By Published on .

When is a conflict of interest not a conflict of interest? When the client says it isn't.

A new Chicago ad agency, formed by veterans of DDB Needham Worldwide, is doing some work for Miller Brewing Co. at the same time that two of the shop's partners have stepped forward as would-be investors in financially troubled microbrewer Pavichevich Brewing Co., marketer of Baderbrau.

In essence, two of Leap Partnership's principals would control a big stake in one brewing company while providing marketing services to another.

Miller said it isn't foaming over the matter. A spokesman explained the brewer considers the deal with Pavichevich a "personal financial investment."

In May, Miller named Leap to handle a sales promotion (AA, May 9). Several of the Leap partners created the "Yes, I am!" Bud Light campaign for Anheuser-Busch while at DDB Needham. The partners left that shop last year and formed Leap in October.

Industry protocol normally prevents ad agencies from working on competing brands, let alone investing in one. Some of the traditional rules, however, have been falling. Hal Riney & Partners, San Francisco, which handles Stroh Brewery Co.'s Old Milwaukee and some other products, is also doing ads for McKenzie River Corp.'s Black Star beer and other products. Stroh might eventually get distribution rights for the products.

One of the proposed investors in the Pavichevich plan is Leap partner Fred Smith, who considers Leap's Miller work and the partners' interest in Pavichevich "two separate issues."

Pavichevich's normally chatty founder Ken Pavichevich, who didn't include Leap's name in announcing the investment, isn't talking.

The matter surfaced June 24, when Pavichevich issued a one-page news release announcing that Mr. Smith and Leap partner R. Steven Lutterbach each had agreed to buy 100,000 shares of newly issued class B preferred stock in Pavichevich at $2.50 a share.

The shares would be paid for in cash and "consideration of advertising, marketing, promotional and management services" for the next two years, the release said.

Furthermore, the class B shares would be convertible into 2 million common shares. That would give the two Leap partners a 50% stake in Pavichevich, as long as shareholders authorize issuing more shares at an annual meeting, tentatively set for July 28.

Under the proposal, Messrs. Smith and Lutterbach would also provide a $250,000 line of credit to Pavichevich and serve on its board, pending shareholder approval.

But then comes this kicker: Mr. Smith claims that he and Mr. Lutterbach may not actually provide ad work for Pavichevich, despite the microbrewer's claim to the contrary.

"I might guide them to the right people," he said.

Whatever the details, Pavichevich and its newest financial saviors aren't looking for any press.

Leap has gotten all it needs for the time being: The New York Times published a half-page feature in its Sunday business section June 26 but didn't mention the recent Pavichevich investment.

Leap does only creative work, including a project for Naperville, Ill.-based Boston Chicken.M

Ms. Gallagher is an associate editor for Crain's Chicago Business.

Most Popular
In this article: