The bad guys were easy to spot in August, when FBI agents arrested eight people accused of stealing $13 million by embezzling sweepstakes gamepieces.
The victim — McDonald’s Corp. — played its role well. Immediately after U.S. Attorney General John Ashcroft announced the arrests, the company summarily fired promo shop Simon Marketing (whose security director, Jerome Jacobson, allegedly orchestrated the theft and mal-redemption of top-winning prizes in a scam dating back to 1995) and announced a conciliatory $10 million instant-win game over the Labor Day weekend.
The cooperation of McDonald’s executives — who agreed to run the annual Monopoly game in July even though they knew the top prize pieces wouldn’t go into circulation — helped the FBI build its case (see sidebar).
“It paid off big-time to see these perpetrators led off in handcuffs,” says McDonald’s spokesperson Walt Riker. (The FBI began its investigation in 2000, and by the July 2001 game had phone taps in place to collect evidence.)
As the news settles and the FBI investigation into other possible false winners continues, the effects of what may be the biggest scandal in promotion history will reverberate for months to come. McDonald’s could file a civil suit against Simon, whose parent, Simon Worldwide, Wakefield, MA, had $143 million in assets as of June 30. (McDonald’s declined comment.) Indemnification policies also may cover McDonald’s losses. Big Mac is thought to be self-insured, but declined comment.
Despite statements from Simon ceo Allan Brown that the Los Angeles-based agency’s 400 staffers were victims of “one rogue employee” (the FBI says it is not looking at any other staffers), the shop is unlikely to survive the loss of 85 percent of its business — 77 percent through the McDonald’s account, eight percent from Philip Morris and its Kraft Foods division, which severed their ties one day after the arrests.
A handful of agencies stand to win big when McDonald’s reassigns an estimated $335 million in business. (Simon generated nearly $500 million from the account in 2000, but lost some overseas work this year.) At the front of the line are Marketing Store Worldwide, Westmont, IL, a premiums specialist that has quietly picked up more of the McDonald’s business in the last few years and handled the Labor Day giveaway (with a security assist from two other firms); and longtime shop Frankel, Chicago, which currently handles Big Mac’s P-O-P and managed the sweeps business until it shifted to Simon about 10 years ago (when the Monopoly game first began).
Riker won’t say if McDonald’s will conduct an agency review, but noted, “Because we knew this day was coming, we’ve had time to put plans in place over the last several months and had marketing, media, and operations looking ahead. [We made] sure our supply chain was steady and expect no disruptions.”
Philip Morris and Kraft had no advance warning, but both acted quickly to distance themselves from Simon. New York City-based PM terminated all purchase orders for its continuity programs and catalogues. A spokesperson won’t say how much product is in its pipeline, or how the company will reassign the business. Northfield, IL-based Kraft’s marketing service group and senior management shifted 13 promotions-in-progress to DraftWorldwide unit D.L. Blair. The transition took two weeks.
Agencies
Regardless of how McDonald’s reassigns its business, the scandal will affect all promo shops.
Clients immediately started asking their own agencies about security policies. The scrutiny isn’t expected to let up for months, and that’s good because it will force agencies to examine their procedures and puts complacent execs on alert.
Shops are intentionally secretive about gamepiece printing and seeding, and even keep some details from clients. That makes it tough to promote standard-practice guidelines, and easy for the trusted few to abuse their control. Having enough people in the loop keeps secrecy from backfiring.
“We handle high-level gamepieces like you’d handle a live grenade,” says Tom Conlon, president of Garden City, NY-based Blair. “Printing a gamepiece is equivalent to printing currency.”
Blair has two or more senior officers witness a press run and stay in sight of each other until big-ticket gamepieces are stowed in the corporate lock box. Two other senior officers then travel together to seed those pieces by hand. “We assign our most trusted people, then take an attitude of distrust: No employee is allowed to deal with a major gamepiece alone,” Conlon explains.
Blair prefers computer distribution, in which a program unique to each game randomly distributes high-level pieces across a press run so that no one knows where they are. Games are safer with “no human hands involved,” Conlon says.
McDonald’s Monopoly game had two press runs, one for low-value prizes and a second for high-value pieces including two $1 million prizes. For most flights, the instant-win $1 million piece was seeded in an FSI; the rare collect-and-win piece was attached to food packaging. Jacobson and an accountant from an unidentified Big Five firm ostensibly traveled together to regional publishers to deliver the FSI winner and to McDonald’s distribution centers to hand-seed the gamepieces. (Instead Jacobson, who worked in Simon’s Lawrenceville, GA, office, allegedly walked off with the pieces, delivering them into a network that recruited people to act as winners and return some of the prize money to him.)
Games insured by an outside firm often have an insurance representative witness the printing and seeding. Some grand-prize packages are seeded directly onto the shelf via “reverse shoplifting,” says Mark Barry, senior vp-marketing for ASU International, Woburn, MA.
Outside insurance can heighten security protocol. It’s standard for agencies to have an “errors and omissions” or professional liability policy that covers employee mistakes. “More and more clients are requiring agencies to have promotion insurance,” says Barry. The average policy costs $15,000 a year.
Less common is employee bonding, which covers an agency against dishonest or criminal acts that compromise a campaign. ASU fielded several calls after the McD news broke as agencies sought protection against the same circumstances. It would cost $4,000 a year to bond 100 employees for $1 million in damages per employee, Barry says.
Insuring an instant-win game costs up to 80 percent of the prize; match-and-win games cost less because there’s more slippage in prize claims.
Marketers
McDonald’s willingness to leave all security issues in Simon’s hands may spur more marketers to witness press runs of high-value pieces. According to FBI documents, McD’s runs were overseen by Jacobson, a rep from local printer Dittler Brothers (now Quebecor Corp.), and the accounting firm rep (the same Atlanta resident who switched firms some time between 1996 and 2001). Neither Quebecor nor the accounting firm is under investigation, although the FBI is expected to arrest more fraudulent winners for conspiracy to commit mail fraud.
McDonald’s declined to comment on its press run and seeding tactics, but marketers often leave those tasks to the agencies. Blair always invites clients, but they come “fewer times than we prefer,” says Conlon.
Kraft, for one, is looking at its business to see “whether any additional safeguards are necessary,” says spokesperson Kathy Knuth. “We have no evidence that any of our promotions may have been compromised.”
Marketers who rely on sweeps — QSRs, packaged goods — won’t stop using them. But casual users for whom sweeps aren’t a basic business-builder may shy away from them for a year or so, predicts Conlon.
McDonald’s saved face with a make-good 2001 Instant Giveaway awarding $10 million (the two $1 million Monopoly prizes, plus $8 million) over five days via mystery-shopper visits to 55 randomly chosen restaurants, where winners were notified face-to-face. The damage-control strategy shows McD’s faith in — and reliance on — games of chance. McD called the giveaway a do-over, tagging ads, “We want a second chance to see you smile.”
As for changes in security protocol, Riker says only: “We look forward to the input from our security task force [led by Winston & Strawn partner Dan Webb] once it is up and running.”
Consumers
The cynics will get more skeptical, but most folks should keep on playing. A PROMO survey of 2,000 consumers last year found that only 34 percent believed no one wins at sweepstakes, while 47 percent feel sweeps are on the level. (Nineteen percent had no strong opinion either way.)
And 68 percent of the respondents said they expect promos from QSRs. That was topped only by food (85%), beverage (78%), and travel (77%).
“People see McDonald’s as the victim,” says Philadelphia-based attorney Barbara Kretchmar. “Embezzlement can occur in any industry — credit cards, banks. It doesn’t make people suspicious of banks.”
While a handful of civil suits were filed against McDonald’s and Simon in August, they’ll likely be dismissed. The first one, filed Aug. 22 in Chicago with two plaintiffs, seeks class-action status and repayment to consumers of the incremental money McD made during the July game “since people didn’t have fair chance to win,” says filing attorney Aron Robinson. While hundreds of prizes were available, “we know the hook is larger prizes.” (Robinson sued M&M/Mars in 1997, charging that its Find the Gray M&M game confused consumers who found uncoated candies that looked gray. That suit was dismissed.)
The National Association of Attorneys General didn’t react to the theft despite the aggressive prosecution of shady sweeps in recent years. “This doesn’t appear to be something NAAG’s Consumer Protection Committee would look at, since it’s a criminal matter for McDonald’s and its agency,” says a spokeperson for Ohio attorney general and committee chair Betty Montgomery. Industry sources concur that the incident won’t raise a red flag for legislators.
It should, however, keep raising red flags for the industry.
How McDonald’s Helped the FBI
After receiving a tip that someone had been tampering McD’s games, FBI investigators first identified fraudulent winners by comparing their residences of record with the false addresses many gave to McDonald’s senior manager-marketing Amy Murray. Several “winners” lied about where they lived to make it look like winning game pieces were spread around the country. (Half of those arrested lived in South Carolina near Dwight Baker, who recruited “winners” for Simon Marketing staffer Jerry Jacobson.)
The FBI tracked phone records to link Jacobson with other suspects, who had been recruited to redeem gamepieces and then kick back $50,000 or more to him. Taped conversations showed that Jacobson already had plans to corrupt an early 2002 game.
McDonald’s gave the FBI copies of checks mailed to high-level winners to use as evidence for the charge of conspiracy to commit mail fraud.
McD also helped by delaying payment to the two “winners” of July’s Monopoly game, who ultimately discussed the delays on wire-tapped phones and added to the evidence. Throughout July, as the FBI listened to tapped conversations between suspects, investigators pieced the network together and predicted who the next “winner” would be. When Murray called the FBI on July 30 to report the second $1 million claim in the summer game, agents were able to guess his name and city of residence before Murray told them.
After the first $1 million claim came in on July 20, FBI agents posed as a production crew to film the “winner” describing how he found the winning ticket in a People magazine he bought to replace one that got wet at the beach. He thought he was participating in a promotional film for McDonald’s.
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