NEW YORK (AdAge.com) -- In the wake of the arrest of one of its top officials in connection with an alleged $13 million McDonald's contest scam, Simon Marketing is being dropped by its largest marketing clients.
|Simon Worldwide security director Jerome P. Jacobson was arrested by the FBI.
Philip Morris USA this afternoon fired Simon Marketing, while this morning, Kraft Foods also ended its agreement with the beleagured company.
Simon Marketing, the primary operating unit of Simon Worldwide, has been implicated in the scam that allegedly defrauded McDonald's Corp. customers of more than $13 million in prize winnings.
Simon Marketing develops game concepts, contracts the manufacturing suppliers and is responsible for game security.
The Federal Bureau of Investigation on Tuesday arrested eight people, including Simon security director Jerome P. Jacobson, on charges of mail fraud related to several McDonald's promotions. McDonald's ended its 25-year relationship with Simon following the arrests.
85% of net sales lost
The McDonald's and Philip Morris accounts represented 85% of Simon Marketing's net sales for the first half of the year.
Philip Morris USA made the decision to terminate Simon independently of Kraft, said Brendan McCormick, manager of media relations. "We made our decision based on what we felt was right for our business."
"Given the situation, this is the best decision for our business and our partners," Kathy Knuth, a Kraft Foods spokeswoman, said.
Philip Morris, which used Simon to supply merchandise for its catalogs, accounted for 8% of Simon's net sales in the first six months of this year, or $17.4 million of Simon's total $217.6 million in revenue.
In 2000 Philip Morris USA spent $69 million with Simon. Mr. McCormick said the company terminated all existing purchase orders with Simon.
Ms. Knuth declined to disclose the dollar amount of its business at the agency, but said Kraft has about 13 promotions currently in progress with Simon that it will transition to other agencies. Kraft also works with DL Blair, Gage Marketing and Promotions.com as well as other agencies.
Simon on Wednesday said it would work closely with investigators and McDonald's. The promotion firm said it was planning to hire a law firm to conduct its own independent probe on the scandal.
'Shocked' at allegations
"We share McDonald's shock at today's allegations," said Simon Worldwide CEO Allan Brown. "The more than 400 employees of Simon Worldwide have also been victimized by the alleged actions of one employee."
Simon Worldwide, formerly Cyrk, based in Wakefield, Mass., last month consolidated its CEO position with Mr. Brown after Co-CEO Patrick Brady resigned, along with Dominic Mammola, chief financial officer, and Ted Axelrod, executive vice president.
It was the latest in a series of tumultuous changes including the year-end sale of the Cyrk name and its catalog unit Corporate Promotions Group to private equity firm Rockridge Partners. Following the sale of CPG, Simon restructured and cut 40 jobs, amounting to two-thirds of its corporate headquarter's workforce. In May, the company formally changed its name to Simon Worldwide. Yucaipa Cos. holds a 20% stake in the company.
For the six months ended June 30, Simon posted a net loss of $19 million, nearly double that of the first half of 2000, when the company posted a net loss of $10.2 million.