Key Takeaways

  • Endorsement contracts must clearly define the scope of promotional obligations, compensation, intellectual property rights, and termination clauses.
  • Clauses addressing exclusivity, morality, indemnification, and intellectual property ownership are critical to minimizing disputes.
  • Social media influencers and athletes often have specific appearance and usage obligations, including disclosure requirements under FTC guidelines.
  • Misuse of a celebrity's image without consent can result in legal action, emphasizing the importance of written agreements.
  • Brands and endorsers must consider conflicts of interest, cause-related preferences, and the public image impact before entering contracts.
  • Consulting an attorney is highly recommended to ensure compliance with legal standards and to negotiate favorable terms.Endorsement contracts are used to detail the agreement between brands and celebrities or famous figures paid to represent the brand. Endorsement contracts come with explicit morals clauses as a way to limit and handle negative activity that is seen as a negative reflection of the brand.

Morals Clause

Morals clauses are written in the contract specifically to prohibit certain behavior in the personal life of the endorser. The morals clauses usually deal with objectionable behavior, including sexual acts, drug use, scandal, or public disrepute. The morals clauses are used with endorsement contracts for:

  • Actors.
  • Actresses.
  • Celebrity figures.
  • Sports figures.

Morals clauses area also appear in divorce judgments or marital dissolution. An example is that when children are present, unmarried adults may not cohabitate. If the morals clause is violated, it may result in:

  • Termination of the contract.
  • Suspension of the contract.
  • Financial penalty (without termination of the contract).
  • Payment of damages for breach.

Drafting Essential Terms in Endorsement Contracts

An effective endorsement contract should contain clear, detailed terms to protect both the endorser and the brand. Key provisions to include are:

  • Scope of Services: Specify what the endorser is required to do—this could include public appearances, commercials, social media posts, interviews, or event attendance.
  • Approval Rights: Granting the celebrity the right to approve how their image, voice, or persona is used can prevent reputational damage.
  • Compensation Details: Outline whether compensation includes flat fees, royalties based on sales, performance bonuses, or reimbursement of expenses.
  • Payment Terms: Clearly define how and when payments will be made, and whether there are performance-based conditions for receiving bonuses.
  • Ownership of Created Content: Clarify who owns photos, videos, and other media created during the endorsement period. In most cases, brands seek full ownership or an unlimited license.
  • Force Majeure Clause: Address situations beyond either party’s control (e.g., pandemics, strikes) that could hinder fulfillment of the contract.

Sports Endorsement Contracts

Sports endorsement contracts cover several important areas that must be agreed to by the brand, athlete, and their counsel. A sports endorsement contract typically will include the following:

  • Public Appearance Clause
    • Will state the expected appearances the athlete will make.
    • The amount that will be compensated for costs associated with public appearances.
    • The length of time the athlete must be present at the public appearance.
  • Exclusivity Clause
    • The exclusivity clause is used to determine how the athlete's likeness, image, and name is used for marketing and promotion purposes.
  • Compensation Clause
    • The compensation clause stipulates how the athlete will be paid and what forms of compensation will be used.
    • Base compensation is what is paid for endorsing the product.
    • Bonus compensation can be based on several factors, including time spent on the field while wearing the product being endorsed.

Legal Risks and Disputes in Endorsement Contracts

Disputes may arise if an endorsement contract is ambiguous or poorly structured. Common legal pitfalls include:

  • Misappropriation of Likeness: Using a celebrity’s image without proper authorization can lead to lawsuits under right-of-publicity laws.
  • Breach of Contract: If the endorser fails to meet promotional obligations or violates the morals clause, brands may seek damages or contract termination.
  • Trademark Infringement: Improper use of a brand’s trademarks or the endorser’s likeness may trigger legal actions.
  • Conflict of Interest: Overlapping or competing endorsements not clearly disclosed in the contract can cause reputational and legal issues.

To reduce the risk of litigation, it’s crucial to use precise language and involve legal counsel in the contract drafting process.

Steps to Consider When Signing a Sports Endorsement Deal

When entering into an endorsement contract, the following five steps should be considered:

  1. Confirm that you understand the compensation plan, including fixed fees, royalties, and additional incentives that are listed.
  2. Review the morality clause to understand what actions would put you in violation of the clause.
  3. Verify the contract has an indemnification clause, which protects you from the actions of others.
  4. Identify the specifics of company representation, including when the products should be worn, for example, during games or personal appearances.
  5. Check with your lawyer to see if there are competing endorsements. This will eliminate the issue of any conflict with pre-existing endorsement contracts.

Key Negotiation Considerations for Endorsers and Brands

Before signing an endorsement contract, both parties should consider the following negotiation points:

  • Exclusivity Arrangements: Clarify whether the endorser is prohibited from promoting similar products during and after the contract term.
  • Territorial Limitations: Define where the endorsement rights apply—globally, regionally, or online only.
  • Duration and Renewal Terms: Include clear timelines and procedures for renewal, termination, or renegotiation.
  • Termination for Convenience vs. Cause: Distinguish between voluntary termination rights and termination based on breach or misconduct.
  • Dispute Resolution Mechanism: Determine whether disputes will go to mediation, arbitration, or court, and specify the governing jurisdiction.

Celebrity Endorsements

Celebrity endorsements are used with a person who has an established fan following, especially in social media. Celebrity endorsements are extremely successful and are used frequently to promote brands. Along with actors and actresses, advertisers have started using social media influencers as a way to promote their brand. Traditional marketing forms, such as television and print media, are still in use. However, they are being replaced with social media influencers from all areas.

On Twitter, a celebrity may be paid by the tweet to promote a product. Celebrity endorsers must follow disclosure laws put in place by the United States Federal Trade Commission, such as letting their followers know they are paid to promote the product and brand.

Celebrity endorsements should also have well-drafted contracts to stipulate all conditions of the endorsement. The contract should cover:

  • Exclusivity obligations that ensure the celebrity will not wear, promote, or use competitor products, e.g., an actress wearing a competitor's jewelry at high-profile events.
  • Termination rights stemming from the actions of the celebrity that tarnish or harm his or her image.
  • Termination if the brand and the celebrity conflict in relation to a specific social, environmental, or charitable cause. For example, a model is found to use drugs with a brand that works heavily with drug-use prevention.
  • Mitigation measures that must be used to limit the damage of the brand if the celebrity has acted or spoken inappropriately. For example, the celebrity must present a public apology or appear at press conferences to address the issue directly.
  • Trademark and intellectual property rights should be clearly stated in the contract. This may refer to how the celebrity's image and name are used, and who has control over the trademark and intellectual property rights if the endorsement contract ends.

Social Media Influencers and FTC Compliance

With the rise of influencer marketing, endorsement contracts involving social media figures have grown in complexity. Key considerations include:

  • FTC Disclosure Requirements: Influencers must clearly disclose paid partnerships using tags like #ad or #sponsored in accordance with FTC guidelines.
  • Platform-Specific Terms: Contracts should address platform obligations, such as the number of Instagram stories, YouTube mentions, or TikTok posts required.
  • Authenticity Clauses: Many brands require influencers to use and genuinely support the product to maintain credibility with their audience.
  • Analytics and Reporting: Brands may request access to engagement data to measure campaign effectiveness.
  • Content Review Process: To protect brand integrity, companies often require pre-approval of posts or scripts.

Failure to comply with FTC rules can result in financial penalties and reputational harm for both the brand and the endorser.

Frequently Asked Questions

1. What is an endorsement contract? An endorsement contract is a legally binding agreement where a public figure agrees to promote a brand's product or service in exchange for compensation.

2. What are the most important clauses in an endorsement contract? Critical clauses include compensation, exclusivity, morality, intellectual property rights, termination, and indemnification.

3. Can an endorsement deal be canceled? Yes, most contracts allow for termination due to breach, public misconduct, or mutual agreement. Some include “termination for convenience” clauses.

4. Are influencers required to disclose endorsements? Yes. Under FTC guidelines, influencers must disclose paid promotions to their audiences clearly and conspicuously.

5. Why should I consult an attorney before signing an endorsement contract? An attorney ensures that your rights are protected, helps negotiate fair terms, and reduces the risk of legal disputes.

If you need help with understanding endorsement contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.