Creators are getting sued…here’s why
Several well-known finance YouTubers have become the subject of a $1bn class action lawsuit having promoted the now-disgraced cryptocurrency exchange FTX.
The plaintiffs are claiming the money they lost to the trading platform came as a direct result of its promotion by creators.
Among those being sued are YouTubers Kevin Paffrath and Graham Stephan.
Now, I’ve been involved in thousands of sponsorships at this point… but this is a pretty extreme outcome.
But it got me thinking about the risk of agreeing to sponsorships at all without proper due diligence.
And when I say “risk”, I mean to both the creator and their audience.
So let’s talk about 8 things to look out for in your next sponsorship so nothing like this ever happens to you.
So a brand reaches out via email inquiring about a partnership. Before you say “yes”, consider asking yourself these 8 “risk mitigation” questions:
1/ How long has this company been around?
I’m not saying they have to be decades old. It’s more about what they’ve done in the time they’ve existed…
Are there any legitimate testimonials from customers which show the brand has been able to provide value over a period of time?
Can you identify their track record in any other way?
If a company with 0 social proof and a partially-functioning website that was made last week reaches out… be careful.
2/ What type of sponsorship do they want?
There are two very different styles of sponsorship that will significantly impact how you come across to your audience.
Testimonial style - e.g. "I personally use this product/service/brand and love it! You should use it too!"
Informational style, like a podcast ad read - e.g. "This is a brand/product that you might be interested in. Check it out here!"
Remember, a good sponsorship doesn’t have to be from a brand that you’ve used for years, as long as you identify that brand as being valuable to your audience.
However, if you are giving enthusiastic testimonials about the product/service, keep in mind that your audience could blame you more squarely if something goes wrong.
3/ How “legit” do they seem?
Always perform a Legitmus Test (that was a play on “litmus test…” anyone? Come on…)
There are a number of ways you can do this…
Look them up on LinkedIn. Do they have…actual employees?
Does customer support…exist? Live chat, a phone number people can call, etc.
Does it “feel” like a scam? Sometimes, you just know in your gut.
4/ Do they offer a product/service that would provide my audience with tremendous value?
This is a question you should ask before every sponsorship.
Objectively assess what the brand offers, and decide whether your audience would thank you for connecting them with that brand.
Again, look for testimonials that confirm product-audience fit if you were to promote it.
5/ Are there potential downsides for my audience?
More importantly, how significant are those downsides, even if they’re unlikely to occur?
You might argue that the creators being sued couldn’t have known FTX would collapse, and that may be fair.
But what level of harm could your audience experience by following your recommendation?
In the case of FTX, the potential downside was huge, because hundreds of thousands of dollars worth of the audience’s capital was at stake.
Of course, there won’t be the same type of risk in other niches…
But it’s worth playing devil’s advocate, putting yourself in the shoes of your audience, and walking through the worst-case scenario.
6/ Have any other creators shared a "horror story" on the Internet of working with them?
It’s time to do some sleuthing.
Google the heck out of the brand.
Search them up across social platforms.
Check them out on Glassdoor (any terrible employee reviews?)
A red flag is a red flag, no matter who’s waving it.
7/ Am I legally protected if things blow up (like the FTX situation)?
This should not be construed as legal advice. Always consult a lawyer.
Personally, I like to ensure (at a minimum) that my contracts have mutual indemnification and limitation of liability clauses because a lot of agreements do NOT afford you that.
Also, if the brand can terminate the deal if you do something insane (per the example below), shouldn’t YOU also have that right if the brand does something nuts?
8/ Overall, do the pros outweigh the potential cons?
Go back over points 1-7 and make a judgment call.
Even a single red flag could be cause for concern but you should weigh everything on a case-by-case basis.
Don’t stake the reputation you’ve worked so hard to build on a one-time payday.