Within the fashion industry, many celebrities have attempted to capitalize on their celebrity status by licensing their likenesses, names, voices, or other special characteristics of their celebrity status to fashion designers and fashion manufacturers. This raises a number of considerations that must be examined by licensees of such identification elements.

Some of the issues that deserve special consideration in the negotiation of a celebrity licensing deal include the following:

1. Retirement of the Celebrity:

What happens if the celebrity retires during the term of the license? Arguably, her presence as a celebrity in the public eye diminishes and hence, the value of her likeness on your product decreases. And, what if you have invested substantial funds into building a product line around the attributes and reputation of a celebrity who is no longer actively engaged in the activities that made them well known?

This is also a prime consideration even if the celebrity is not retiring but winding down the previous level of her activities. Any lowering of public visibility will ultimately result in decreased sales of all affiliated products.

It is important to recognize the possibility of these occurrences as you negotiate your license terms with the celebrity. Some of the potential solutions that may mitigate the impact of retirement include:

• an affirmative requirement of some minimum level of activity as a singer/actor/writer/dancer in the absence of which, the royalty rate drops substantially;
• a penalty imposed upon the celebrity for diminished activity levels during the term of the license to help the licensee recoup its investment in product, design, manufacturing, and so on;
• a requirement that the celebrity be required to purchase all of the remaining inventory of licensee upon the triggering event;
• require some levels of public presence in the license agreement (e.g. in the case of a screen actor, require the presence of the actor in at least one feature length motion picture per calendar year with a budget equal to or in excess of $25 million); failure to meet this threshold will terminate the license agreement at the discretion of the licensee;

2. Death or disability of the celebrity:

Because of the devastating impact of either of these two events on the licensee and its branded goods, the negotiated license should require the maintenance of life and disability insurance policies on the celebrity so that if she is no longer to participate in her craft due to her death, the insurance policy will remit funds to the licensee in order to compensate it for the loss of its spokeswoman. The same format should be followed with a disability policy naming the licensee as the beneficiary.

Because the death of certain celebrities may result in improved publicity value, the decision to terminate the license should be at the complete discretion of the licensee. For this reason, it is imperative that the license be binding upon the heirs of the celebrity.

3. Loss or Change of Reputation:

How often have the travails of the rich and famous celebrity of today resulted in bad will, loss of reputation, and a diminution of good will in the eyes of the public? How often has a tumultuous divorce resulted in public scorn? How often have the actions of a public figure resulted in scandals in the press?

These activities that bring public disrepute to celebrities can and most often do result in a significant decrease to their “value” as a celebrity endorser. The brand, and the licensee’s investment in it through advertising, product placement, manufacturing, and so on may actually be rendered valueless as the result of the ridicule.

The license needs to be negotiated and drafted to deal with these possible events in creative and effective ways. Some of the suggestions that we have for these clauses are as follows:

• Measure the impact of “bad press” on gross sales volume compared to comparable periods in the past,
• If there is a period to period drop in gross revenues of a threshold amount (for example 50%), then it can be assumed that the decrease may due to the change to the reputation of the celebrity.
• Decrease the royalty rate dramatically if a certain number of “damaging stories” are printed in Variety, Hollywood Reporter, the New York Times, People Magazine, or are reported on celebrity TV programs (e.g. E Entertainment).
• In the event that a “damaging story” appears, in the discretion of the licensee, it may submit the issue to a panel of industry arbitrators who have the ability to declare the impact substantial and to impose penalties and sanctions upon the celebrity as the result. The results of the panel should be binding and non-appealable so that the celebrity realizes that she should conduct herself in a professional manner continually.

These issues are important to consider as you negotiate your licensing agreement. You can easily see how significant the impact of celebrity behavior can be on the value of your license arrangement. The fashion business is difficult, expensive and risky in its own right without adding the uncertainties of dealing with celebrity personalities and their impact on your product and reputation.