George Clooney is Paid That Much? Regulating Celebrity Advertisements

Abstract

The Federal Trade Commission (“FTC”) generally requires product advertisements featuring compensated endorsers to disclose that the endorsers were compensated. However, the FTC does not require advertisements featuring celebrity endorsers to disclose whether or the amount that the celebrities were compensated. This exception exists because the FTC assumes that this disclosure is unnecessary because consumers already know that celebrity endorsers are compensated. However, existing psychological and marketing research provides reasons to suspect that, even if consumers know celebrities are compensated for endorsements, requiring advertisements to disclose the existence and/or amount of this compensation would still make consumers more skeptical of the endorsements. This article presents two controlled experiments finding significant evidence that requiring advertisements to disclose the amount of celebrity compensation would cause consumers to discount substantially the endorsements of at least highly-paid celebrities. The experiments find that consumers greatly underestimate the compensation that celebrity endorsers receive. Disclosing this compensation reduces consumers’ perceptions of the endorsements’ sincerity and of the advertised products’ quality.

Keywords: Consumer Protection; Regulation; Advertising; Advertising Regulation; Celebrity