Last Updated May 18, 2011 11:23 AM EDT
Sure, you know what bill-padding is. But what about "agency volume bonification"? The answer is right here. Never heard of "prop trading"? Look no further. We've compiled our coverage into a single resource -- bookmark this page! -- that covers as many scams, schemes, shenanigans and straight-up crimes in advertising as we can think of. We'll keep this updated as new cases emerge (so ignore the date at the top). We hope this page helps clients spot questionable billing practices, and agency execs avoid legal and ethical trapdoors.
Welcome to Client Hell, where nothing is what it seems. If your agency has you feeling like Dante in the Inferno, let BNET be your Virgil ... a guide to the Underworld of Advertising:
Kickbacks and bid-rigging
Client contracts often require that certain expenses -- anything above $25,000 for instance -- be put out to bid so that the cheapest or best bidder wins. Historically, some agencies have found ways to control this process to benefit themselves. Two executives at Grey Group were convicted in such a scheme. Taking bribes to award contracts, or arranging bidding contests that aren't fair, are crimes in the U.S.
- J&J Kickback Scheme Shows Preventing Ad Fraud Is Easier Said Than Done
- Judge Says Dunkin' Donuts Kickbacks Stay Secret Because It's "Personal"
- In Dunkin Donuts Kickback Case, Arnold Worldwide Had No Idea It Was Also a Victim
- Dunkin' Donuts Kickback Case Shows Al Capone's Legacy Is Alive and Well
- No Trial in Sight for Dunkin' Donuts Marketing Kickback Case
This one is the oldest trick in the book: Do some work for the client and then charge more than it's worth. The confusing part comes when you try to separate a legitimate markup from outright fraud.
- Ogilvy Overbilled IBM by "Millions" for Ad Media, an Exec Claims
- Ogilvy Settles Suit Which Alleged a Plan to Fraudulently Bill Avon
- Tom Seifert Made Chairman at Ogilvy; His Ex-Con Wife Is Still in Business
- Bermuda Opposition Demands "Forensic Audit" of Globalhue Billing on Tourism Account
- GlobalHue Accused of Overbilling Bermuda Account; Agency Plays Race Card
- News America Marketing Whistleblower: Clients Were Charged for Ads That Never Appeared
It's uncommon, but sometimes agencies simply attempt to cheat clients out of the money they're being paid, either by overcharging or charging for work not done.
- Publicis Q4: $15.5M Army Fraud Settlement Not Noted in Its Numbers
- Leo Burnett CEO Bernardin Oddly Silent on $15.5 Million Fraud Case
- The Scale of the Stupidity at Leo Burnett
- Leo Burnett Pays $15.5 Million to Settle Allegations It Defrauded the U.S. Army
Volume discounts -- sometimes called volume overrides, volume rebates or "agency volume bonification" -- are common in Europe but have been used by agencies in New York also. The media buying agency GroupM once told BusinessWeek that it was hoping to persuade clients to allow them.
In a volume discount scheme, the ad agency pays various vendors for their services. Those vendors, hoping to curry favor, then return a percentage of the payments as a goodwill discount for the volume of service requested. The agency keeps the discount instead of returning it to the client, even though standard client contracts generally require agencies to bill at net or best price.
These can be hard to spot if an agency books the discounts as a separate revenue stream outside the client's account -- so they don't show up in audits. Examples include:
- How Ad Agencies Divert Clients' Money to Their Own Bottom Lines
- Publicis Has Some Explaining to Do on "Payments" From Google for $1B in Ads
- Printing Money: Secret Transcripts Reveal How Grey Group Juggled Clients' Cash
- Sunshine as Disinfectant: Court Frowns on Secrecy Over Advertising Kickback Allegations
- The Secret Mad Men Tapes: Judges Urged to Keep Ad Agency's Billing Documents Under Seal
- Grey Wins Bid to Keep London Documents Secret
- Corporate Amnesia at Aegis: â‚¬30M Fraud Settlement Disappears in Q2 Numbers
- Why Advertisers Want to See Magazines Finish Their Race to the Bottom
- Kickback Culture Alive and Well in Advertising, as Settlement Between Aegis and Danone Shows
- Prosecutors Eye 50 at 15 Largest Media Agencies in Volume Discount Probe
- Danone Is Right to Demand Transparency in Aegis Kickback Case
- Clients Rooked by Middlemen and Volume Discounts in U.K.'s Murky Outdoor Business
- AICP Admits Volume Discounts Exist; Offers Them to Clients Instead of Agencies
- P&G, Reckitt Production Changes Threaten Volume Discounts for Agencies
The most common problem with agency billing and compensation is that it's murky or non-transparent. The advertising business has a long history of not being forthcoming about how, exactly, it generates its bills. Some examples:
- A New Way for Ad Agencies to Fleece Clients: Barter-Based "Trading Units"
- Agencies Fight Against Procurement Execs -- a War They Will Surely Lose
- Sorrell's Comments on Procurement Reveal Opacity of Agency Billing Practices
- Aegis' Q3 Results Report Is a Joke
- Levi's Asks for Transparency and Media Buyers Balk
As a rule, marketing vendors tend to be competitive and cutthroat. Barriers to entry are low and there are plenty of agencies to choose from. But every now and again one agency comes to dominate an advertising niche -- think Google and its control of search ads. Examples of rising prices and cooperative behavior in an environment where there ought to be vicious price competition include coupons and network TV:
- Why FTC Should Examine Valassis and News America's $500M Settlement
- Musical Chairs at Aegis' Carat Direct; Will "Prop Trading" Be an Issue in 2010?
- Sara Lee "Rape" Memo Emerges: Client Alleges "Unforgivable" Behavior by News America
- Hidden Cameras at Ralph's? News America Alleges 'Sting Operation' in Supermarket Ad War
- Trial: Did News America Marketing Group Break Into Floorgraphics' Computers?
- Was N.Y. Post's Carlucci the Reason for News America Marketing's Settlement With Floorgraphics?
- How Network TV Keeps Prices High Via Sweetheart Deals With Favorite Advertisers
- Is the TV Networks' Upfront an Antitrust Violation?
- Are TV Networks Colluding to Keep Ad Prices High in Time of Lower Demand?
- TV Ad Prices Remain High Despite Weak Market, Lower Audiences
There's nothing illegal about an ad agency hiring its own in-house TV production company to film a commercial ... as long as the client knows that the agency owns the company. In-house producers make competitive bidding difficult because, of course, the in-house bidder has more access to the agency executive controlling the bidding process:
- Ogilvy's Production Consolidation in NZ Solves Cashflow Problem, But Will Clients Like It?
- WPP's In-House Commercial Production Shop Courts Controversy With Clients
This isn't an advertising problem, it's a human problem: Sometimes individuals are just on the take:
- Soccer Dodge: How an Exec at Fulham F.C.'s Ad Agency Embezzled $750K to Pay Players on Another Team
- Expenses Fraud and Whistleblowers: A Combustible Mix Ignites at Omnicom
- Lamar Advertising Manager Guilty of Embezzling $200,000
- Rita Sanders Advertising employee took $40K in agency credit card scam
Advertising by its nature is filled with surprises. Here's a grab-bag of schemes that fall outside the usual categories:
- Interpublic's Quiet Facebook Stake: Cue the Client Conflicts
- Pick a Number: Illinois Lottery Ad Managers Now Managing Themselves With Tax Money
- What a Conflict of Interest Looks Like: Microsoft Has Publicis Over a Barrel in Ad Deal
- How the FTC May Curb Free Speech Rights for PR Agency Employees
- Bermuda's Experiment With Ad Agency Cronyism Ends in Failure
- Bermuda Premier Stokes Racial War Over His Tourism Advertising Budget
- The Conflicts and Dangers Within Advertising's "Trading Unit" Trend
- Google Held Hostage: "Rev-advert" Malware Redirects Searches to Advertisers
- Lamar Advertising Still Embroiled in Pittsburgh Ethics Scandal
- ValueClick Settles Sham Sweepstakes Suit for $10M; Winners Offered a Nonexistent Hummer
- 3 Ways Clients Can Push Ad Agencies to Save Money
- Steak n Shake Sues Varnson for Kidnapping Its Web Site; Hijacking Image Library