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'Fyre' Danger! 7 Ways Influencers, Brands and Agencies Can Avoid Getting Burned for Not Disclosing Endorsements Is your company promoting itself via influencers? Tread very, very carefully. The FTC is watching.

By Paul Menes

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

CSA Images | Getty Images

As influencer marketing continues to explode in terms of its impact, so has scrutiny on how these engagements are arranged and played out. This is especially true when it comes to the proper disclosure of an influencer's relationships with brands when he or she receives any form of compensation for endorsements.

Related: 4 Influencer Marketing Lessons Learned From the Calamitous Fyre Festival

Such compensation is separate and distinct from unsolicited editorial praise for a product or service. But when compensation does occur -- be it money, trips, clothing, hotel stays, restaurant meals, jewelry, etc. -- legal penalties are more and more likely to ensue. Nothing less than the Fyre Festival fiasco illustrates the not only civil, but criminal liability that can happen for the parties involved.

In fact, the Federal Trade Commission (FTC) is now paying close attention to endorsements and getting aggressive with influencers and brands in enforcing the FTC Trade Commission Act (the Act), which is the federal law governing truth in advertising. In April 2017 alone, the FTC sent out more than 90 "compliance reminder" letters to influencers, including Victoria Beckham and Jennifer Lopez, as well as to the brands involved -- and this number continues to increase.

Related: Be Careful How 'Fyre'd' up You Get About Influencer Marketing

The FTC letters emphasized the influencers' obligation to disclose their "material connections" -- meaning if they were paid or otherwise compensated by brands and other companies they endorsed -- so as not to mislead the public and violate the Act. The FTC has also begun fining and suing for non-compliance.

What happened with the infamous Fyre Festival

It's not just with brands and influencers where the FTC is cracking down. The Commission s looking into whether brands' PR agencies are compliant too. As extensively reported in the press and in two documentaries, the Fyre Festival -- brainchild of "entrepreneur" Billy McFarland and his partner, rapper Ja Rule, was billed as an idyllic, bacchanalian, multi-day music festival on a private Bahamian island (touted as previously owned by Pablo Escobar, no less).

As was soon uncovered, several prominent influencers, including Bella Hadid and Emily Ratajkowsky, were prominently featured in a lavish promotional video and handsomely paid for their endorsements of the Festival. According to reports, Ratajkowsky received $300,000, and Kendall Jenner received $250,000 for just one glowing Instagram post. As a result of the video and promotions, Fyre sold out in 48 hours.

Unfortunately, neither Fyre Media, nor the influencers themselves, nor their agencies disclosed that the influencers were paid, in blatant violation of the Act. So, if your company or PR agency is hiring influencers, you'd do well to review the disclosure information detailed in the FTC's Endorsement Guides and FAQs. The Guides' intention is to provide transparency, so that anyone exposed to endorsements and promotions can determine if those materials were merely editorial reviews or the opinions of those giving them -- or material connections.

Fyre fallout

The fallout of the Fyre Festival has been monumental. In fact, the Festival never took place. The FBI got involved. McFarland is in prison for fraud. His company,which organized the festival, was forced into involuntary asset-less bankruptcy. And Billboard reported this past January that the court-appointed bankruptcy trustee was subpoenaing talent agencies and influencers involved.

These individuals were being asked to testify about what they did and didn't know, including what happened to over $26 million McFarland raised to stage the event. The trustee might also file a complaint with the FTC, as this investigation has recently focused on Fyre's social media marketing campaign. This would likely draw scrutiny of the festival's PR agency, for organizing the disclosure-less social campaign, as well as of the many well-known influencers involved, for failing to comply with the Act.

The federal rules were, and are, something they (or their lawyer/managers) should have known they were required to comply with.

The takeaway for businesses

In my over seven years of experience representing all levels of influencers, I've seen brands, agencies and social platforms provide policies to guide those influencers on compliance with the Act. But sometimes the guidelines have not always been black and white.

Here are seven best practices influencers, brands and agenncies must follow. They spell out exactly what these players must comply with, to avoid being sued or fined for not disclosing endorsements:

1. Disclose in each post. A single, general disclosure on a homepage, YouTube channel or the like, isn't FTC compliant.

2. Make it close to impossible for consumers to overlook disclosures. In visual content, like that on YouTube or Instagram Stories, use clear, eye-catching images, as well as text in a large, simple-to-read font that contrasts with its background. Don't use audio disclosures alone for visual content, as social media content is often viewed without sound. Repeat disclosures periodically, as viewers may tune in mid-stream.

3. Recognize that getting a discount on something is the same as being paid. Disclose if friends or family want you to review their product or service, and the personal relationship. For example, if a friend or family member opens a new restaurant and wants your feedback, in return for a free or discounted meal, realize that your action may be illegal. Even without the freebie, the restaurant owner's action implies that he or she expects a positive review. So, know what you're being asked for.

4. Also disclose if you're asked to positively review or endorse a hotel or resort that provides a free or discounted stay.

5. Know that a third party, even a charity, receiving money on your behalf is the same as being paid. Disclose if a brand you're doing business with donates to a charity in exchange for your or your client's review or endorsement.

6. Make dislosures about tagging brands on social. Let your followers know why that item was tagged and include a disclosure beside the picture or text, not in the section that's viewable only when a user clocks "more."

6. Be careful with hashtag endorsements. Tags like "#client," "#advisor," "#consultant," "thanks" or "#ambassador" are too vague. Use "#ad" or "#sponsored" instead. Put the disclosure at the very beginning of the endorsement or review, by itself, separated from and not mixed in with other text, links or hashtags.

7. Have an experienced influencer lawyer review your proposed disclosures.

Related: Creator of Doomed Fyre Festival Gets 6-Year Prison Sentence

If it wasn't before, the regulatory and legal message is now crystal clear: Failure by influencers, brands and related agencies to comply with the Act can bring a conflagration of serious consequences. Don't let "fyre" burn you down.

Paul Menes

Co-head, the Entertainment & Media practice group, ADLI Law Group

Paul Menes is the co-head of the Entertainment & Media practice group at ADLI Law Group, a Los Angeles-based law firm. Menes represents individuals and entities in the United States and abroad involved in all types of of transactional entertainment and digital media. He also represents clients in terms of branding, copyright protection and enforcement, for those and other business endeavors.

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