Trump Controversy Shines Spotlight on Opportunities and Challenges of Celebrity Deals

Posted by LIMA Staff on July 23, 2015

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This article was originally published in the July 21 edition of Inside Licensing.  A PDF version of every issue is available in the Members Only section of Non-members may subscribe to Inside Licensing – click here for more information.  

The controversy surrounding real estate mogul/Presidential candidate Donald Trump shines a spotlight on the challenges of celebrity licensing.

In Trump’s case, his recent inflammatory remarks about illegal immigrants from Mexico led Macy’s to drop its exclusive Trump Signature clothing line, for which PVH has been the shirt and neckwear licensee.

A PVH spokesperson days later told Forbes magazine that “Mr. Trump and Macy’s have both addressed the discontinuation of the Trump business at Macy’s, which was the exclusive retail account for the Donald J. Trump Signature Collection dress shirt and neckwear collections produced under our license agreement for the brand,” continuing on to specify that “we are in the process of winding down this business. The license agreement was scheduled to run through 2018.”

Other licensees who have distanced themselves from Trump include Serta — which says it won’t renew a mattress agreement due to expire at the end of this year – and Perfumania, whose Parlux subsidiary in March launched an “Empire by Trump” scent exclusively at Macy’s, and which has sold a “Success by Trump” scent. A spokesperson told Forbes that the company “is winding down its retail business with the Trump fragrance brand,” given Macy’s decision.

Celebrity licensing deals, while often lucrative, are also fraught with risks on both sides. An in-demand celebrity trying to build a long-term brand needs to carefully select licensees of a similar mindset, with the business talents and resources to execute on the brand plan. A licensee has to weigh the upside of a potentially large short- or long-term business against the celebrity’s popularity, reputation, business savvy and the potential for behavior that can alienate some if not all of the target market.  quote

But when controversies and/or bad behavior arise, what are the options? At each step along the way, licensees and retailers are making hard business decisions about whether a brand has been damaged significantly enough to warrant action. A case in point is Martha Stewart, who went to prison for five months in 2004 for lying about a stock sale, but whose brand, though weakened, a decade later was still being fought over by two major retailers, JC Penney and Macy’s. Her company, Martha Stewart Living Omnimedia, which has become mostly a licensing and merchandising company, was sold earlier this year to Sequential Brands, which obviously feels there’s plenty of life left in the Martha Stewart name.

Yet in the cases of Trump and celebrity chef and then-Food Network star Paula Deen, real or anticipated consumer backlash prompted retailers to remove inventory from shelves. Walmart pulled back Paula Deen’s cookware, dishes and tabletop products after she admitted in 2013 in a deposition for a $1.2 million discrimination trial that she had “of course” used a racial epithet in the past. Deen, who had licenses across 17 different product categories, also was fired from the Food Network. Only recently has she begun to try to rehabilitate her personal brand.

That contrasts with the Duck Dynasty experience, following incendiary remarks about gays and blacks by Phil Robertson, in a 2013 interview with GQ magazine. The restaurant chain Cracker Barrel returned licensed product to shelves after initially removing it, when consumers complained about not being able to buy Duck Dynasty mugs, t-shirts and other licensed gear.

“In the case of Martha Stewart, consumers weren’t demanding the partnerships end,” says Stephen Reily of IMC Partnerships.  “But in the case of Donald Trump and Paula Deen, they kind of hit the third rail, which is sweeping statements using impermissible language.”

The most common way for a licensee to protect itself is via morals or disparagement clauses that require a celebrity conduct him/herself with “due regard” to public conventions and morals and refrain from actions that might “degrade” the value of the license.

But the strength of those clauses are often in direct proportion to the reputation of the celebrity in the first place. Tiger Woods, points out one licensing authority, had a squeaky clean image prior to his 2009 blowup, so any clauses in his endorsement or licensing agreements probably were watered down over time.

Many rock musicians, on the other hand, probably have strong clauses in their agreements. Often those clauses cite specific actions – for example, arrest or conviction on criminal charges – that will result in the pact being terminated, relief from guarantees and damages paid. But even those clauses may be structured (or enforced) loosely to give some leeway for a celebrity known for edgier activity.

“Typically it’s ‘I am going to you because you have appeal, but you also have a track record,’” says Greg Battersby of The Battersby Law Group.  “Am I going to want to be protected the next time the celebrity does something? Probably. But also part of the reason you may have gone to a celebrity was wrapped around the craziness. It’s a tough one.”

For licensees it is often a difficult road to receive compensation for the acts of a licensor that may damage a brand. Clauses covering compensation to a licensee for the actions of a celebrity that may cut into revenue typically aren’t written into a licensing contract, Battersby says.

“The argument could be that the licensor is obligated to keeping these guys on the reservation,” Battersby says. “If they go off it, the obligation should fall back on the licensor if it impacts the licensee. But I have never seen that in an agreement.”

Licensees rarely see compensation clauses tied to the actions of licensor and in most cases are well aware of the risks involved in entertainment/celebrity-based licensing, Trends International’s Jeff Loeser says. Perhaps the only recourse licensees have in the case of a damaged brand may be withholding additional guarantees required under the contract, Loeser says. And in the case of movies or a rock band, licensees hope consumers look past well-publicized travails of an actor or musician and focus on the film or group instead.

“It’s challenging for us to get morality clauses put into contracts” in part because the products involved are posters, calendars and other smaller items that don’t carry as high a profile as apparel, Loeser says. “We know going in to it  that there is a risk we are taking. If it’s a movie, the actor may have done something stupid, but it can still be a great movie. It’s more about the character in the film versus the actor in real life.”

In the cases where the makeup of the group, such as a sports team or a rock band, changes with the departure of a member, licensees have little choice but to take some inventory back, says GB Eye’s Max Arguile. GB Eye recently had to re-shoot One Direction posters following singer Zayn Malik’s departure earlier this year.

“We tried telling retailers that the group was a collective” and not tied to any single member, but “many retailers weren’t having it,” Arguile says.  “Sometimes you have to take back a little inventory.  It is a cost of doing business that we grumble about, but accept and get on with it.”

Pragmatism often wins out. Two Rivers Coffee has made limited shipments of Trump Select K-Cups, but sales struggled even before the most recent controversy, Two Rivers’ Mayer Koenig says.  Two Rivers will likely continue marketing the K-Cups for the remaining 18 months of the contract.

“Sometimes it’s just easier to work through the contract,” Koenig says.