Lost Verizon: What McCann Faces Without Its $1.5B Ad Account

Last Updated Apr 9, 2010 2:39 PM EDT

With a new CEO at McCann Erickson, Interpublic (IPG)'s flagship ad agency seemed set to chart a course out of its troubles, especially with the economy starting to swing back into growth. But the loss of Verizon -- at $1.5 billion in total spending, the shop's biggest account -- has once again plunged the future of McCann into fog.

Deutsche Bank analyst Matthew Chesler, in a note to investors, said:

The larger issue that we expect investors to focus on is the strength and stability of McCann Erickson, IPG's largest agency, and whose continued performance is critical to the IPG turnaround.
To translate the subtext: The last thing you want is investors focusing on your "stability."

The agency is so famous, and so famously huge, that it was the one that acquired Sterling Cooper on Mad Men. To be sure, the agency remains massive -- its New York office handles perhaps $1.8 billion in ad media billings -- but it also remains a massive problem. In addition to Verizon, here are the other accounts that have bounced out of the McCann network recently:

  • Verizon's Droid phone ($100 million in billings)
  • Microsoft ($300 million in billings)
  • Viagra ($120 million in billings)
  • Hewlett Packard's Personal Systems business in the EMEA region ($150 million in billings).
Ad Age said the loss was a "devastating setback" to McCann. The FiOS business is also in doubt. Adweek described it as a "major blow":
Interpublic Group's McCann will lose at least $25 million in revenue and potentially more if FiOS also leaves, according to sources. The office's total revenue is estimated at $180 million.
So, how big a headache does new CEO Nick Brien (pictured) have right now? Let's do some napkin math. Chesler reports that there are plenty of other bits of the Verizon business installed in IPG's other agencies, so the loss of this revenue to IPG as a whole is painful but negligible. McCann New York specifically, however, is a different story. If the office's revenue is $180 million, its billings are roughly $1.8 billion.

The best-case scenario is that if McCann's entire Verizon business exits, and all $25-30 million in revenue leaves, then the New York office still remains a shop billing about $1.5 billion from its remaining clients. The worst-case scenario lurks inside the third to last paragraph of Adweek's story:

Major media spending for Verizon totaled $1.51 billion last year, the bulk of which -- $1.11 billion -- backed Verizon Wireless, according to Nielsen. Spending behind FiOS represented just a fraction of the total pie: about $185 million, per Nielsen.
With up to $1.5 billion in billings walking out the door, how much of McCann New York might be left? George Parker thinks McCann might end up being merged with another IPG entity, perhaps DraftFCB. I don't buy it. But the benefit of hindsight tells me that at this point it would have made a lot more sense to merge the troubled/irrelevant Lowe Worldwide brand into McCann now rather than jamming it into Deutsch last year.