Tiger Woods creates new business opportunity: third-party morals auditor

With Tiger Woods’ endorsement deals falling apart and companies left to deal with the unintentionally ironic aftermath in awkward ways, it’s time for the business side to deal with reality.

All of these companies undoubtedly have a “morals clause” in their endorsement contracts that allows them to exit in the case of inappropriate behavior such as Tiger’s.
But a morals clause is a backward-looking, reactive way to handle such substantial business risk. A morals clause is…

..a provision in a contract or official document that prohibits certain behavior in a person’s private life. They deal with behavior such as sexual acts and drug use. They were commonly used in the contract between actors/actresses and film studios to uphold the public image sought to be portrayed by the studio. Morals clauses are included today in certain contracts of public figures, such as athletes, actors/actresses, and others.

At the time that any one movie star represented perhaps 1% or less of revenues of a movie studio, an ability to react to any discovered bad behavior made sense. Reading the gossip rags and Hollywood trade press was “enough” in terms of keeping an eye on the people in your stable. The cost of diligent monitoring was too high.

But today, with star endorsement deals running into the 8-figures; with a company the size of Accenture – with a $30 billion market capitalization — basing its entire corporate identity on a single human being; with Nike running a $650 million business on the basis of one person’s image; the dangers to the business are simply to high to wait until after the star is caught. If you are on the Board of these companies, are you happy that you found out about the Tiger Affair at the same time everybody else did? Does that make you feel like your corporate governance and risk mitigation is well-attended to?

This will be a turning point for stars and celebrities. They have simply grown too large, as businesses, to be dealt with laissez-faire any longer. Companies should and will demand that such a potentially large risk to their business is managed pro-actively, ahead-of-time, and they will insist that they not be caught unawares in the future.

If I were Kroll, the security risk business, or a private eye, I’d see an enormous business opportunity here. For the cost of a few hundred thousand per year — which would ultimately come out of the star’s pocket either directly or indirectly through lower endorsement fees — a security firm could act as a third-party morals auditor. An endorser’s business partner should know, long before the public, whether or not the star is engaging in behavior risky enough to potentially threaten the business.

It would be interesting to see how the business would evolve. Would it be like ratings agencies — where a star has to pay a third-party to rate or determine the likelihood of ‘morals default’? Or on the other end of the spectrum more similar to due diligence consultants, who come in for an intense period of time to ascertain a snapshot of the star’s behavior? Or somewhere in the middle with an upfront investigation and investment, and then a smaller ongoing maintenance or monitoring?

In any event, I think the cottage industry of endorsement deals is about to be “lawyered up” in a significant way, and the inherent risks in the system will not be treated as blithely in the future as they have been in the past.

This entry was posted on Thursday, December 17th, 2009 at 6:49 am and is filed under Job Search. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.