Philip Morris, including its Kraft Foods division, and other clients abruptly dropped Simon Marketing last week following the FBI’s arrest of agency employee Jerome Jacobson and seven accomplices for embezzling more than $13 million worth of McDonald’s gamepieces since 1995.
McDonald’s, which cooperated with the FBI’s “Final Answer” investigation for nearly a year, ended its 25-year relationship with Simon the day the arrests were made, Aug. 21. The FBI investigation continues, and more arrests are expected, per a McDonald’s spokesperson. And the QSR giant isn’t ruling out its own legal action: “It’s premature to say what we might do, but we’ll keep our options open,” says spokesperson Walt Riker.
McD went ahead with its summertime Monopoly game to help the FBI gather evidence about the embezzlement scheme: Jacobson, who worked in the security department of Simon’s Lawrenceville, GA, office, allegedly has been routing top-prize gamepieces to accomplices, who redeemed them and gave Jacobson a kickback. Those months of cooperation gave McD time to plan its response to the arrests. “Because we knew this day was coming, for the past several months we’ve had time to put plans in place,” Riker says. “For marketing, media, and our supply chain, an orderly transition is underway. We expect no disruptions.”
This weekend, McD runs an instant-win game awarding $10 million in prizes (including five $1 million grand prizes and 50 $100,000 sums) in-store and online via The Marketing Store Worldwide, Westmont, IL. “McDonald’s is committed to giving our customers a chance to win every dollar that has been stolen by this criminal ring,” said ceo Jack Greenberg in a statement, promising to run additional giveaways if necessary to cover the total amount embezzled.
McDonald’s also established an independent security task force to review all future promotions, putting former U.S. attorney Dan Webb, a partner at Chicago-based promotion law firm Winston & Strawn, in charge. Riker wouldn’t say whether McDonald’s will review the estimated $335 million in business held by Simon, which includes the bulk of Happy Meal premium production in addition to sweeps and games management.
Agencies that could gain big are Marketing Store, whose work with McD has increased steadily in the last few years, and Chicago-based Frankel, which has been a partner for more than 25 years and currently handles the chain’s in-store activity.
Kraft, which was surprised by the arrests, terminated its contract with Simon. About 13 promos now in the works will move to D. L. Blair, Garden City, NY, a unit of DraftWorldwide. The packaged goods maker is “working out details of the transition with Simon,” which has been “very cooperative,” says Kraft spokesperson Kathy Knuth. “We know this is a difficult situation for them. But given the circumstances, we think this is the best decision for our business and our consumers.”
Los Angeles-based Simon retained law firm O’Melveny & Myers, Los Angeles, to investigate the situation. An Aug. 23 release from the company quotes assistant U.S. attorney Mark Devereaux, lead prosecutor on the case, as saying, “We [the Department of Justice] view Simon as a victim of one rogue employee and, based on our investigation to date, no other Simon employee was involved. Simon is not a subject or a target of our investigation.”
Simon ceo Allan Brown says, “It is truly unfortunate that all of our employees are now being unfairly and unnecessarily impugned as a result of what appears to be the alleged actions of one rogue employee. The suggestion that Simon betrayed anyone is an outrageous distortion of the facts.”
The company is even losing support from within: Last Friday, chairman Ron Burkle and board member Erica Paulson resigned in recognition of their status as board members for McDonald’s food supplier Golden State Foods. As managing partner of investment firm Yucaipa Companies, Burkle controls about 23 percent of Simon’s stock. Los Angeles-based Yucaipa also owns a majority stake in Golden State Foods.
Simon is expected to close its Oak Brook, IL, service office immediately, although the account losses could force the company as a whole to fold: Together, McDonald’s and Philip Morris accounted for 85 percent of Simon’s business: McDonald represented 77 percent of the company’s $217.6. million in revenues in the first six months of 2001 (PM was eight percent). The shop ranked No. 30 in the PROMO 100 with 2000 net revenues of $144 million.
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