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