Agency Rebate Debate: ANA Soft Pedals, Mandel Digs In

jon mandelThe Association of National Advertisers has distanced itself from comments former Mediacom CEO Jon Mandel made onstage at its Media Leadership conference last week.

In his presentation, Mandel alleged that the practice of rebates or “kickbacks” demanded by agencies from media suppliers and tech partners – common overseas – has in recent years become widespread in the US.

Three days of relative silence followed. Then the ANA, perhaps feeling some heat over his broad claims, issued this statement on Wednesday:

“At ANA’s Media Leadership Conference, statements were made which suggested that material agency transparency issues (i.e., undisclosed rebates) were a considerable concern in the industry. While ANA cannot specifically identify the breadth and scope of such practices, we regret any impression that agencies in general are engaged in questionable activities and apologize to those who were offended. It was certainly never the intent of the ANA to make any sweeping statements of widespread agency participation in any questionable practices.

ANA will continue to investigate and work to bring greater understanding to the media marketplace regarding transparency concerns.”

Reached by phone, Mandel said he understands the ANA’s caution, but he stands by his comments. An edited transcript of the interview follows.

AdExchanger: What has been the reaction to your ANA speech?

JON MANDEL: Since I did this presentation I’ve gotten over 100 emails from people I don’t know, saying, “Let me give you the details.” But everyone wants to be confidential.

One of the things I find most troubling is the way agencies involved in this kind of activity treat their own people. When a company gets caught doing something bad, they say it was a rogue employee and they try to withhold severance payments, saying, “You can’t disparage us.” They are ignoring the fact that it’s not disparagement if it’s truth. They manhandle people who need jobs.

Why should advertisers care?

In the online space, one of the arguments people make is, “We are much more effective than any other media out there because of the targetability.” Yet when you look at an average kickback in the tech space, it may be 10%. And media kickbacks can run up to 28%. That means up to 28% of every client dollar is not going into media pressure. It’s going into the agency.

Who else should care?

Investors and tech companies. A wide group of them are VC-funded and are going to want an exit at some point. If 10% portion of your revenues goes to a kickback in a foreign nation, you have to be very clear with investors and potential investors exactly how shaky that contract is. Just like it can be given to you, it can be taken away when the next guy says, “I’ll give you a 12% kickback.”

Were you engaged in these rebate practices during your time at Mediacom?

At that time, in the United States, they were not doing it. But you could see all of the multinational holding companies moving toward it. I wouldn’t be a part of it, so I left.

I have many friends who are in the business and I keep hearing these stories. It has gotten to the point where it’s a big deal. What bothers me as a professional isn’t so much the money. It’s that clients are getting bad media. It hurts all of us who make a living in media. Clients think the media doesn’t work. There’s got to be transparency.

It’s a short-term focus that will hurt the industry in the long run.

Some people would say clients drove agencies to these practices by squeezing them on margins.

That’s bullshit. The agencies agreed to the prices. Smaller agencies who just want to get paid and do it straight for 5%, they get undercut by a big agency who can bid 1% or 2%.

Have any agency holding companies gotten in touch? Lawyers?

I can’t comment other than to repeat what I said before about disparagement.

Who were your sources?

The facts and proof did not just come from media and tech companies. They came from people who work at agencies but no longer do. And it has even come from people who still work at agencies.

It seems like ANA is backing away from the presentation somewhat.

Look, it’s not every agency doing this. Not everybody does it, and those that do it all do it differently. They need to get their arms around it more. They hired us, and they hired three other consultants. I think they will go and find more information, and I think they’ve got to come up with some solutions. But it’s an organization with a lot of diverse members.

You’ve got to keep everyone happy. They have to quantify, how big of a problem is it really?

How big of a problem is it really?

Virtually everybody that I and my compatriots talked to when doing this project for the ANA used the same three words over and over again. The three words are, “It is pervasive.”

Does the agency rebate issue play into your consulting business, Dogsled?

I don’t have a business doing this. I’ve gotten phone calls from people since this presentation saying, “Can you help with this?” I’m now playing with, do I do that or not?

I don’t need to do the work. I’m about to go up to my ski house on a Wednesday. It is this industry that paid for my ski house. It’s been good to me, and I feel a certain obligation to it.

You feel an obligation to help keep the supply chain clean?

You need a certain amount of integrity in the marketplace.

What will be the fallout for agencies as the rebates issue comes more into the open?

I think clients are going to be a lot smarter. I would think they would have a more open dialog with the media companies. I think it might change the way they audit their relationships.

Do you think agencies will be dragged into meetings with procurement agents?

Dragged might be the right word for it.

But look, it’s not the fault of any one person or group of individuals. It was a confluence of factors that came together in a perfect storm.

But it got started somewhere.

As human capital moved around the world, people doing this in Germany or the UK could come to the US and say, “This is how it’s done.” I think that [global circulation of talent] has been a big factor.

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1 Comment

  1. I think the margin squeeze is a major contributing factor to why an agency would engage in these practices, assuming Jon Mandel is correct that it is happening.