Many companies use celebrities to endorse and advertise their products. The celebrity gives the brand a face and a personality that people can identify with. This method has a proven success rate.
Such advertisements are even more powerful when they're less obvious. For example, sales for the clothing brand Tommy Hilfiger rose $100 million in one year after the rapper Snoop Dogg appeared on Saturday Night Live wearing a shirt with a Hilfiger logo.
Advertisers are aware of this power that celebrities have. In addition to hiring them to be a spokesperson, companies often send free products hoping or expecting advertising and promotion. For example, when Gwyneth Paltrow tells E! reporters that she's wearing a Vera Wang dress at a Hollywood event, it's likely that Vera Wang, who sent Gwyneth the dress for free, is enjoying this publicity and will likely have many more shoppers the following day.
For the first time in nearly 30 years, the Federal Trade Commission (FTC), which is in charge of consumer protection, has issued a revised guide dealing with the use of such testimonials and endorsements in advertising. These new rules affect celebrities and advertisers and are meant to protect you, the consumer.
The New Rules
According to the new FTC Rules, celebrities must disclose their relationships with advertisers when making endorsements outside the context of traditional advertisements. For example, on a radio show, on the red carpet or while sending a tweet. These revised rules went into effect December 1, 2009, and are meant to prohibit false, unfair and deceptive advertising.
Be Careful What You Say
Now, if a celebrity films a commercial that is scripted and says a certain product is great or proven to work, that celebrity can be held personally liable if the ad is found to be misleading to consumers, or if it's false and unsubstantiated. This creates a requirement for celebrities to be more conscious of the products they're endorsing.
Tips: Be Careful What you Tweet
In today's world of internet and social media resources, advertising has also changed. Under the new rules, celebrity bloggers and tweeters who review products have to disclose the connections they have with advertisers. It's common practice for many companies to give bloggers (especially famous ones) free products in exchange for their praised review. These "gifts" usually come with payments for their endorsements.
To the average consumer, these endorsements can be confusing because they aren't obvious paid endorsements and appear to be more of a "word of mouth" recommendation. To avoid such confusion, endorsers must reveal their relationship with advertisers if they're pushing a product on a blog, social network or television talk show.
Also, if the relationship between the blogger and advertiser can affect the credibility of the advertisement, it must be disclosed. For example, Lauren Conrad from the MTV Show "The Hills" is known to earn between $5,000-10,000 for endorsing products on Twitter. If the tweet is obviously an advertisement, then it's fine under the new rules because it's unlikely to mislead her readers. However, if she doesn't disclose or mention that she's a paid spokesperson, the readers are misled and she could be found to violate the new FTC rules.
Under the new rules, payments and relationships between the celebrity and the sponsor must be disclosed. Failure to do so can cost a celebrity at least $11,000.
A recent example of this phenomenon is the investigation of the company Goldline. Goldline sponsors Fox News Channel's Glenn Beck, a talk-show and news host. Goldline has been accused of misleading and taking advantage of customers by selling them gold coins for an overinflated price.
Beck, on his Fox news show would frequently discuss the downfall of the economy and advised his viewers to purchase gold, as he himself has purchased from Goldline. These comments were quite misleading, as they blurred the line between his reporting and endorsing. Furthermore, Beck didn't disclose that Goldline was a paid sponsor. Thus, when Beck encouraged his fans to purchase gold from Goldline, it was unclear that he was getting paid by Goldline to act as a spokesman.
Tips and Recommendations
As a result of these revised rules, celebrities and advertisers should examine their sponsorship or endorsement agreements to make sure they're in compliance with the rules. Advertisers now need to keep a closer watch on what their endorsers are saying or tweeting. Celebrities now also share the responsibility. The words they say to the public must be true and not misleading.
They can no longer hide behind the company's limited liability and hold themselves out as innocent or unaware. Therefore, before agreeing to sponsor a product, a celebrity should ask for documentation and proof of what they're publicizing to ensure their words aren't misleading.
How much credibility do you put in celebrity endorsements or do you ignore them? Companies use celebrities to promote a product, but if something bad happens to them, such as Michael Phelps or Tiger Woods, they're quick to let them go. Then, what do you think of the product?
Questions for Your Attorney
- What if I endorse a product and I don't know my endorsement is misleading? Is there a safe harbor?
- Do the new FTC rules only apply to celebrities or to non-celebrities as well?
- Can I get out of an existing endorsement contract because of the new FTC rules?