Name, Image, and Likeness
Name, image, and likeness (“NIL”) are three separate components that form essential rights of publicity. Public figures who have become famous for a particular skill or act rely on their reputation to earn money and promote specific causes. These goals can be sidetracked by unwanted or unauthorized use of a famous person’s NIL. Social media and other modern technology have exacerbated these instances, and new issues have come to light in both corporate and personal circumstances.
Celebrities and those in the public eye have experienced infringement and legal battles in both life and in death. The major complication of NIL laws are the variety of perspectives involved. Accurate valuations on net worth and earning potential are difficult to impartially calculate. Depending on the intention of a stakeholder, valuation reports could vary significantly from one institution to the next. Typical stakeholders may include the Internal Revenue Service, financial institutions, creditors, debt collectors, professional service providers, and family members.
Further, there is no consistency of enforcement across the United States as publicity rights are governed at the state level. Approximately thirty states recognize publicity rights and offer protection from unauthorized use. Certain states that are heavily influenced by large populations of famous and wealthy citizens, like California and New York, provide a fairly substantial amount of attention and protection when it comes to publicity rights.
NIL appraisals are essential but often overlooked until the need arises. Common reasons for obtaining an appraisal include calculating damages for violations, estate tax, and negotiating transactions for endorsements or licensing deals. Valuations are most contentious during litigation proceedings in connection with damage claims and estate taxes. In both instances, the division of assets may rely in part or in full on the valuation performed.
The Valuation Approach
The value of NIL rights are typically determined by a combination of the income, market, and cost approaches. Detailed research is often required to determine which approach should be weighted most heavily, or possibly excluded.
The income approach is performed by determining the net present value of future expected cash flows attributable to the right of publicity. This calculation can include a portion or all of the earnings from promotions, endorsements, sponsorships, personal appearances, and other similar activities. The contentious component of this approach is determining what the expected future cash flows will likely be in the future. Unlike a traditional operating business with stable cashflows (for example, a medical manufacturer), the future value of a person’s publicity can change sharply from the past due to highly unpredictable changes in consumer behavior. What might be considered a fad, trend, or viral content today may not be so five years from now, or even six months from now. As such, some argue that the royalty rates a celebrity has obtained in the past may not be a good proxy for what is achievable in the future.
To help derive reasonable expectations for the future, a market approach is often deployed to help compliment the income approach. This approach enjoys the benefit of looking at real world agreements achieved by other similar popular figures to help determine the expected future cashflows for the subject. This approach is especially useful for determining the useful life of the subject’s publicity, that is, the duration of time a celebrity can expect to receive cash flows (even after death). By studying the pattern of royalty income over time of similar celebrities, one can opine on the future royalty rates of the subject.
The cost approach is often challenging to apply to the valuation of publicity rights. It is extremely difficult to determine the cost to reproduce the brand of a famous celebrity. However, there are some tangible metrics, like the amount invested on billboards, internet ads, and social media page views, that can be considered. However, even if one were to replicate these investments, achieving the same result is often highly unlikely. Thus, the cost approach often receives the least amount of weight and consideration.
Proven Industry Leaders in Intellectual Property Valuations
With over 30 years of experience and highly credentialed professionals, Appraisal Economics is an industry leader in providing accurate intellectual property valuations. We are committed to providing a robust, defensible opinion of value in a well-organized appraisal report, and in a timely manner.
Please contact our professionals regarding your trademark valuation needs or other valuation related services that we provide.