TOKYO: Bankruptcy proceedings in Zug, Switzerland have brought to
an end Dentsu's lucrative relationship with ISL, the Swiss sports
marketing company, just months before Japan co-hosts the 2002 World
Cup.
ISL's failure has caused consternation in Tokyo where sponsors and
broadcasters worried whether FIFA, which have taken over ISL's marketing
functions for the 2002 World Cup in Japan and Korea, would honour the
sports marketing firm's commitments.
However, Dentsu had already banked a letter from FIFA president, Sepp
Blatter, dated January 17, giving the necessary assurances.
Dentsu recently signed both Toshiba and NTT as corporate sponsors for
the 2002 World Cup.
These are on top of sponsorship deals with Fuji Xerox, Fujifilm and JVC,
which were signed earlier.
ISL was founded by former Adidas chief executive, Adi Dassler, in 1982,
in partnership with Dentsu, which once owned a 49 per cent share.
Dentsu's share was reduced to 10 per cent in 1996.
The partnership became a jewel in Dentsu's crown and led to its
dominance of sports marketing in Japan, especially for international
events such as the Olympics and World Cup.
As ISL won broadcasting and sponsorship rights, Dentsu's auctioned these
to its own clients in Japan, earning both a commission on the deals and
a share of ISL's resulting profits.
Things went wrong when ISL tried tomuscle into new sports and overpaid
for global rights. For most of this year, the company has been trying to
find a white knight saviour, but by early May had found none with deep
enough pockets.
The Zug court declared ISL bankrupt late last month.
The full consequences for Dentsu will not be clear until ISL's financial
affairs are unravelled.
However Dentsu's 10 per cent equity should prove worthless and bank
guarantees Dentsu provided earlier this year are likely to called
in.
"It is true that Dentsu delivered a bank guarantee to ISL during an
early period of that organisation's financial difficulties and as a
consequence of ISL's bankruptcy, this has resulted in a loss to us,"said
a Dentsu official in Tokyo.
"This loss was already appropriated in our financial statement ended
March 31," added the official, who subsequently confirmed the guarantee
was for about Y5.1 billion (USdollars 42 million).
There is an off chance of more ISL bills, but "it is very unlikely that
Dentsu has any further financial responsibilities to FIFA in relation to
ISL's bankruptcy.
"However, we are now in the final stage of confirming that with them",
added Dentsu's spokesperson.
With sponsorships costing a reported USdollars 40 million and associated
media spend estimated at USdollars 150 million, Dentsu's 2002 World Cup
account could still show a healthy surplus and beat previous records,
despite the losses entailed in ISL's bankruptcy.
