Influencers Under Fyre: The Case for Greater Enforcement of FTC Endorsement Guidelines Against Social Media Influencers

Monday, February 25th, 2019 at 1:30 pm by Nicholas Sun

In late April of 2017, the Fyre Festival—a “luxury music festival” located on the Bahamian island of Great Exuma—fell apart in spectacular fashion. Fyre failed to deliver on its promises of private jets, gourmet food, and luxury villas. Instead, festival-goers were left stranded on the island, forced to spend the night in repurposed FEMA tents, and infamously served cheese sandwiches, despite tickets priced as high as $250,000. The “festival” became a viral sensation immediately after its cancellation and has re-entered the national conversation through a pair of documentaries released by competing streaming platforms Hulu and Netflix.

The result of the Fyre Festival led to a rush for blame. The CEO of Fyre Media, Billy McFarland, was sentenced to six years in prison on multiple charges of wire fraud and making false statements to a Federal Law Enforcement Agent. McFarland also settled with the SEC for $27.4 million. Meanwhile, festival attendees have filed a class-action lawsuit against Fyre Media for $100 million in damages. Yet, the “influencers” that promoted the Fyre fiasco have managed to escape legally unscathed, despite violating the FTC endorsement guidelines. So far, the FTC has not filed a complaint against any of the influencers and the influencers are not named as a plaintiff in the class action complaint.[1] The Fyre fiasco is another case in favor of increased enforcement against social media influencers who do not disclose their endorsement relationships.

According to an investor slide deck by Fyre Media, Fyre Festival managed to sell out of tickets largely due to their marketing strategy of promoting the festival through social media “influencers.” Prior to the festival’s announcement, some of the world’s most famous supermodels— including Bella Hadid, Hailey Bieber, and Emily Ratajkowski —spent time in the Bahamas, paid for by Fyre Media. Photos from this time were posted on the influencer’s social media, although the initial posts made no reference to the Fyre Festival and Fyre Media. These posts caught the attention of various tabloids and followers of the models who were all wondering why so many of the world’s top supermodels were all gathered together in the Bahamas. A short while later, the mystery was revealed when the models—as well as several other notable Instagram influencers—posted a single orange tile on their Instagram with a caption announcing the first ever Fyre Festival. These posts used the hashtag #FyreFestival and linked to the festival’s website but did not disclose any financial relationship between themselves and Fyre Media or the Fyre Festival.

Details from Fyre Media’s investor pitch deck claimed that Fyre recruited 400 influencers to post the orange tile on Instagram at 5pm on December 12th, 2016, and that the result was the post reaching 300 million people within 24 hours. It is unclear the exact amount that these influencers were compensated for their social media posts but court filings related to Fyre Media’s bankruptcy reveal that IMG agency models—representing Bella Hadid, and Hailey Bieber among others—were paid $1.2 million and Emily Ratajkowki’s agency was paid $300,000. Further, a source for Vice claimed that Kendall Jenner received $250,000 for a single Instagram post.

Fyre Festival’s use of social media influencers to promote their product/service/brand is not unique. Instead, influencer marketing is becoming a staple part of every brand’s marketing strategy. 86% of marketers used influencer marketing in 2016 and 67% of marketers say that they plan on increasing their influencer marketing budget in the next 12 months. Instagram, in particular, is an incredibly popular platform with 700 million active monthly users and $1.7 billion of estimated influencer marketing growth. Further, influencer marketing has proven to be an effective strategy for brands generating $7.65 on average for every dollar spent on influencer marketing. 28% of marketers claiming that influencer marketing is their fastest-growing customer acquisition method.

The tragedy (and comedy) of Fyre’s failure brings up important questions about the duties and culpability of social media “influencers.” Ironically enough, two weeks before the first (and only) weekend of the Fyre Festival, the FTC released a specific warning for brands and social media influencers to disclose their relationship. Under section 255.5 of the FTC endorsement guidelines, endorsers must “fully disclose” any connection between themselves and the brand “that might materially affect the weight or credibility of the endorsement.” Those that violate the FTC’s endorsement guidelines will be in violation of section 5 of the FTC Act. 15 U.S.C. § 45.

As influencers become a larger and more effective part of the marketing world, changes to the FTC’s enforcement strategy might be necessary to protect consumers from deceptive and harmful marketing from influencers. The FTC should be more willing to take action against individual influencers.  Traditionally, the FTC has preferred to take action against the brands instead of the influencers themselves. While this might be sufficient in most cases to deter undisclosed endorsement, consumers would be better protected if influencers themselves were pressured more to disclose their brand relationships. This is especially true in cases where influencers are in a better position to be regulated, such as when the brand itself is pursuing a fraudulent or reckless marketing strategy. In such situations, the FTC should put greater pressure on the influencers themselves to disclose and be more wary of the brands they choose to work with.

Even in the absence of bad faith by a brand, influencers might be a more overall effective group for the FTC to target. The penalty for violating the FTC endorsement guidelines is a monetary fine up to $10,000 for each incident, and any other equitable relief granted by a District Court. 15 U.S.C. § 45(l). Individual influencers would be liable for this penalty but also suffer greater reputational harm. The primary advantage of influencer marketing is that it allows a brand to reach key consumers through a medium that consumers trust and find credible. News about being sued by the FTC would undoubtedly damage the influencer’s trustworthiness and credibility in the eyes of their followers. Thus, in order to protect their own brand, influencers might be more vigilant than brands in protecting themselves from lawsuits by the FTC.

There is evidence that the FTC might be willing to target individual influencers. In 2017, for the first time, the FTC settled a complaint against individual social media influencers who promoted CSGO Lotto. The CSGO case is distinguishable from the Fyre Festival case, however, because the influencers were also the directors and officers of CSGO Lotto. Nevertheless, both the Fyre Festival and CSGO are clear cases where it would be more effective to pressure individual influencers into disclosing their relationship than the brands the influencers associate with.

The Fyre Festival has been a viral sensation ever since its infamous first night in late April 2017. The FTC should view the fiasco of the Fyre Festival as a chance to reconsider their current strategy for protecting consumers via the endorsement guidelines.

 


 

[1] Second Consolidated Amended Class Action Complaint, In re Fyre Festival Litigation, 2018 WL 4279163 (S.D.N.Y.).

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