A Lingering Shutdown Will Bleed Into Adland

Agencies Could Run Into Cash-Flow, Staffing Issues If Government Can't Get Act Together

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Five days into the government shutdown that was furloughing "nonessential" workers and freezing communications efforts, the ad agencies who work with government agencies hadn't yet felt the pinch. But if the country's 50th biggest ad spender remains silent for another week, the ripple effect could claim adland as one of its many victims.

Kathleen Donald, chief operation officer at Lowe Campbell-Ewald
Kathleen Donald, chief operation officer at Lowe Campbell-Ewald

"We are not experiencing any immediate fee impact," said Edelman Washington, D.C., President Rob Rehg on the second day of the shutdown. "However, the longer the shutdown continues we will start temporarily losing fees [in some business], beginning next week."

"You know what budgets have been allocated, but there's nobody there to pay you," said Lowe Campbell-Ewald Chief Operation Officer Kathleen Donald. "Most people who make sure the payments to contractors are processed have been furloughed. You could run into a cash-flow issue if you can't get paid."

The Interpublic Group of Cos. agency, which handles creative, media and digital work for a handful of large government agencies, is still in contact with executives from client teams that have been deemed "essential."

The FDA, for example, held its usual "think tank" meeting with agency partners on Oct. 1.

Cash-flow issues would likely start with the media-buying operation. "We've started having those conversations with clients about media," Ms. Donald said. "Media is a big investment. If you run media on behalf of a client and can't get paid for it, at some point you [hit a roadblock]."

The federal government, which is number 50 in the Ad Age DataCenter's 100 Leading National Advertisers ranking, spent $826.8 million on total advertising and promotions in 2012, and more than half of that amount went to measured media. The U.S. Postal Service—which actually won't lose funding during the shutdown—is the biggest-spending brand in that entity, followed by the Marine Corps, Army, Navy, HHS, Drive Sober, National Highway Traffic Safety Administration, Amtrak, Air Force, CDC, Independent Foreclosure Review and Job Corps.

So what do more furloughs, absent paychecks and bickering in Washington mean for consumer spending? The National Retail Federation cited uncertainty about the government as a factor in its holiday projections.

The NRF is calling for only a modest 3.9% sales boost this holiday season. According to a SheSpeaks "Government Shutdown Study," 43% of U.S. women polled said they'd now spend less due to their concerns about the impact of the shutdown. The study fielded a sample of 1,047 SheSpeaks members Oct. 2.

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