Given reality TV’s huge ratings and low production costs, networks are understandably giddy over the tremendous bottom line these shows produce. Relieved of the hefty salaries associated with a sitcom like Friends, the successful reality TV show, for the most part, provides its “stars” with little more than Warhol’s requisite 15 minutes of fleeting television fame.
Most participants walk away from their experience with reputations roughly intact (if they are fortunate) but not a nickel in their pockets. Indeed, even the winner’s “prize” is a relatively small line-item in the budget. (The globe-trotting winners of The Amazing Race split a $1 million award after weeks of frenzied travel—small potatoes.)
But while the public awaits what will happen “next” in the riveting “realities” of the largely pre-recorded competition shown to it, those answers are well-known to a small group of insiders—for example, the show’s participants, directors, makeup artists, grips, cameramen and post-production personnel—who have all seen the outcomes well before they are broadcast. And they must stay silent. The key ingredient to these shows is secrecy; anticipation is the winning factor.
There are also efforts to protect and distance the outcomes from the betting that has inevitably followed this programming. Some of these shows have been the focus of online gambling sites and offshore casinos accepting wagers on outcomes including whom this season’s Bachelor star will choose.
Producers use various countermeasures to keep things hush-hush. The preferred weapon has become confidentiality agreements with severe “liquidated-damages clauses.” The document specifies a sum of money to be paid by the participant violating the contractual vow of secrecy before the show airs in its entirety. Indeed, many producers now insist that all involved in such programs—from the participants to advertisers—agree to the clauses requiring millions of dollars to be paid if they spill the beans.
Liquidated-damages clauses are typically employed when the costs resulting from a breach of contract cannot be easily ascertained by any satisfactory method. But, as a rule, in order to be enforceable, the clause must represent a genuine and reasonable pre-estimate of the loss likely to flow from the breach.
Producers who rely upon confidentiality agreements with liquidated damages must hope that, when these provisions are litigated, they won’t be found to be in terrorem provisions—that is, unenforceable “penalty” clauses intended to apply undue force to the other party to perform his or her side of the contract. The risk can be substantial: The more onerous these clauses become, the greater the likelihood that a court may deem them invalid.
Production companies have complained incessantly about the spiraling costs of doing business in Tinseltown, but the creators of reality TV now have reason to think twice about contracting with participants anywhere other than California. The state has a unique statute that expressly favors the enforcement of liquidated-damages provisions in breach-of-contract actions.
To take advantage of that statute, clever producers have insisted on the inclusion of choice-of-law provisions, which dictate that California law governs any dispute arising out of the parties’ confidentiality agreements.
No reported decision as yet exists in which a court has analyzed the validity of a liquidated-damages clause breached by a reality-TV “insider.” When, however, the first such case is—as it is sure to be—vigorously litigated, the producers of reality TV should be riveted. That is their reality.
Kramer is an entertainment lawyer and litigator for Seyfarth Shaw LLP in Los Angeles.
