Technology Law Alerts

September 18th, 2017

FTC Settles First-Ever Action Against Individual “Influencers”

The FTC is making  a strong push in 2017 to ensure that social media influencers comply with the Commission's Endorsement Guide (the "FTC Guides") and recently updated FTC Guides' FAQs. In addition to sending warning letters to over 100 social media influencers this year, on September 8, 2017, the FTC announced that it settled its first-ever complaint against two individual influencers. Here's a summary of what happened.

In re CSGO Lotto

In 2015, Trevor Martin and Thomas Cassell, who had garnered millions of subscribers on their video game-focused YouTube channels, launched CSGO Lotto Inc. CSGO Lotto consisted of an online platform available at CSGOLotto.com, which was focused on the popular multi-player, first-person shooter game Counter-Strike: Global Offensive. Counter-Strike: Global Offensive allows users to collect virtual items called "skins" that cover weapons. Users were able to buy, sell and trade skins with other players for real money. The CSGO Lotto platform allowed consumers to wager skins as part of on-line contests, with CSGO Lotto collecting an 8 percent service fee.

The FTC alleged that Martin and Cassell failed to comply with the FTC Guides by not disclosing that they were owners of CSGO Lotto when promoting the service to their followers, and in addition, not requiring proper disclosures for posts by third party social media influencers whom they had hired to drive traffic to CSGO Lotto.  As we recently reported, the FTC Guides require brand endorsers to clearly and conspicuously disclose their relationship with that brand.  The FTC's complaint also flagged social media posts from both Martin and Cassell, which not only lacked proper disclosures, but were intentionally drafted in a way to misrepresent their relationship so that readers would believe the endorsers had "found this new site called CSGO Lotto." Martin and Cassell also glorified the site's wagering features with posts such as, "I lied ... I didn't turn $200 into $4,000 on @CSGOLotto ... I turned it into $6,000!!!!"

The FTC also focused on posts from social media influencers whom CSGO Lotto provided compensation to ranging from $2,500 - $55,000 in value, including cash payments, free "skin" credits or both. Even though some hired influencers posting on CSGO Lotto's behalf included sponsorship disclosures, such disclosures were almost always placed inconspicuously, the FTC alleged. The FTC requires that all social media influencers, when receiving anything of value (i.e., cash payments or "skin" credits for the CSGO Lotto platform), shall clearly and conspicuously use "#ad" or "#sponsored" to notify consumers that the influencer has a material connection with the brand.

The FTC and CSGO Lotto settled the action by entering into an Agreement Containing Consent Order ("Consent Order"), in which CSGO Lotto neither admitted nor denied wrongdoing.

Takeaway

Although CSGO Lotto and its founders were not fined, the Consent Order mandates that CSGO Lotto submit to compliance requests from the FTC for ten years. The Consent Order specifically requires CSGO Lotto to adhere to the following obligations:

  • CSGO's employees, agents, and representatives of any kind, who are in active concert with the company, shall not make any misrepresentation that such endorser is an independent or ordinary consumer of the service, and material connection disclosure shall be provided (e.g., #ad); and
  • CSGO shall more closely monitor its endorsers and provide to each endorser a clear statement of his or her responsibilities to disclose clearly and conspicuously, in any online video, social media post, or other communication, the endorser's unexpected material connection to CSGO Lotto.

As companies in the video game ecosystem direct more promotional content to online and mobile applications, the FTC has proven that it is watching and is willing to enforce the FTC Guides to ensure its "truth-in-advertising" motto carries over to the digital environment. Companies should revisit their social media policies in the wake of the CSGO Lotto Consent Order and the updated FTC Guides' FAQs to ensure compliance.

If you have questions about the CSGO Lotto settlement, or about any other advertising and marketing compliance matters, please contact Sean F. Kane at (212) 705 4845 or skane@fkks.com, S. Gregory Boyd at (212) 826 5581 or gboyd@fkks.com, or any other member of the Frankfurt Kurnit Interactive Entertainment group.