The ad industry is abuzz with the recent accusations by Jon Mandel, a longtime media exec, regarding widespread kickbacks between media companies and media agencies. I can believe that there are kickbacks, personal favors, some tit-for-tat agreements, but the claim that it is widespread is difficult to believe because of the number of people that need to be involved, all either partaking in the fraud or looking the other way. In order for them to be as widespread as Mr. Mandel states it needs to be systemic. To get away with it strict non-disclosure agreements between the agency and the media vendor must be in place. It would also survive an audit because any kick-backs would be treated as a secondary transaction. It would be disturbing if it is indeed happening. Read the following for more info on Mr. Mandel's statements: http://adage.com/article/agency-news/mediacom-ceo-mandel-skewers-agencies-incentives/297470/ But there is another practice that is widespread in our industry, one that happens out in the open. I’ll call it “double-dipping”. Double-dipping is when an agency buys services from itself in order to improve its bottom line. And it is happening at the biggest agencies out there.
Not to pick on any one, but look at the major holding companies and you’ll see how agencies are making money today when the stated commissions seem to get lower and lower every year. Each major holding company owns creative agencies, media agencies, barter companies, mobile agencies, tech platforms, CRM companies, research and strategy companies, branded content companies, etc. So you can see for yourself, below are links to their organizations:
Their worst offenders are their trading desks where there is no transparency between the amount they are paying and the amount that they are selling it to themselves.
High-level executives at any company like this are encouraged, and likely their bonuses are dependent upon, how they can improve the bottom lines of the parent company by moving money between organizations internally. Whenever and wherever possible they will buy services through an internal partner who is arbitraging inventory. The client thinks the margins are slim, but they can easily double or triple when no one is paying close attention.
Marketers have contributed to this by creating an environment where this can happen. Every year procurement led reviews occur wherein a marketer’s stated goal is to reduce the service costs. This is compounded by their insistence on extending payment terms. Who in their right mind would continue to accept lower terms AND wait to get paid? The answer is simple. Someone who’s figured out another way to make money.
If you’re a marketer who is now concerned about these practices look carefully at your agreement. Is your agency able to subcontract without your permission? Is your main agency constantly parading in specialty divisions? If they use an internal subcontractor with your knowledge do they not want you to have a direct contract? Do you not audit your agency and their vendors? If so, there’s a possibility they are double-dipping.
Holding companies developed these arcane multi-discipline organization charts for one reason and one reason only. They’re not interested in being the best at anything, except discovering new ways to separate you from your money.