John Dickey, Cumulus COO, spoke with RBR-TVBR, addressing an article from Jerry DelColliano’s Inside Music Media which mentioned Cumulus is rewarding agencies that book and bill lucrative amounts of ad business in a way “that may be sketchy to say the least.”
Excerpts from Jerry’s column:
In return for getting a generous share, they are billing the full amount to the agency that bills the client minus 15%. However, they are actually adjusting the bill down further by defining part of the business as “trade” internally when it is booked.
What’s worse is that the additional weight is actually booked that way by Katz and then after it is billed out, they allegedly define that amount as an “accounting error” on the financial statement and take a “kickback” off the accounts receivable.
This is a simple way to pay a higher than standard agency commission that may not be financially reported or booked that way.
It is also possible that the client may not be aware of this trick.
One source has identified Universal McCann as an agency participating in schemes like this.
Here’s how it would work on a $500,000 buy according to one source:
“The advertiser gets the $500k they planned to pay, Cumulus settles for far less payment in return for more share. If the agency and Katz split the Cumulus kickback and don’t pass it along to the client, the client’s money is being redirected based on the “side deal” perhaps to the detriment of the client. If the kickback is passed along to the client, why not be open about that?”
What is suspicious is the way it is being financially reported.
Why would Cumulus not simply bill at a lower rate “pricing for share” rather than booking more money then adjusting it off as an error?
It appears Katz is defining the Cumulus scheme as a trade. Typically a trade involves the exchange of goods or services in lieu of cash. There is usually a separate agreement that defines the “exchange” ($1,000 of x for $1,000 of y). This way the auditors would have no questions.
This is being booked as trade by Katz.
Converted to “Exchange” at the station level.
And then taken off the books as a “billing error” to prevent an auditor from questioning what goods and services were received as trade.
There is no trade paperwork to document the Katz trade order, which is why Cumulus is booking it and then removing it.
Dodge, Jeep and Chrysler are reported to be among those involved doing “exchanges” with Cumulus.
Dickey tells RBR-TVBR: “Really don’t know what to say about this nonsense. Our accounting standards and business practices are pristine. We have an IA team (internal audit) that works hard long hours to ensure that our standards and practices are followed. That all being said I read what you sent me below and I can’t make any sense out of his babble. Again, another example of made-up nonsensical dribble.”
Jon Pinch, EVP/COO Cumulus Media, also explains: “This is simply a share deal that started with the large TV companies over a decade ago. Large clients ask for bonus weight in exchange for additional share. It’s being done by all the large radio groups with various agencies and quite frankly, Cumulus was one of the last to jump on board. Nothing more complicated than that… and probably not understood by a blogger who hasn’t been in the business for 30 years.”
RBR-TVBR observation: We heard (not from John) that this information may be stemming from a former, disgruntled Cumulus employee and that Universal McCann is looking into this internally. If any of this is true, it may well not be illegal—just a way to generate more business and share with agencies/rep firms. We’ll find out.