Why the $75 Million Kardashian Lawsuit Is Pretty Serious
Social media presents both opportunities and dangers for celebrities, and no one represents these better than Kim Kardashian.
Kardashian is a reality TV star (E!'s top-rated Keeping Up With the Kardashians and its spinoffs) and a Twitter phenomenon (nearly 6 million followers). She endorses products far and wide and gets paid hundreds of thousands of dollars to show up at nightclubs.
But have Kim and sisters Khloe and Kourtney gone too far in their desire to cash in on their fame?
Mobile Resource Card, a financial services company, is suing the Kardashians for allegedly walking away from a deal to promote a branded prepaid debit card known as the "Karadashian Kard." The company claims $75 million in damages from this alleged breach of contract.
The deal that the Kardashians made with MRC is spelled out in the complaint:
- The Kardashians got $3 for each Kardashian Kard activated or sold.
- They got 25 percent of usage and transaction fees on the Kardashian Kard.
- Plus a $75K advance on royalties and a $37K signing bonus.
It's easy to see why this type of deal would be appealing for Kim. The beauty of social networks like Twitter and Facebook is that they allow stars to do "direct action marketing," pushing out URLs that connect their fans with endorsed products. Even if only a small percentage of Kardashian's followers clicked on the link and bought a prepaid debit card, it would result in huge profits for the Kardashians.
But for whatever reason, the Kardashians soured on the idea of becoming Kredit Kard pitchwomen and terminated the deal. In doing so, Mobile Resource Card says they violated not just a simple sponsorship deal but a joint business venture -- potentially putting the girls on the hook to be responsible for the eventual collapse of the company.
Miles Feldman, an L.A. entertainment attorney at Raines Feldman who does a lot of celebrity licensing deals, says he prefers to structure these types of deals as "pay-or-play," where talent performs a promotional service and the risks of the promotional campaign are born by the licensee. "There should be provisions that allow (the celebrity) to back out, especially if the business or promotional campaign is altered in any way," he says.
But at least from the looks of the complaint, the Kardashian Kard agreement doesn't appear to be structured that way. (No response has yet been filed in the case.)
In an attempt to reach for social networking gold, the Karadashians seem to have negotiated for a piece of the revenue pie, which might be akin to getting some equity in the project (though courts have often denied joint-venture status for profit participants). The Kardashians are said to have tried to terminate the deal by e-mail, an alleged violation of the contract that said it could only be terminated with 30 days notice upon bankruptcy, failure to make payments, or lack of insurance.
Ironically, what brought this whole agreement down might have been those very same social media sites that caused inception in the first place. The Kardashian Kard was instantly controversial on Twitter and Facebook, especially after Connecticut State Attorney General and now U.S. Senator Richard Blumenthal ripped high, hidden usage and transaction fees (which remember, the Kardashians got a cut.)
But by the time they figured out that pitching credit cards on Twitter might not be good for their brand, they had bound themselves contractually. A social networking catch-22. Will they be on the hook for the result?