Why Starstruck Companies Keep Spending Millions on Oscar 'Swag'

Even though the Academy Awards banned official swag bags four years ago, the luxury-laden gift baskets will still make an appearance this awards season. In fact, the actors who lose out in this year's top Oscar acting and directing categories will receive gift bags valued at $91,000 (the 2007 "bag" pictured here included $75,000 worth of gifts), while all of the other A-list stars will clean up at gift suites around Hollywood.

Some may criticize the swag bags as the worst kind of conspicuous consumption. After all, the stars can surely afford to pay fair value for bags filled with electronics and spa vouchers.

The tradition started innocently enough, as a way for award organizers to thank stars who donated their time as presenters. But, in 2006, the IRS started cracking down on the bags, warning recipients that the items they were given are considered income and therefore are subject to taxes. The Academy Awards opted to discontinue its official gift bags starting in 2007.

Oscar-Worthy Swag

Despite all of the controversy surrounding the practice, businesses are still willing to give away millions of dollars worth of merchandise during awards season. After all, getting one of their products photographed with an A-list star like Angelina Jolie or Matt Damon in a weekly tabloid or fashion magazine can be a surefire way to boost sales.

"It's like stardust," says Lash Fary, the founder of Los Angeles-based Distinctive Assets, which is creating the $91,000 "consolation" gift bags for the actors and directors who lose out in the Academy Awards's major categories. This year's bag includes a $45,000 voucher for a South African safari for eight adults and eight children. "If George Clooney goes on the (safari) tour, that's amazing. After he's gone, you let the magazines know he was there, and then people want to go. It's got that celebrity seal of approval on it." (Still, Fary notes that he's using Clooney purely as an example, since the actor is known for donating his swag bags to charity.)

Fary's gift bag, which will be delivered to the 22 losers in the top categories on Monday, includes more than 30 gifts ranging from a year's supply of Altoids Smalls sugar-fee mints to a $4,000 Victorinox limited-edition leather travel bag. Picking which items will be included in the bags is "a year-long endeavor," Fary tells DailyFinance. His company screens products for quality and picks one gift per category, such as facial beauty products, he says.

Word-of-Mouth Marketing Among Hollywood's Elite

For Winvian, a high-end resort in Connecticut's Litchfield County, the swag bag proved an innovative way to spread its name among Hollywood's elite. The hotel, which is participating in its second Oscar swag bag through Fary's company, won't disclose which stars cashed in their vouchers for a three-day, $7,000 stay last year (although Distinctive Assets says last year's losing nominees Ron Howard and Frank Langella booked stays at the hotel.)

"You run the risk that everyone will call and say, "I'm coming,'," says Winvian general manager Heather Smith. "But usually you see a handful of people." That's in line with a historical redemption rate of about 10% for vouchers, Fary says.

Smith says the payoff of giving tens of thousands of dollars in vouchers away comes in the form of word-of-mouth referrals from satisfied guests who provide the hotel with some of its best leads. "It gives us more bang for the buck," she says. "If one person comes and enjoys themselves, that helps us." And the publicity surrounding being included in an Oscar gift bag is valuable in itself, she says.

Still, it's not a sure thing that even one star will embrace a swag bag product. "There really are no guarantees," says Julie Kenney, the founder of Jewels and Pinstripes, a Pleasanton, Calif.-based celebrity gift bag company which is putting together bags for the 24th annual American Cinematheque awards honoring Matt Damon on March 27. Yet if the ploy works, "it's an inexpensive way to get your product to the celebrity," she adds.

Social media has helped publicize gift bag products, too, she adds. Kenney's company uses Facebook and Twitter to send out updates about stars seen out-and-about with products from its gift bags (one recent tweet: "Celebrity sighting: Heidi (Klum) Samuel with Balanced Day Lunch Kit from Leni's Back to School Gift Bag!).

Still, the gift bag business has not remained completely unscathed by the recession. Five years ago, Kenney used to charge companies $5,000 to get their products into an event's celebrity gift bag. Now, the cost is often less than $1,000 per company. As for Fary, he says he's seen an increase in demand for gift bag placements during the past year (he charges $4,000 per company to be included in his Oscar swag bag.)

"The recession has led more and more companies to explore alternative forms of marketing," he says. "And celebrity placement is an obvious choice."