As defined, Rights of Publicity (ROP) is “the inherent right of every human being to control the commercial use of his or her identity.”[1] However, unlike patent, trademark, and copyright law, rights of publicity are governed by a patchwork of state statutes and common-law decisions, rather than by a single federal statute;[2] and unlike trade secret law, rights of publicity are not the subject of a uniform state law adopted in the vast majority of states.[3] 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 (endorsements, licensing, etc.); 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 analysis 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 winning three gold medals online delivery company Shutl offered Bolt a 1% equity stake in the company to headline its new marketing campaign.[4] 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.[5]
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.[6] 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[7]
Athlete
Salary/ Winnings
Endorsement Revenue
% of Total Compensation from Endorsements
Tiger Woods
$4.4
$55.0
93%
Roger Federer
$7.7
$45.0
85%
Phil Mickelson
$4.8
$43.0
90%
Lebron James
$13.0
$40.0
75%
David Beckham
$9.0
$37.0
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.[8] 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 the economic benefits derived from the use of Derrick Rose’s ROP, is 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 can’t know conclusively if these products would have sold with or without the endorsement in question. Further complicating the matter, preliminary research by CONSOR indicates 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 in a market approach may be skewed towards large deals, as smaller or minor endorsement deals are rarely publicized. Also, ROP infringements typically don’t involve the time investment associated with a typical endorsement. In other words, when the athlete’s name or likeness has been used without their permission, the athlete clearly has not spent time on a film set shooting commercials. Therefore applying announced endorsement deals may skew a damages calculation to an unreasonably high result.
- Income Approach: The income approach provides the benefit of calculating the present value of revenue derived from use of the ROP. However, it is often difficult to quantify the impact of endorsement-based marketing on sales and profits. Damages based on the present value of the infringer’s unjust enrichment would need to demonstrate that the infringement actually enhances sales or profits, and as discussed, this connection can be difficult to establish even when the athlete is permitting use of their ROP.
- Cost Approach: In the endorsement market, substitution is a tangible option, and in some circumstances media impressions can be accurately quantified. However, calculating the costs to run an equivalent campaign can ignore the public image implications of the unauthorized ROP use. Also, unlike a copyright, an athlete’s ROP is an exhaustible asset. While it may seem like certain celebrities push the limit (i.e. pre-scandal Tiger Woods), none can lend their name to an infinite number of companies or products.
While one or more approaches may yield indications that are unreasonable for the context of the case, or access to information may limit the ability to complete a thorough analysis; a complete infringement damages analysis should include multiple approaches, followed by a reasoned reconciliation of the often differing indications.
The Third Need for ROP Analysis: Valuing Estates and Trusts
Rights of Publicity are often not terminated upon death, and the need to value ROP or other intangible assets is common when conducting estate and trust valuations. While rights of publicity extend many years, valuations are often conducted by projecting licensing and merchandising income streams 10 to 20 years into the future. However, given the one-time transaction nature of endorsement deals, basing calculations on expected licensing or merchandising income alone may not reflect the actual value of the celebrity’s ROP asset. Standard cost approaches, based on the principal of substation or replacement, may not reflect the context that a deceased celebrity athlete is no longer developing new accomplishments or images.
CONSOR Has Extensive Experience Analyzing Rights of Publicity
Two well-known situations, illustrate distinctly different sets of conditions under which analysis of an athlete’s ROP played a central role.
Most readers are somewhat familiar with the many endorsement deals golfer Tiger Woods signed before his now infamous divorce. Whether or not a formal ROP valuation was performed by each of the corporations paying Tiger, or by Tiger himself; each corporation believed that the present value of future benefits, driven by their association with Tiger, would be greater than the amount they invested in Tiger. As mentioned, it can be difficult to connect the sale of products or services to an endorsement-based marketing effort. After the news of Tiger’s infidelity broke, some corporations dropped their Tiger-based marketing efforts, while others continued to use Tiger’s ROP. Notably, the professional services and consulting firm Accenture dropped Tiger but Nike Golf kept him. While Tiger’s level of fame and exposure certainly increased, the value of his ROP changed. Further, it changed differently for different users. As a golfer, Tiger’s connection to professional services was less strong than his connection to golfing equipment and attire. The value of Tiger’s ROP changed more drastically for the corporation with a lesser degree of connection between its future earnings and Tiger’s ROP. In this context, the income approach to valuation can be used to understand the drivers of endorsement transactions.
A second and very different situation involved the landmark decision in favor of Jesse “The Body” Ventura, who sued Titan Sports/World Wrestling Federation (WWF) in 1991 to recoup unpaid royalties. Ventura began wrestling for Titan in 1984, later retaining employment 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 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 wrestler’s 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
We believe this decade will 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 analysis 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. We are also likely to see a blurring of the difference between trademarks, copyrights and rights of publicity as many individuals employ both forms of protection for their imagery. All of 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.