Should you give up equity for a celebrity endorsement?

The recent deal with Oprah Winfrey with Weight Watchers had a lot of interesting facets for businesspeople, and it was amazing to many people that an established brand like weight watchers actually gave up equity for a celebrity endorsement.

Among the big brands this is not a typical arrangement. Points yes. Sales bonuses, yes. But not flat out equity. Typically the more established your brand and company is, the less likely it will be that equity will be part of the endorsement deal.

The Oprah deal has a few unique characteristics. Namely:

1. Weight Watchers is a flagging brand that has been losing a lot of ground to more innovative companies and apps. They hope the star power of Oprah can rescue the brand, and help them monetize other things related to weight loss like self improvement, that Oprah brings to the table. It is not typical among bigger brands to try to get a celebrity to save the brand, but usually to enter a new marketplace, or make it much easier to introduce a new product, or just give an overall lift to sales, but not to save the company.
2. Oprahs “juice” and followers are extraordinary, so she is in a much different position than most celebrities when it comes to the negotiating phase.

This leaves the question for a smaller business of if Oprah is demanding equity, should I give equity to my a or even b lister if they ask? This is of course an individual business decision depending on the size and longevity of the business, amount of sales, newness of the product being endorsed, goals of the business owner, shareholders, entrepreneur, etc. While it is impossible to give a one size fits all opinion, here are a few things that most business owners don’t consider:

Because 90 percent of businesses are not there after 5 years, and many of the successful businesses left are acquired, merged, spun off, or changed drastically in some way, this often leaves the celebrity at a bit of a disadvantage because often they only get their initial fee. This makes it in their best interest to get the highest up front fee possible, as the risk on ever getting back end payments is high for them.

The longer and more stable your company, the less it is in your benefit to give the celebrity equity in the company is the general rule. Fortune 500 companies rarely give the celebrities equity or stock options, but smaller companies have to be a little more flexible.

While it is impossible to give one size fits all advice, as a general rule if your company is more than 10 years old and stable, equity should not be part of your deal, and if your company is less than 5 years old you may have to look at equity to sweeten the deal to get the celeb you want. Try however in lieu of equity to offer bonuses based on units sold after a certain threshold and percentage of backend or cross sales from the original product, as this is often “found” money if you have organized your sales funnel right. It is always better to keep equity ownership as simple as possible in your business.

Should I give up equity for a celebrity endorsement?