Analyzing and Valuing a Celebrity Athlete`s Rights of Publicity By

Beyond the Field of Play:
Analyzing and Valuing a Celebrity Athlete’s Rights of Publicity
By CONSOR Intellectual Asset Management
The Right of Publicity (ROP) is “the inherent right of every human being to control the
commercial use of his or her identity.” (Thomas McCarthy, Rights of Publicity and Privacy, 1:3)
However, unlike patent, trademark, and copyright law, ROP is governed by a patchwork of state
statutes and common-law decisions, rather than by a single federal statute (Thomas McCarthy,
Rights of Publicity and Privacy, 6:3, 6:8); and unlike trade secret law, ROP is not the subject of a
uniform state law adopted in the vast majority of states.( Roger M. Milgram, Milgram on Trade
Secrets 1.01[2][b]) As with the analysis of other intellectual property assets, ROP valuations
need to consider the unique characteristics of the subject asset and the context of the valuation
assignment.
Typically, ROP valuation assignments are needed for one of three reasons: when negotiating a
transaction (such as endorsements and licensing); calculating infringement damages for ROP
violations; or valuing celebrity estates and trusts. Each ROP asset is unique and each of these
contexts varies, posing some unique challenges for reasonable analyses of ROP assets.
Endorsement Transactions are the Most Visible use of Rights of Publicity
Before the opening ceremonies of this summer’s Olympic Games had even taken place Jamaican
sprinter Usain Bolt had collected $20 million in endorsement revenue. After he won three gold
medals, online delivery company Shutl offered Bolt a 1% equity stake in the company to
headline its new marketing campaign. (http://www.adweek.com/adfreak/usain-bolt-gets-mostawesome-endorsement-offer-yet-142670) In December, 2011 the Chicago Bulls signed reigning
NBA MVP Derrick Rose to a five-year extension worth $94 million. However, his new
endorsement deal with Adidas was by far the largest contract he signed during the season. As the
second largest shoe deal in history, Mr. Rose’s deal with Adidas reportedly included $185
million in guaranteed money over 13 years, with the potential to reach $260 million through
incentives, far larger than his on-court compensation. (chicago.sbnation.com/chicagobulls/2012/2/25/2823463/derrick-rose-adidas-deal-185-million)
This ability to earn more off the field than on is common among athletes at the top of the
endorsement list. According to Forbes, the 100 highest-paid athletes made a combined $2.6
billion between July 2011 and June 2012. (http://www.therichest.org/sports/forbes-highest-paidathletes/) An income breakdown for some of the top athlete endorsement earners is shown in
Table 1.
Table 1
Top Endorsement Earners June 2011 to June 2012
(http://www.therichest.org/sports/forbes-highest-paid-athletes/)
Athlete
Tiger Woods
Roger Federer
Phil Mickelson
Lebron James
David Beckham
Salary/
Winnings
$4.4
$7.7
$4.8
$13.0
$9.0
Endorsement
Revenue
$55.0
$45.0
$43.0
$40.0
$37.0
% of Total Compensation
from Endorsements
93%
85%
90%
75%
80%
The trend of corporations looking to celebrity athletes to market their products is nothing new. In
2009, a group of market researchers from the Eramus School of Economics published an article
showing an increase in brain activity when exposed to familiar celebrity faces. (Stallen, Mirre.
“Celebrities and Shoes on the Female Brain: The Neural Correlates of Product Evolution in the
Context of Fame.” Social Sciences Research Network ) With the growing popularity of sports as
entertainment, even athletes with average on-field performance may be more recognizable than
other celebrities. However, even in these highly visible transactions the future economic
benefit, and appropriate endorsement fee, can be difficult to ascertain.
When negotiating a deal, the ability of each side to develop accurate valuations will lead to more
informed decision making. Clearly, Adidas believes that the economic benefits derived from the
use of Derrick Rose’s ROP are greater than $185 million. However, even after the fact, a
concrete determination of worth created through endorsement-based marketing is almost
impossible. Changes in sales trends can provide strong evidence of value generated, but apart
from conducting exhaustive surveys, corporations cannot know conclusively if these products
would have sold with or without the endorsement in question. Further complicating the matter,
preliminary research by CONSOR indicates that a celebrity’s relative level of fame bears little
correlation to the amount paid for endorsements. In other words, relying solely on observed
market transactions may not provide a reasonable indication of value for an athlete analyzing
endorsement opportunities.
The traditional income and market valuation approaches may not provide reasonable indications
of value for endorsement transactions. Developing a reasonable valuation in the context of
developing an endorsement deal may require detailed research, use of multiple valuation
methodologies and a thorough understanding of each party’s economic alternatives.
In the Event of ROP Infringement, Damage Calculations Can Be More Challenging
Prudent analysis requires consideration of the three valuation approaches: known as the Cost,
Income and Market approaches. However, in damage calculations for ROP infringements, the
reasonableness of each must be evaluated on a case by case basis.
•
Market Approach: While this approach provides the benefit of analyzing real world
agreements, information available to use may be skewed towards large deals, as smaller
or minor endorsement deals are rarely publicized. Further, ROP infringements typically
do not involv
ve the time in
nvestment asssociated witth a typical eendorsemennt. In other w
words,
when
w
the ath
hlete’s namee or likenesss has been uused withouut his or herr permissionn, the
atthlete clearly
y has not speent time on a film set shhooting com
mmercials. Thherefore appplying
an
nnounced en
ndorsement deals may skew
s
a damaages calculattion to an unnreasonablyy high
reesult.
•
In
ncome Approach: The income app
proach providdes the beneefit of calcullating the prresent
value of reveenue derived
d from use of the ROP. H
However, itt is often diffficult to quaantify
th
he impact off endorsement-based maarketing on ssales and prrofits. Damaages based oon the
prresent valuee of the infrringer’s unju
ust enrichmeent would nneed to dem
monstrate thaat the
in
nfringement actually enh
hances saless or profits, aand as discuussed, this connection caan be
difficult to establish even
n when the atthlete is perm
mitting use oof his or her ROP.
•
Cost
C
Approa
ach: In the endorsemen
nt market, ssubstitution is a tangiblle option, annd in
so
ome circum
mstances meedia impresssions can be accurattely quantiffied. How
wever,
caalculating th
he costs to
o run an eq
quivalent caampaign caan ignore thhe public im
mage
im
mplications of the unautthorized RO
OP use. In aaddition, unllike a copyrright, an athlete’s
ROP
R
is an exhaustible assset. While itt may seem llike certain ccelebrities ppush the limiit (i.e.
prre-scandal Tiger
T
Woodss), none can lend their nname to an innfinite numbber of comppanies
orr products.
Sample applications
a
of each of th
hese approacches are illusstrated below
w.
Usingg the markett approach, a range of
compparable endorrsement feess was establiished
basedd on market ttransactions with similarr
usagee, and level oof celebrity. Using the ppeer
groupp median, vaalue was estiimated at
approoximately $33.1 million.
In thiis context, thhe income appproach was used
to esttimate the beenefit achievved, when a
produuct was sold featuring thhe unauthorizzed
imagee of a celebrrity. Here, ddamages werre
basedd on the pressent value off incrementall
profitts.
This ccost approacch was basedd on media
channnel usage andd calculates the expensee to
run ann identical m
marketing caampaign. Bassed
on thee logic that w
when an athllete’s ROP iis
violatted (i.e. throough false enndorsement),, he
or shee should be ccompensatedd to a level
enablling the athleete to run a dduplicate
camppaign inform
ming the publlic of the missuse.
While on
ne or more approaches
a
may
m yield ind
dications thaat are unreassonable for tthe context oof the
case, or access
a
to infformation may
m limit the ability to coomplete a thhorough anaalysis; a com
mplete
infringem
ment damages analysis should incllude multiplle approachhes, followedd by a reassoned
reconciliation of the often differiing indications.
R
Analyssis: Valuing
g Estates an
nd Trusts
The Thirrd Need for ROP
ROP is often
o
not term
minated upo
on death, and
d the need too value ROP
P or other inntangible asssets is
common when condu
ucting estatee and trust vaaluations. W
While ROP exxtend many years, valuaations
are often
n conducted by projectin
ng licensing
g and merchaandising inccome stream
ms 10 to 20 years
into the future. How
wever, given
n the one-tim
me transacti on nature oof endorsemeent deals, bbasing
calculatio
ons on expeected licensiing or mercchandising inncome alonee may not rreflect the aactual
value of the
t celebrity
y’s ROP asseet. Standard cost approacches, based on the principal of substtation
or replaccement, may
y not reflecct the conteext that a ddeceased ceelebrity athleete is no loonger
developin
ng new acco
omplishmentts or images..
Extensivve Experiencce Analyzing
g ROP
Two welll-known situ
uations illustrate distinctly differentt sets of connditions undeer which anaalysis
of an athlete’s ROP played
p
a cen
ntral role.
Most reaaders are so
omewhat fam
miliar with the many eendorsementt deals golffer Tiger W
Woods
signed beefore his now
w infamous divorce. Wh
hether or nott a formal R
ROP valuatioon was perfoormed
by each of
o the corporrations payin
ng Tiger, or by Tiger him
mself; each corporation believed thaat the
present value
v
of futu
ure benefits, driven by its associatioon with Tigeer, would bee greater thaan the
amount it
i invested in
n Tiger. As mentioned, it can be diffficult to connect the saale of produccts or
services to an endorrsement-baseed marketing
g effort. Aft
fter the newss of Tiger’s infidelity bbroke,
some corrporations drropped their Tiger-based
d marketing efforts, whille others conntinued to usse his
ROP. Notably, the professional
p
services and
d consultingg firm Accennture droppeed Tiger but Nike
Golf kept him. Whilee Tiger’s lev
vel of fame and
a exposuree certainly inncreased, and the value oof his
ROP chaanged. Further, it changeed differently
y for differeent users. Ass a golfer, Tiiger’s conneection
to professsional servicces was less strong than
n his connecttion to golfinng equipmennt and attiree. The
value off Tiger’s RO
OP changed more drasttically for tthe corporattion with a lesser degreee of
connectio
on between its future earnings and Tiger’s
T
ROP
P. In this conntext, the inccome approaach to
valuation
n can be used
d to understaand the driveers of endorssement transsactions.
A second
d and very different sittuation involved the lanndmark deciision in favoor of Jesse “The
Body” Ventura,
V
who
o sued Titan
n Sports/Wo
orld Wrestlinng Federatioon (Titan/W
WWF) in 19991 to
recoup unpaid
u
royaltties. Venturaa began wrestling for Tiitan in 19844, later retainning employyment
as a color commentator, essentially building on the ROP developed during his in-ring career.
Throughout his career, each time his contract was renegotiated, the policy of paying royalties
only to “featured” performers was reiterated. Despite this claim, Ventura was able to prove that
actual royalty payments made were inconsistent with this purported policy.
In reviewing Titan/WWF merchandising and licensing activity, it was discovered that Mr.
Ventura’s likeness was being used on dozens of products, including action figures, T-shirts,
videos, cards, toys, paper goods, footwear, and other consumer products. “The District Court
found that, had Ventura known that Titan did not abide by its stated policy, he would not have
accepted a deal which did not compensate him for the reproduction and sale of his performances
on videotape.” (Ventura v. Titan Sports, Inc., 65 F.3d 725, 1995)
As the infringing use in this context was merchandising and licensing, an income approach
measuring the value of unjust enrichment provided the most reasonable analysis method for the
plaintiff’s ROP. Relying on Mr. Ventura’s or other wrestlers’ endorsement transactions would
have resulted in a damages indication more comparable to a different form of use. In this case,
the damages expert received commendation from the presiding judge for careful application of
market-based royalty rates in the damages analysis, applying reasonable methodology and
discarding those methodologies that provided less reasonable indications.
Looking Forward
This decade will likely see more emphasis on gaining a greater understanding of the value of
ROP and the factors that drive ROP transactions. In recent years, class action lawsuits have been
launched against major sports organizations. The NFL Retired Players Association has filed suit
against the NFL for use of former player images without compensation in NFL Films. Similarly,
former collegiate players are suing the NCAA over use of their likenesses without compensation
in simulation video games.
Outside the courtroom, corporate marketing departments will increase their analyses of financial
returns on their marketing activities, athletes will have shorter careers with greater exposure, and
expanding media options will allow living and deceased celebrity athletes to use their ROP
across more avenues and for longer periods of time. There will also likely be a blurring of the
difference among trademarks, copyrights and rights of publicity, as many individuals employ all
forms of protection for their imagery. These issues will impact the value of an athlete’s ROP.
Clearly challenges exist in ROP analysis. However, a thorough analysis of ROP, and employing
multiple valuation approaches whenever possible, should enable more informed decision
making.
About CONSOR Intellectual Asset Management
For more than two decades CONSOR Intellectual Asset Management has specialized in
intellectual property valuation and consulting services. As one of the only market-based
consulting firms specializing in intellectual property, CONSOR Intellectual Asset Management
has built a solid foundation of clients and gained invaluable work experience over the past 25
years. Our core areas of expertise are the valuation, management, and licensing of intangible
assets. We take a marketplace business approach in order to help our clients reach their goals,
using real-world evidence and marketing criteria. We are dedicated to assisting our clients in
maximizing the value of their intellectual property and intangible asset portfolios, while helping
to minimize risk and uncertainty. For more information about CONSOR, visit: www.consor.com.