Olympic scandal / Over ¥30 billion in commissions paid to Dentsu without proper bidding by sponsors

The Yomiuri Shimbun

21:00 JST, October 25, 2022

The Tokyo District Public Prosecutors Office’s special investigation squad last week indicted Haruyuki Takahashi, a former executive board member of the Tokyo Games organizing committee, for the third time on charges of accepting bribes.
Behind the sports extravaganza involving a huge amount of public money, a growing picture of wrongdoing has emerged. The problem behind the scenes is that major advertising agency Dentsu Inc. monopolized the power to select sponsors in favor of its own interests. This is the first installment of a series on corruption behind the 2020 Tokyo Olympics and Paralympics.

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In mid-December 2013, only three months after Tokyo was chosen to be the venue of the 2020 Games, people in charge from four major advertising agencies, including Dentsu, convened at the Tokyo metropolitan government building.

They were there for a briefing session as candidates to be the “exclusive marketing agency” that would be in charge of recruiting Games sponsors on behalf of the organizing committee. At the session, the Tokyo metropolitan government and the Japanese Olympic Committee laid out two basic principles: “Sponsors will be selected by simple bidding,” and “The compensation commission is 3%.”

Simple bidding — selecting the company that offers the highest bidding price from each industry — was proposed by the International Olympic Committee as well. Under this selection system, Tokyo set a revenue target of more than ¥150 billion.

“This bidding process would ensure fairness and transparency, and reduce costs by keeping fees low,” a former organizing committee member said, recalling the committee’s intention at the time.

According to a source, however, Dentsu reacted by saying, “We can’t expect any profit from this method.” Dentsu’s arguments were that the simple bidding process would cause commission revenue to plateau and that companies unworthy of sponsorship might be selected.

At Dentsu’s in-house meeting in early February 2014, its sports bureau in charge of the Games presented its own plan to its executives, saying that “the commission should be 8%” and “sponsors should be chosen via a method other than simple bidding.” The bureau estimated that this would boost Dentsu’s profit to about ¥13.1 billion, compared to the about ¥5.6 billion to be earned via the committee-proposed method. Dentsu’s profit margin would rise from 3.5% to about 8.2%.

The bureau also said it would tell the organizing committee that the ad agency would guarantee a minimum sponsorship revenue of ¥180 billion. This plan obtained approval from the Dentsu executives and others.

Bullish approach

A competition to select the exclusive marketing agency was held in late February 2014, and Dentsu sent its entire board of directors, including then President Tadashi Ishii, to face the competition.

It turned out to be a head-to-head battle with Hakuhodo Inc., the industry’s second largest agency after Dentsu. Dentsu then presented its own proposal and boasted, “We can expect to earn up to more than ¥250 billion” based on the result of its survey on about 90 companies about their intentions to become sponsors.

The following month, the organizing committee unofficially appointed Dentsu as its exclusive marketing agency on the ground that it presented “the most concrete path to securing sponsorships.”

During one-on-one negotiations with the organizing committee that would lead up to an informal offer, however, Dentsu asked for a further increase in the commission, insisting up to 15% at one point.

Under a deal signed between the committee and Dentsu in December 2014, Dentsu’s commission rate increased according to the cumulative amount of sponsorship fees.

A contract obtained independently by The Yomiuri Shimbun showed that the commission rate was from 3% to 8% for a total amount of sponsorship fees of up to ¥180 billion, 8% for fees from ¥180 billion to ¥200 billion and 12% for over ¥200 billion.

This rate mechanism was not shared with the companies that signed sponsorship deals with the organizing committee.

“We were never aware of Dentsu’s share,” an executive at one sponsor said. “It would be surprising if Dentsu’s commission rate rose at its will.”

The contract also left an option for selection by simple bidding with a 3% commission rate. However, another former committee executive told The Yomiuri Shimbun that he did not recall any case of a sponsor being selected with simple bidding.

The “watered-down” bidding process had given Dentsu a chance to negotiate the price of the sponsorship fee with the committee and also do “intermediary business” by connecting sponsors close to former Dentsu executive Haruyuki Takahashi, 78, with the ad agency and the organizing committee.

An Olympic-record ¥376.1 billion in sponsorship fees was collected from 68 Japanese companies. The organizing committee has disclosed neither the selection process nor the amount that individual companies paid, on the grounds that such matters concern “private contracts.”

Inside this “black box,” Dentsu reportedly earned between ¥30 billion and ¥35 billion through commissions.