Features
Is this the most hated man in advertising?
Last year Jon Mandel's allegations of media agency "kickbacks" lit a transparency firestorm across the marketing world. He sat down with Nic Christensen to discuss his reasons for coming clean on the unspoken practices.
“It wasn’t supposed to be inflammatory,” says Jon Mandel with deadly seriousness, as we sit down for a drink in the midtown New York steakhouse he picked for our interview.
But almost without missing a beat the plain-speaking New Yorker sets out his position: “Look, it’s one thing if you steal $10m from a client but it’s another thing if you kill the brand in the process because you give it bad media.”
About 14 months ago the the former CEO of GroupM agency Mediacom in the USA got up on a stage in front of an audience of marketers at an ANA event in Hollywood, Florida, and turned the world of media agencies on its head.
His accusations about agencies demanding rebates from media owners – known in this market as value banks – started a chain of events that would finish in ex-FBI investigators being called in to investigate the extent of the issue.
Despite accusations from former colleagues he has effectively destroyed trust in the advertising world, it is clear Mandel is unrepentant about letting the cat out of the bag.
Speaking an industry secret
His comments have made him one of the least popular people in the advertising world, and Mandel acknowledges he has subsequently received legal letters from his former employer WPP, despite having departed Mediacom in 2006.
Mandel points out he never “named names” or pointed the finger at any one business or agency. Instead he maintains all he was doing was simply speaking out about something that had been an industry-wide open secret for a number of years.
“I was the fourth guy that got up there and presented to these people (on transparency),” says Mandel, who more than a year after the event seems genuinely surprised about the impact of his comments.
“But I have never seen a room react like that,” he explains. “I mean, when I do a presentation I’m pretty fucking good at reading the room, and usually you do this at a conference and you see people on their computer or answering their email or doing Facebook, or whatever.
“But it was within, I’d say, three slides that there was jaws down and mouths agape and I was like ‘can I get some back and forth or, you know, a laugh at some of the jokes?’ Nope. There was absolute silence. It was like somebody had died in the room.”
Mandel had pointed out the giant pink elephant in the room, and for the American advertising scene, once seen, there was no unseeing it.
The whistleblower on ‘kickbacks’
The reaction to his comments was both fast and immediate, as it sparked a national transparency conversation across what is perhaps the most influential advertising market in the world.
One the US media stories discussing the ramifications of Mandel’s comments
Among the resulting headlines were: “Former Mediacom CEO alleges widespread US agency ‘kickbacks‘”, “Agency media kickbacks are pervasive, systematic” and “Media-agency kickbacks. Yes, they’re real.”
Mandel’s former employer GroupM moved swiftly to deny the practice was occurring in the US, but within months the ANA had launched a far-ranging “fact finding” review to examine the controversial area of media rebates, credits, free space and agency volume bonuses (AVBs) and whether these payments are being returned to clients or pocketed by the major holding groups.
That review is being led by intelligence firm K2, which uses former FBI agents and Ebquity’s forensic auditing division Firm Decisions and is expected to report in the coming weeks.
Mandel maintains it’s a discussion that needs to be had.
“Look, I have had a reputation over the years of speaking what I think. It’s not necessarily always polite,” he said.
It is always true and factual.”
“This issue is cultural,” he says focusing in on media agencies. “The issue is they are hiding things in barter, they are hiding things in programmatic, they have all kinds of ways to hide things from their clients.”
To Mandel if there is one part of the debate that frustrates him it is a sense of victimhood and deflection by major media agencies.
“I had one media director come up to me after my presentation at the conference,” Mandel says. “He then proceeded to tell me how he was cleaner than the other guys – not clean mind you, but cleaner than the other guys – he then gave me chapter and verse stories of what two of his competitors did.
“He then went out publicly to say that I didn’t know what I was talking about.”
Mandel also notes that he is not the only former media agency executive to receive a legal letter, in recent times.
“I personally got a lawyer letter, which had no legal basis to it,” Mandel says adding: “There were several past and current employees where there were attempts to ‘chill’ the people (into not speaking).
He references a leaked email given to Media Post late last year, which told staff at GroupM to “protect the confidentiality of clients” on the topic of rebates in the US.
“I was not the only person to get the legal letter… I guess what I am getting at it is that it is indicative of the culture and the extent that some agencies go to in order to hide or obfuscate what they are doing.”
A corruption of media planning
At its heart the debate around transparency and rebates comes back to the role of media agencies and disclosure.
Marketers don’t want these rebates to influence the advice they receive from their agencies and fears planners are prefferencing the forms of media that give them the best kick-back.
According to Mandel, even savvy marketers who are aware of the practice and who insist that all media rebates are returned to them, have been caught out at times.
“I know one client and they have some pretty good people who have been on this for years, and yet somehow all of a sudden it has some $3m branded entertainment on Youtube on their media plan,” says Mandel.
“It didn’t need it. I’m sorry, not every single brand in a fast-moving packaged goods company needs a $3m branded entertainment strategy, but suddenly there it is.”
A global transparency issue?
So how big does he think the media rebate/transparency problem is? Is it a global problem?
Mandel points to the various threads of rebate problems coming together around the world.
In the US, marketers are eagerly awaiting the release of the K2 report which the ANA claims will be a “black and white report” with “unassailable documentation” of what truth is on this topic.
But the UK’s advertiser association ISBA has moved ahead of the US ANA report, seeking to assuage marketers’ concerns in this area by releasing a 52-page template contract that marketers can use to help achieve better oversight and auditing of these practices.
ISBA executive Deborah Morrison didn’t mince her words, telling the Financial Times: “I don’t believe that [the media agencies] have got the best interests of their clients at heart any more.”
“I was shocked that the ISBA came out with that,” says Mandel. “Because of the fact they they got on to it quickly, that this is a problem.
“I think it’s very telling that they what they came out with what was 52 pages. I mean, that’s fucked up, man, that you would need to have a 52 page contract in a country that the media agencies would have all the corporate people in America believe (the rebates) are totally okay and allowed.
“If you need a fifty two page contract and in a country where it’s allowed, in the US do you need four hundred pages?
“What the hell? It was like being hit with cold water. I was just totally amazed by that.”
Mandel also says he is aware of the Mediacom misreporting scandal that hit GroupM in Australia last year, and saw them admit to charging clients for rebate inventory that should have been passed on to no less than four major clients.
At the time the Australian media agency industry body the Media Federation of Australia (MFA) dismissed concerns about a wider transparency issue, but later in the year put out a one page document establishing new guidelines on so-called “value bank” inventory. Four out of the five major Australian holding groups continue to refuse to even publicly comment on whether they engage in the practice.
Does Mandel believe Australian marketers should be worried about these practices in Australia?
“Well first of all aren’t you the country of all the criminals from the UK?,” he quips before going to make a broader point. “Seriously, I don’t know where it’s not happening.
“Show me a place that’s not happening,” he exclaims. “I mean look, the global side, the reason it happened in the US is that they brought in some of the global practices to the US.”
An erosion of trust across the media spectrum
Mandel says the consequence this has is an erosion of trust, not only between marketers and agencies, but within the agencies themselves and across the broader landscape.
“The middle management (of agencies) so wants to do the right thing by clients, but they’re being hamstrung by these deals that their companies have made,” he argues.
“They’re not doing the right things. It’s not the way people are brought up as professionals, or as human beings.”
And while it might be marketers that feel cheated by their agencies Mandel notes they aren’t the only victims.
“The guys that were the victims here were not just the clients by the way,” he says.
“The guys who are the victims are the investors in the technology companies, the investors in the media companies paying the rebates”.
The question of responsibility
How much blame should we put on marketers? Surely the drive of procurement and a pressure to lower rates is a factor in all of this?
“Sure,” says Mandel. “But they (the agencies) didn’t have to agree to take it at that rate.”
To sit there and say, ‘well, they beat me up in the negotiation.’ Yet, you want to be trusted by them to negotiate with the other people? I mean, what’s up with that?
“Why am I going to believe you if you sit there and say you can’t negotiate with me, I’m going to trust you to negotiate with these people I don’t want to negotiate with myself, I want somebody who’s an expert to negotiate with?”
To Mandel’s mind if clients are complicit it is in the area not asking enough questions about how agencies are able to get them such cheap rates on inventory and where it is coming from, particularly in the controversial area of barter.
“There are the clients accounting department, finance department, should have explained what barter is to the marketing department,” says the media agency executive, turned consultant.
“There are Financial Accounting Standards Board rules about what barter is. It’s not a media thing, it’s a very specific financial thing. That should be the finance department’s role.
“Yet a huge percentage of what the agency say is barter, is not technically bartered. They say they got this inventory for services they provided.”
If there is one thing Mandel says clients need to get their heads around it’s that there isn’t a plethora of media owners just willingly giving away their inventory.
“I’ve worked for a lot of media companies in my time as a client,” he says. “You have media agencies going to clients saying ‘I’ve got this media for cheap. It’s below market, buy it for 100% cash.’ It’s not what barter is, under FASB accounting rules.”
What next for the transparency debate?
Does Mandel expect much from the K2 and Firm Decisions reports that are due out in a matter of weeks?
“The question isn’t necessarily the report,” he argues. “The question is what do the individual people – advertisers and agencies – do about it.
“Truth and honesty will solve a lot, but in doing that people are going to have to admit ‘I fucked up’. Both on agency side and the client side people are going to have to look in the mirror and say ‘what did I do wrong’? How do I live right?”
He expects to see a rise in independent media agencies setting up: “I think you are going to see that more and more in media where people will say ‘I’m too old for this’ and decide to split off and go independent.”
But Mandel isn’t holding his breath for a sudden sea change in the big media agencies.
“I don’t think we are at that point yet,” he says. “The reason is because we still have agencies denying that they do anything wrong.
“They also have clients rightfully scared that they are going to be personally blamed for what happened when it is not any single person, single department’s fault.”
Are we killing the golden goose of advertising?
If he has one frustration with this whole transparency debate Mandel says it is that media agencies are failing to recognise what a short-term grab for money is doing to the industry in the long term.
“This is the thing that I find the most amazing about this. If you’re an agency and you’re doing this to me, I don’t get it. What you’re doing is you’re killing the agency. You’re killing advertising.”
He adds: “I think clients, to a certain degree, are insecure. They are looking for help.
It’s not that the agencies are thieves or that the marketers fucked up. Everybody fucked up, everybody in the ecosystem fucked up. Now come clean and play well in the sandbox.”
Mandel isn’t sure how this will play out but argues the industry needs to recognise the consequences of what is happening, before it is too late -particularly if they are risking the broader confidence of business in the sector.
“If you’re the CFO of a (US) company spending $4bn a year and you think you’re probably wasting $2bn, but you don’t know how or where,” Mandel explains.
“You think ‘which $2bn?’, because you think the whole thing is bullshit, right? You’re beating up on the CMO all the time saying, ‘Why am I spending $4bn?’ Now all of a sudden, you’re figuring out that the agency is stealing from untold who-knows – maybe it’s $1bn, maybe it’s $500m, maybe it’s $10 million – but you don’t know!
“Then you sit there and go, ‘Wait a minute, this whole thing is fucking scam’. Why am I even involved with this thing called advertising? Why are we even spending a dime in it?”
“The Harvard Business School may think they’re brilliant for driving this quarter’s profits,” he adds, “But media agencies, in doing this stuff over the next five to 10 years, will manage to kill the agency business.
“They are killing the golden goose. If you do your job and get compensated for it then the goose is healthy and you have baby geese, etcetera.
“What media agencies are doing is that they are strangling the neck of the egg layer. It is crazy, it is so short-sighted.”
What a great piece – fantastic insights. The industry needs more people like this guy.
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What would be fraud in any other industry becomes a mere linguistic puzzle in ours.
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I thought everybody knew this by now.
Corruption on a global scale but the clients need to look in the mirror, and in most cases, grow some balls and stop putting so much trust in the system.
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At some point it may start to occur to Clients (and their Procurement Departments) that paring back agency margins to infinitesimally small amounts creates an incentive to make up lost revenues in other, less transparent ways.
Think of it as Newton’s Third Law of Media.
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This is a great article.
However it is fair to say that Ruthers said all of this back in 2012 (see below) and again in 2015 when he accused media agencies of money laundering with their kick backs and value banks. Be nice if he got the credit that he deserved; Slingshot has NEVER entertained this behavior and has been the most vocal about it.
Anyhoo – all power to anyone who wants to do the right thing.
http://www.adnews.com.au/adnew.....laundering
http://www.adnews.com.au/news/.....e-for-2016
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