Jay-Z's Luxury Champagne Deal with Moet Is a Celebrity Winner
(Bloomberg Opinion) -- There are two categories of celebrity brands. Some are intimately associated with the star: Lifestyle website Goop reflects the actress and founder Gwyneth Paltrow’s initials, cosmetics label Fenty is the singer Rihanna’s surname and Yeezy sneakers are a complicated play on rapper Kanye West’s first name.
Then there’s a second basket of brands that are also promoted, often founded and at least partly owned by celebs, but that have an independent identity: George Clooney’s Casamigos tequila, Ryan Reynolds’s Aviation American Gin and Jessica Alba’s the Honest Co., a maker of baby and beauty products. They benefit from the star’s cachet and social media reach, but the company and the personality are not synonymous.
For a celebrity, this latter approach might represent the better path to a major payday, as the latest deal by French luxury giant LVMH demonstrates. Its Moet Hennessy unit bought a 50% stake in Armand de Brignac, the champagne maker that rapper Jay-Z has owned since 2014, for an undisclosed sum. The investment follows Diageo Plc’s $1 billion deal for Clooney’s Casamigos in 2017 and $610 million acquisition of Reynolds’s Aviation American Gin just last year.
In other words, the arm’s length approach to branding seems to work well for selling the business for a hefty fee. After all, if the company is not inextricably tied to a celebrity’s cachet, it’s easier for an acquirer to turn it into a standalone operation.
Both the Casamigos and Aviation deals have earn-out agreements, meaning the full sum will only be paid to the sellers if the brands meet certain goals over the course of a decade. That keeps the stars invested, but it also means that if Clooney or Reynolds suffer a reputational setback for any reason, then Diageo has some protection — the brands are not directly associated with the actors, and if sales suffer, then the earn-out fees are reduced.
That protection is harder to come by when celebs are the face and name of the product. Adidas AG, which makes Kanye’s Yeezys, trod a tricky path in 2018 when the rapper described slavery as “a choice” made by African Americans. Chief Executive Officer Kasper Rorsted weathered the storm by distancing the company from the comments, while sticking with the brand.
LVMH’s Armand de Brignac investment is likely to have a similar deal structure to Diageo’s in practice if not in appearance. The transaction amount wasn’t revealed, but The New York Times suggested, slightly tongue-in-cheek, that the brand might be worth $250 million based on a Jay-Z lyric indicating as much in 2018. The LVMH deal probably values it at significantly less than that, given that a sizable chunk of the brand’s sales come from high-end nightclubs, most of which have been closed due to the Covid-19 pandemic.
But the deal still provides the opportunity for Jay-Z to cash out for a lot more money in a few years’ time. After lockdowns ease, pushing the champagne, which is also known as Ace of Spades, through Moet Hennessy’s existing sales channels could make the company worth considerably more. LVMH might then consider buying Jay-Z’s remaining 50% interest at that more generous valuation.
Celebrity brands are not a new phenomenon. From tennis players Rene Lacoste and Fred Perry’s eponymous sportswear labels in the 1920s and 1930s, to boxer George Foreman’s Lean Mean Fat-Reducing Grilling Machine and the late actor Paul Newman’s namesake food company, superstars have long plastered their name onto products in which they have a financial interest.
They all cashed in on their name recognition. But today, keeping your moniker off the label appears more lucrative.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.
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