In an attempt to get to the bottom of the Tokyo Olympics corruption scandal, The Tokyo Metropolitan Government and Osaka Prefecture have suspended ad giant Dentsu and event management company Cerespo from bidding for any government contracts for a year.
The news comes barely a week after Dentsu Inc admitted to illicit bidding in connection with the 2020 Tokyo Olympics; its former assistant director of the sports division Koji Hemmi was arrested along with three other key executives on grounds of allegedly breaching Japanese antitrust laws.
The public broadcaster NHK further reports that prosecutors suspect Dentsu to have played a bigger role in liaising with the Tokyo Olympics and Paralympics Organising Committee on “how to write a document about specifications with detailed terms and conditions for bidders.”
Dentsu dominates events, marketing, and PR in Japan, and helped land the 2020 Games for Tokyo. In 2018, Dentsu and eight other companies including Hakuhodo, ADK and Tokyu Agency, and a consortium won 26 open bids for the rights to plan 56 test events, which were designed to check operational issues prior to the actual event.
While Tokyo prosecutors are already investigating Dentsu’s involvement in assigning bids without the due tender process, NHK additionally reports that in the fall of 2017, a year prior to the bidding process, Henmi Koji, the now arrested ex-Dentsu official, set up an in-house team to support the organising committee. Koji was allegedly leading this team.
Now, the big-ticket event which is caught in the middle of the ban is the six-month long 2025 Osaka-Kansai Expo. Managed by The Japan Expo Association, this global event will roughly see 28 million visitors landing in Osaka between April 13 to October 13, 2025.
In a statement given to the local media, Osaka Governor Hirofumi Yoshimura came out saying: “I think (the suspension) will have a significant impact on the 2025 World Expo in Osaka,” as Dentsu handles large-scale events.
However, industry sources close to the ground are sceptical of any dent to Dentsu. To put things in perspective, Osaka was granted the 2025 World Expo in November 2018. Most of the bidding for such large-scale mega events takes place years in advance, and the ban on Dentsu will not come into effect retrospectively. According to The Japan Expo Association, Dentsu had signed a license business contract to manage the right to use the official character "Myakumyaku" as one of the joint ventures.
Not the first time
This is not the first time Dentsu has been barred from applying to government contracts by the prefecture. The significance of the current development lies in how the advertising business is distributed in Japan. For most of the country’s biggest firms—from SoftBank to Toyota, Suntory to Coca-Cola—the only route to their customers is through Dentsu’s imposing vertical towers in Tokyo. On paper, Dentsu is a multi-billion dollar ad mammoth in Japan. In reality, its influence, and scale are incomparable. The second player, Hakuhodo, also in the line of fire in the current Olympics bid-rigging scandal, is less than half its size.
The last time Dentsu came under similar public flak was in September 2016 when the group’s improper business practices came to light. Its performance marketing subsidiary had over-billed Toyota Japan for at least five-years. The Financial Times followed that up with a report saying Dentsu was in crisis talks with "more than 100 clients" over 160 possible incidents of over-charging. The group concluded its internal investigation and found 997 cases of overcharging for online ad services, with the value of the transactions totalling ¥114.82 million.
In a statement given to Campaign Asia-Pacific, Dentsu Inc Japan vows it will take similar steps to avoid a repeat:
“Dentsu Inc. takes this situation very seriously. The company will fully cooperate with the authorities in their investigation. Once the investigation is concluded, Dentsu Inc. will conduct its own investigation to determine the facts of the matter and the cause in addition to developing further measures to prevent recurrence. Based on the results of the investigation, Dentsu Inc. will take strict actions to restore the trust of all stakeholders.”