SFM, which was recently terminated as Nike's media shop when Nike consolidated its media at creative agency Wieden & Kennedy, wants to hold Nike to a long-term contract that could cost it millions.
Although ad industry practice does not normally guarantee terminated agencies compensation for advance work performed prior to being fired, SFM claims to have specifically worded its contract to deal with that possibility.
As a result, the media agency is negotiating with Nike to pay commissions on more than $100 million in media buys SFM claims to have already placed through 1998, including a multi-year deal for the NBA coverage on NBC, NCAA basketball tournament coverage and 1998 Nagano Olympics coverage on CBS.
The Nike-SFM situation is the latest-and possibly nastiest-in a recent spate of disputes between marketers and their dismissed media buying agencies. DeWitt Media, New York, recently settled a quarrel with Reebok International and is in the midst of another with MasterCard International. How these disputes are resolved will undoubtedly impact how future client-agency contracts are structured.
An executive familiar with the Nike-SFM dispute estimated more than $1 million in commissions are at stake. The executive said SFM was being paid a commission of 2% on media billings-1.5% for buying and 0.5% for planning (a duty it shared with creative shop Wieden & Kennedy).
The contract dispute is said to be putting pressure on Nike's worldwide ad director, Joe McCarthy, who made the decision to fire SFM and consolidate media at Wieden.
SFM executives allege Mr. McCarthy either did not read the agency's contract, or overlooked important clauses in how SFM should be terminated.
"It's not a standard Four A's contract," said an SFM executive, who requested anonymity. "By contract, he had to send a certified letter informing us that we were fired .*.*. We did finally receive a letter by Federal Express, but we never got a certified letter."
Mr. McCarthy confirmed that there is a dispute with SFM over the agency's termination but wouldn't comment on specifics. Mr. McCarthy took exception to the allegation that he didn't read the SFM contract before firing the agency. "It was one of the first things I did when I got here," said Mr. McCarthy, who left Saatchi & Saatchi, New York, in spring 1994 to become Nike's U.S. ad director.
SFM's Nike contract dispute raises broader ad industry implications, particularly if the matter should find its way into court.
"There is no law on this," said David Carlin, a partner of the law firm Loeb and Loeb, New York, which specializes in advertising and media industry law.
The growing disputes of this type reflect a marked change in the culture of Madison Avenue and might require new wording in agency service contracts. Mr. Carlin said that trust is disappearing and more protective language is likely to be written into contracts in the future.
"The advertising business has a much greater sense of trust, good will and faith than most businesses," said Loeb's Mr. Carlin. "It's not like buying widgets from a factory."
Mr. Carlin said the industry custom is that "absent any provision in a contract, the agency would not be subject to any long-term commission." He said that no court ruling has ever tested the trade practice, though several disputes have been settled out of court.
DeWitt is believed to be pursuing a settlement with MasterCard, which recently terminated DeWitt as its media agency in favor of GSD&M, Austin. A DeWitt executive claimed the media agency already had placed MasterCard's media buys through September 1996 and that "we expect to be compensated for that."
MasterCard executives were not available for comment.
As with Nike, Reebok consolidated its media at creative agency Leo Burnett USA, Chicago, after DeWitt had negotiated several multi-year sports deals. Executives familiar with that dispute said DeWitt was due compensation on more than $30 million of long-term media buys, which would have generated nearly $1 million in commissions. Ultimately, DeWitt was able to settle with Reebok for a "six-figure" amount, an executive said.