Advertising's 'most hated man' is back with a new warning for CMOs

"At best a 'C,' probably a 'D.'"

That's how Jon Mandel says he would grade the current state of transparency on Madison Avenue.

It's been a decade since Mandel, formerly CEO of the WPP media agency Mediacom, publicly alleged kickbacks were widespread in the ad industry. His claims set off a firestorm, with one story at the time questioning whether he was the "most hated man in advertising."

The Association of National Advertisers followed Mandel's claims with a blockbuster 2016 report that said undisclosed kickbacks and rebates were "pervasive" across the US media agency ecosystem. Agencies at the time broadly denied wrongdoing, but the report became a lightning rod, compelling CMOs to launch a wave of agency audits and redraft contracts.

Mandel told me that many of the issues he presented back then — when he would have given the industry a transparency score of "an F when everyone thought it was an A" — have improved as CMOs have become better at scrutinizing their agency contracts.

Mandel, who works as an advisor to marketing and tech companies, said his biggest bugbear about the industry now is "principal media."

The practice takes many forms, but at its essence, it's when agencies purchase a large volume of media — spots where ads can run — at a discount, resell it to their clients, and make an undisclosed margin on top.

Critics of the model say it can create conflicts of interest for agencies, which could be incentivized to steer marketers toward media the agency has already bought, rather than the inventory best suited to clients' campaign objectives.

"It's just non-transparent," Mandel said.

Agencies argue that principal media is often more cost-effective for clients than buying the media themselves — and that CMOs are happy to participate so long as it performs well.

Omnicom CEO John Wren said in March that clients are "triply aware" about what they're signing up for with principal media.

"It's a key part of the solution because it drives value for our clients," Omnicom CFO Philip Angelastro said.

Madison and Wall, the advisory and consulting firm, recently estimated that principal media accounts for a "high single-digit or low double-digit" share of large-brand and agency activity in the US. A survey released in March by the ANA suggested principal media is on the rise, with 58% of respondents saying that they had used it in the last year, up from 47% the prior year.

A separate recent ANA survey found 43% of advertisers had concerns about the level of transparency with their media agency. The most frequently cited reason? Principal media.

Mandel thinks that principal media should be rebranded altogether.

"The thing that I find most upsetting about all of this is not that it's still going on, because it still is, but the fact that they keep calling it principal media," Mandel said. He contended that agencies are not truly acting as "principals" at all, and instead leverage the full pool of their clients' budgets without assuming meaningful risk themselves.

Agencies would argue that if they use their own capital to secure ad inventory and don't resell it, they're still on the hook to pay those publishers.

Mandel said agencies should be willing to open up the books to marketers about the inventory they are selling, even if they're not disclosing the profits they are making from principal media.

"If you're a food company and you are getting raw ingredients, you may not be able to check the profit margin of the company that's supplying whatever raw ingredient, but you have the right to check the quality when it comes to your factory floor," Mandel said.

The media landscape has evolved dramatically over the past 10 years, with the rise of streaming TV, retail media, data clean rooms, and AI now thrown into the mix.

Mandel said the changes serve up a "Whac-A-Mole" for CMOs when it comes to holding their agencies accountable and double-checking the quality of the media they're sold.

His advice: Employ media specialists, ensure audit rights are written into contracts, and treat contracts as living, changing documents.

"It's not 'trust, but verify,'" Mandel said. "It's verify, verify, verify, and trust no one."