Deal Makers - Ad paydays: clients shrug

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Four Bcom3 Group executives are about to pocket a $300 million jackpot from the agency company's sale. Who cares?

Word of the windfall has raised surprisingly few eyebrows among clients, colleagues or observers. Similarly, Donny Deutsch's $213 million payday from his shop's sale in 2000 caused barely a ripple. That underscores how much the ad business has changed since 1986, when Bob Jacoby was vilified for pocketing more than $110 million on the sale of Ted Bates Worldwide.

Why did Mr. Jacoby take the hit while others just take the loot? Short answer: He was first.

"It was early in the game. It hadn't been done much before," the retired 74-year-old ad executive told Advertising Age last week in an interview from his home in Florida. "The shock value wore off after that."

Client reaction to the Bcom3 news proves the point. Jim Stengel, global marketing officer at Procter & Gamble Co., said he doesn't much care about the $300 million in cash and securities that will be split by Bcom3 Chairman-CEO Roger Haupt, President Craig Brown, former Vice Chairman Richard Fizdale and former Chairman Roy Bostock when the sale to Publicis Groupe is completed.

"It makes for some interesting headlines," he said of the windfall. But, "I try to stay focused on, `Am I getting great work at great value?' " Mr. Stengel noted that P&G has changed the way it compensates agencies to align their pay more closely with sales. (The Bcom3 executives declined to be interviewed .)

Bates' $507 million sale to Saatchi & Saatchi-and then-Chairman Mr. Jacoby's share-broke records for ad agency deals. But what was a big deal then is now routine. Outside advertising, the biggest takeover of 1986 was worth $6.4 billion-paltry next to last year's $186 billion collision of America Online and Time Warner.

In the ad business, seven of the 10 largest U.S. agency groups in 1986 have since been acquired, including such high-priced takeovers as WPP Group/ Young & Rubicam ($4.7 billion) and Publicis/Bcom3 ($3 billion).

"Given the sheer frequency with which these deals have gone on since Jacoby's time, people just tune it out," said David Beals, president-CEO of Jones Lundin Beals, an agency search and compensation consultancy.

There was no easy way to tune out Bob Jacoby, a short man with a big mouth who used to carry a pistol into agency meetings. And there is no doubt that after the Bates sale, the cozy world of agency relationships and commissions disappeared. Mr. Jacoby was at the eye of the storm; the question is whether his actions brought on change (his critics' view) or whether he took the money and ran because he presciently saw a world about to change (his view).

In either case, Mr. Jacoby shocked the system. Arthur Anderson, managing principal of Morgan Anderson Consulting, said the Bates sale for the first time focused marketers' attention on the worth of the agencies being built with their money.

Mr. Jacoby said that when he sold Bates, he knew the agency world would consolidate and compensation would come under pressure. "That's the reason I got rid of Bates," he said. "I could see all of that coming." Saatchi & Saatchi, he now acknowledges, paid "twice what we were worth."

Mr. Jacoby, who left the business shortly after the sale following a falling out with Saatchi & Saatchi, noted that the deal created 112 Bates millionaires. But the ad industry was fixated on his $110 million take.

pot calling kettle black

Today, most large agencies are controlled by public holding companies, and agency finances are out in the open. The biggest change may be in the corporate world, where many marketers have also gotten rich off merger deals and initial public offerings.

"For senior executives at other corporations to gripe about what these [agency] guys make is the pot calling the kettle black," said consultant Mr. Beals.

Still, Mr. Beals said some clients do note how much agency executives make when a shop sells out.

"For those clients who were already looking askance at agency costs, this is something they might jump on," he said, to pressure agencies to lower their fees.

Meanwhile, Bob Jacoby, once, in his own words, a "pariah," has polished his reputation by building a library, a symphony hall and a hospital. He professes no regrets about selling Bates and said he's no longer angry about the pummeling he took in the ad world.

"They wanted to get their revenge," he said. "I don't resent it. It's funny as hell. It turned out OK."

contributing: jack neff

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