's cancel that appearance and just take a small comp adjustment on the deal because we don't want to be in this or. You know what I mean? So you want to have a framework and get the brand as much control and approval and decision making as can to make sure it gets the value from the deal.

34:14
Daniel Scharff
Yeah, that makes a lot of sense. And also I, having gone through this process, just maybe hadn't thought about, like, hey, we're not just getting this, let's say celebrity, but we also, like, in addition to whatever we budget for them, we need to also budget for the media costs. Like we're going to need to do a photo shoot or like, you know, pay them for some photos, stuff like that. And then we also need to have a really nice ad budget so we can tell everybody that we're partnered with them and actually promote that stuff. So I think it's good for brands to kind of know that going in. And then also, I mean, you do have to have that in the contract. Like, yes, we can. Like you're going to give us some photos and we can actually run ads using those, right?

34:48
Hillary Hughes
That's right. When you're thinking about the cost of doing a deal with a celebrity, it's not just, as you pointed out, it's not just their fee. Right. You're going to have to pay for travel and hotel and many times the travel, depending on what caliber are, that may be private jet and those are not cheap. You know, you're picking up the tab for that, the video production, the photo shoot, whatever it is, you usually have to pick up the cost of glam for them. We call it glam. It's hair, makeup and wardrobe. Security. You may have to pay for security where they are a green room, you may have to stop. Many celebrities have what's called a rider, a personal writer to their contract that says, okay, I need a green room.

35:27
Hillary Hughes
Everywhere I'm going to be in the green room must be stocked with this brand of water, this brand of snacks, this number of this number. Sometimes it has to keep be kept at this temperature. Like there's a whole list of things that they need and require so that you're. When you're budgeting for a celebrity partnership, there's a lot of those kind of line items that you don't think about. You're going to have to cover as well. And that gets negotiated as part of the deal. So it ends up costing more than just what their fee is.

35:53
Daniel Scharff
So if you go back to the influencer part, which is probably a little bit more straightforward, like, hey, I'm paying you for a certain number of posts or videos. I mean, in that instance, is there stuff that you have to worry about of like, hey, are they going to decide later they don't want you to keep using their content which was filmed on their phone or whatever, if even after you don't continue working with them?

36:15
Hillary Hughes
Yeah. And this is actually one of the things that is negotiated both in an influencer and in a celebrity deal would be do you have, does a brand have to remove the posts once the deal is over? Ideally for a brand, you get to keep those posts up organically as they appear in the feed. So usually when we're representing the brand, if we're asked to remove, we try and get, we can leave them in the feed where they appeared historically, but won't re interact with them. So that's one of the things that's negotiated. And you, of course, you always want to provide in your agreement that any content they create is owned by you as the brand other than their name and their image that appears in it.

36:53
Hillary Hughes
But you want it to be your content and owned by you because you don't really want them using it in another way or owning it and preventing you from using it.

37:02
Daniel Scharff
By the way, it was very interesting to me the first time I had worked closely with a big time ambassador and they had posted something, I was like, I don't know what's going to happen. Are we going to get a million followers when they post this thing? Are we going to get like, I had no idea. And I don't know. It ended up being like a couple hundred followers that we get. I don't know, maybe not even that. I think it's just good for brands to have an appropriate expectation about what it means when someone posts about them. Whether that's an influencer you pay or a celebrity or something that's even earned organic. Like none of these things is the silver bullet. And now all of a sudden you have 40,000 followers on day one. Right.

37:38
Daniel Scharff
I remember starting out and just even looking at some of the brands that were pretty successful that would be you know, we hope to compete with someday. And they didn't have huge followings either. I think not so many people just like say, what are they buying? Okay, I'm going to follow that brand and then just start buying it.

37:54
Hillary Hughes
And that's a good point. It's not usually follows that are generated from the celebrity. It's more sales, which is what you really want. Would it be nice to get the followers to. Sure. And you can negotiate as part of the term that the celebrity has to follow the brand at least during the term and be hard to get a requirement for them to stay following it after. Although if you're giving equity, sometimes we negotiate that as long as you have equity, you need to follow the brand. So maybe they're not making posts or liking things or interacting it, but you've got them listed as a follower of the brand. But it's more likely that.

38:27
Hillary Hughes
And I think cosmetics and skin care is one of the most obvious ones that if you see a top model using and endorsing a skin care brand, people are running to the store because they want to look like whoever that is. Right. They're looking to buy. I'm not following that brand, but I'm sure as heck run into Ulta or Sephora or whatever to buy it because wow, if they're using it on their skin, it must be a good brand. That's kind of what you want, but I don't think you're getting followers always from it.

38:55
Daniel Scharff
Yeah, that's the other first one I was thinking of when you were saying that was Selena Gomez and some of the, like her, you know, she has obviously a beauty line. I love Selena Gomez if, you know, I feel like I would be inclined to like, yeah, I'll buy that, I'll try it. And those are high price point, probably high margin items. I mean, tougher in food and beverage, I think, where you're really relying on people to have a routine.

39:18
Hillary Hughes
Well, it is. But food and beverage is also a natural fit for celebrities too, because celebrities have to look good. Right. They care about what they eat, how they look, how they feel, their stamina, longevity, all of that. So food and beverage is directly correlated with that. Now, does it go a little further if maybe that endorse celebrity endorser is a fitness or an athlete or somebody who really has to care about what they're fueling their body with beyond just how they look, but how they perform? Yeah, maybe that goes a little bit further and people are paying attention to that. But I think people really care about what celebrities use, what they used to decorate their home, you know, which isn't necessarily cpg, but it's still consumer goods.

40:00
Hillary Hughes
What they're decorating home, what they're driving, what they're using on their skin, what they're eating, what they're using with their kids, what they're wearing. All of this people pay close attention to. I mean, just look at Kendrick Lamar and the halftime show. I mean, that jeans brand. He was wearing a women's jeans brand called Celine. That jeans brand just, like, got flooded and bombarded with people looking to buy those bell bottom jeans that he wore in the halftime show. So literally. And you couldn't see the brand name on the jeans as far, so I could tell. But of course, somebody knew and somebody posted and somebody figured it out, and then it was all over the Internet. So there's a lot of scrutiny over every aspect of what a celebrity is doing and what choices they're making.

40:39
Hillary Hughes
So a lot of eyeballs and decisions get made on that.

40:42
Daniel Scharff
Yeah, it's pretty. It's just interesting to think about because, okay, if you go back to the George Clooney tequila example, I like tequila. I drank it. I don't really think I can tell the difference between any of the Tequil, but I feel like the marketing is so important on them that there. There's like a high value, and I want to know which tequila George Clooney is drinking, and then, like, he's cool. I'm going to try that. Whereas, I don't know with, like, food and beverage. Like, the taste and texture of it is just so important. Like, I'm pretty unlikely to keep trying or eating something just because I heard that the celebrity is involved in it. Like, really, the product has to perform in that instance. Whereas if you're talking about, yeah, like, the tequila is hard.

41:21
Daniel Scharff
I've done blind taste tests with vodka from the most premium to the least premium, and the results made no sense to anybody of just what people actually prefer the taste of. Like, a lot of those things, we cannot differentiate them.

41:31
Hillary Hughes
As I'm with you on that and can't differentiate alcohol, but I'm not a drinker at all anyway. But I think there are a lot of tequila drinkers who probably can tell the difference. And so I'm with you as you switch to a different brand.

41:47
Daniel Scharff
Yeah, I'm on number two now. Yeah, I mean, I think about that and like, okay, the rock came out with his energy drink, and I met a lot of people were like, oh, yeah, I bought that Because I like the Rock. And I was like, well. And then did you like buy it again? Like, no, it's not good. Like, they were like, I kind of wanted to like it.

42:03
Hillary Hughes
They didn't sell through to that customer, but they made that one sale that they wouldn't have made otherwise. Right. So there's some value to that.

42:12
Daniel Scharff
They really did. And they came out of the gate very strong the first year with that brand. And then their repurchase, I think was. Looked like it was pretty low because their sales kind of plummeted. I think everyone was like, yeah, we like this. Whoa, that is not good. That's really, that's aggressively bad. And then I think they reformulated a couple times and rebranded. So I don't know how they're doing now, but it seemed like the alignment was right. Like, yes, right. He was the right person for that brand. It made a lot of sense. The branding looked like, cool and he's cool.

42:39
Hillary Hughes
Well, but you're bringing up a good point. Right? Your product does still ultimately need to stand on its own. A celebrity or influencer partnership can get you more eyeballs on it. But if it's not a good product and it doesn't taste good or perform well or whatever it is, then you're not going to get the sell through on it, likely even because the Rock is using it or Chris Pratt or George Clooney. So you still need a good quality brand, but it can get you more eyeballs on it and get you that sale for somebody to try it who might not otherwise have tried it or picked it out.

43:15
Daniel Scharff
Yeah, and I also remember, like there were some viral moments a year or two ago. I think it was, it's like a, like the Cocoa 5 drink or something. Anyways, there are a couple athletes who are really aggressively pushing it into NBA pressers where I think, I don't even think they were supposed to be, but it was like getting so much attention for the brand. And you know, I remember seeing like Cristiano Ronaldo pulling like water in. Right? I mean like soda, no water, agua. See you like.

43:39
Hillary Hughes
Well, a lot of those post match, post game interviews, they, the league has a sponsor, a water brand that they have to have out for all the athletes interviewing. And so most of the athletes that have an endorsement relationship with another water brand will just leave it there and not interact with it so that they're not, you know, violating their exclusivity obligations to the brand they're behind. But you have to know, again, not being in the industry you might not know that some of that goes on.

44:06
Hillary Hughes
You might not know to negotiate that with, you know, as part of the deal and say that, okay, if you need a carve out for sponsorship of your team or your league that you're not, you don't have control over, you're at least going to agree not to interact with that product even if it's out and available, right?

44:22
Daniel Scharff
Yeah. Leagues or events often will have. Yeah. Food or beverage sponsors or apparel sponsors that might get in the way of you wanting them to like, wear your hat.

44:31
Hillary Hughes
Yeah.

44:32
Daniel Scharff
And then just coming back to the media question, what percent would you say of celebrity deals you do like, do they specify the celebrity? No, they have their own media team or photographer and they will do the content for this and send it to you. You don't like, don't send us some random photographer to try to do this.

44:49
Hillary Hughes
So I think what we most see is if you're doing a photo shoot or video shoot to get assets that you can use for the brand, right. You want to a little mini commercial that you're going to use online or some post content or whatever, or an ad that you're going to mock up, you're usually paying for a production company or somebody to handle production of that, those assets. Now, if you're just looking for headshots, the celebrity usually has a stable of them that they can provide you with as part of the deal. But usually if you're investing in a partnership and you want new, fresh content, you're paying and arranging for the shooting. You also typically are arranging for the media interviews. Whether it's a phone interview or in person interviews, you're doing the arranging for that.

45:35
Hillary Hughes
You're going to have to coordinate with the celebrity's publicist and agent to make sure the dates work, make sure the media outlets are approved. But you're typically as the brand producing this content, you're arranging for that.

45:47
Daniel Scharff
Okay. And then one other question. I think I read somewhere about this truth and advertising thing where like if a celebrity is endorsing your product, it must be true. Like they must actually like your product or actually use it. Is that in there? Do you like, do you think about that? Do you advise people to think about that?

46:05
Hillary Hughes
Yeah. There are ftc, Federal Trade Commission rules that have to be complied with disclosing that you're a paid sponsor of a product or brand. You have to disclose that. And yes, you have to have tried the product and the statements you make about it are true and accurately reflect your beliefs. You can't Just think that the product is true garbage and then get behind it. It doesn't mean it has to be your absolute favorite, but you have to have tried and use the product and make true statements about it.

46:37
Daniel Scharff
Yeah, I always wonder about that. I just, I remember seeing some Brad Pitt ad recently for I think it's a serum. Or maybe I didn't see all of it, but he's just like, that's my routine. I put on the serum, put on water, and that's it, I'm done. And you're like, do you do this forever? Like now you have this thing and you do that every single day and you will always do that. And I know that's not how you got to be the way that you like, as have such nice skin that you have now forever, because this didn't exist before. But like, okay, how long does that have to be true about him?

47:05
Hillary Hughes
Well, certainly while they're promoting it. Right. Every statement you're making about it needs to be accurate. But yeah, I don't whether they're using it every day or not, I don't know. That's between them and the brand or what they're willing to do.

47:18
Daniel Scharff
You obviously don't just advise brands, you also advise celebrities in a lot of instances. So what's the advice that you're giving them on the other side of this when you're negotiating a contract?

47:28
Hillary Hughes
Well, it's some of the things that we've talked about, making sure that there's a clear scope of how their name and image can be used. The most common problem we run into is when a celebrity is truly just being a passive investor in a brand. They don't have a separate endorsement deal, but they actively invest in startup or growth stage companies. And so they invest and then the brand wants to go tell shout from the mountains that this celebrity is an investor in our brand because that is an implied endorsement. So making sure we're really clear on what they can and cannot do with that information is part of what we advise the celebrity on. Otherwise they're missing out on endorsement revenue that they could be negotiating or getting in that category elsewhere.

48:11
Hillary Hughes
The other is if they've got some sort of economic interest, whether it's the equity play or royalty or like we want a commitment from the brand that they're going to spend on marketing what they're going to spend and that they're going to actively building the brand separate and apart from the partnership so that it's more likely to make the royalty or the contingent compensation, that's contingent on how the brand does come to life and be realized. So that sort of thing. And obviously negotiating things we talked about how long, you know, the posts have to stay up. Can they be removed afterwards? Should they be removed afterwards? Making sure they're not interacting with things after the term has expired. Protecting against force majeure events.

48:54
Hillary Hughes
Many times a brand will say, you know, if there's a force majeure event that happens, then we want the term to be extended. We can't have that be open ended and depends on how long and who's affected by the force majeure event.

49:07
Daniel Scharff
So those tell us again what force majeure is for those of us.

49:10
Hillary Hughes
Oh, sorry, yeah, force majeure is sort of like things that are outside of your control or anybody's control. So the COVID pandemic would be an example of a force majeure event. You know, a huge hurricane that occurs where an appearance is supposed to happen.

49:23
Daniel Scharff
Instagram blackout.

49:25
Hillary Hughes
Yeah, those kinds of things. You want to make sure that it doesn't make the term go on forever and so that you're locked in this deal with no additional compensation, but you've got the exclusivity and can't go get another partnership.

49:38
Daniel Scharff
Yeah, that makes sense. To just kind of think about it. Hey, if you're taking equity for this thing, it's like if you were working there, like what would you want to do to make sure this company is actually going to go somewhere that you're equity, you know, is going to be worth something. So that makes a lot of sense. Amazing. So just as we're wrapping up here, Hillary, any other lessons learned or just overall advice for brands thinking about going down this path as an important part of their overall strategy for marketing and branding and reaching consumers?

50:07
Hillary Hughes
Yeah, I think a lot of times brands get enamored with the concept of having a celebrity endorser and maybe try to look into that or take that on too early in their life cycle and growth and either they can't afford it. So they either having a really thin deal with an A list celebrity or bigger deal with, you know, maybe a more emerging celebrity that doesn't quite have the reach yet and maybe that's not a great use of your spend. You know, startups are always on a thin budget and cash flow is king and maybe that is not the right thing to invest in early on in the brand's growth.

50:43
Hillary Hughes
Get your product right, get something that people want, build interest organically without spending a huge portion of your budget on some big celebrity deal that may not move the needle, but then when you get the stage that you think it really could move you from this level to the next level, just make sure it's the right partnership, that you've really done your homework and pick the right celebrity and that you've structured it in a way to get the maximum value from it.

51:06
Daniel Scharff
I think that's super well said. I totally agree with all of that. And I mean, I think it's true about a lot of marketing in general also. Just like it's. None of this stuff is the magic bullet a lot. It's just going to be like, you know, a game of inches until it starts really accumulating for you. Do you have the availability in retail for this even to matter? Unless. Or is really everybody going to be buying your product online and is that your strategy? So I really like what you said. And then just really having an overall strategy for your business, for your marketing, where this stuff all makes sense as part of that overall.

51:41
Daniel Scharff
Because otherwise, if you just do a couple of these random deals the influencers like consistency, I think is so important and doing things strategically, otherwise, these are just great ways to give up your cash and equity that you're going to need for other things like slotting.

51:54
Hillary Hughes
Absolutely.

51:55
Daniel Scharff
I always, people, I think, always forget, like, you get impressions on social media, you also get impressions at the store. You get some distribution, let people see your product a lot.

52:05
Hillary Hughes
Completely.

52:06
Daniel Scharff
Yeah. All right, Hillary, thank you so much. This has been really interesting. You know, when I was a brand in these early days doing this on my own, I wish I had a lot of these watch outs and considerations at the start because if you're doing a deal with a celebrity, like they're not going to help you to do this. They can expect you to come correct.

52:23
Hillary Hughes
That's right.

52:24
Daniel Scharff
So good to have thought through all of this stuff.

52:26
Hillary Hughes
Well, also, when you think through it beforehand, you look like you know what you're doing and more professional when you approach the celebrities team about making an offer, you've already thought about all the things they're going to ask you. It just comes off better.

52:39
Daniel Scharff
Everybody come correct? Yeah. Because they have big teams on this as well, so definitely don't throw yourselves on their mercy completely. All right, Hillary, thank you so much. We really appreciate you sharing all of your experience here today.

52:50
Hillary Hughes
My pleasure. Thanks for having me.

52:52
Daniel Scharff
Thank you.

52:52
Hillary Hughes
Talk Tuesday.

52:53
Daniel Scharff
Bye, everyone. All right, everybody. Thank you so much for listening to our podcast. If you loved it, I would so appreciate it if you could leave us a review. You could do it right now. If you're an Apple podcast, you can scroll to the bottom of our Startup CPG Podcast page and click on Write a Review. Leave your company name in there. I will try to read it out. If you're in Spotify, you can click on about and then the Star Rating icon. If you are a service provider that would like to appear on the Startup CPG podcast, you can email us artnership startupcpg.com lastly, if you found yourself grooving along to the music It Is My Band. You can visit our website and listen to more. It is superfantastics.com thank you everybody. See you next time.