AOL suggested it could run ads for the Web site. The British mulled the offer. But with the quarter closing fast, AOL could not afford to wait.
To book the revenue in the quarter, AOL needed to run the ads before Sept. 30 to conform with accounting rules. So, without Wembley's knowledge, AOL employees lifted art work -- a picture of a racing greyhound -- off the British company's 24dogs.com Web site, created banner and button ads out of it and started running them, said AOL sources familiar with the matter.
AOL Time Warner directors are scheduled to approve the name change at a meeting on Thursday in New York, according to people close to the board.
(File Photo - Associated Press)
The greyhound banner and button ads ran on various AOL sites, including Spinner.com, its online radio service, the sources said. AOL ran as many as three or four Wembley ads on a single Web page.
The number of greyhound ads, however, got to be a little too much, even for some at AOL, the sources said. A Spinner official on the West Coast called an AOL official in Dulles, and complained, "Dude, my home page looks like a dog site," according to a source familiar with the conversation.
Within about an hour of posting the greyhound ads, Wembley's unfinished Web site crashed from an overload of customer traffic from AOL, sources said.
AOL got its deal. Wembley agreed to buy $23.8 million in AOL ads. The terms of the deal allowed AOL to dictate -- at its own "discretion" -- when and where the Wembley ads would run through AOL's vast network. Such a provision meant that Wembley's ads could have appeared at any time or place -- not necessarily targeting its core audience.
Wembley confirmed that it reached a confidential agreement with AOL but declined to discuss any of the specifics.
According to a copy of the Sept. 26, 2000, confidential settlement between the companies, AOL and Wembley released each other from all claims. It stipulated that "AOL will promote various Wembley USA websites with 1 billion [ad] impressions to run at AOL's discretion. Such promotion is: a) a good faith gesture by AOL to expeditiously and amicably settle the arbitration matter, and b) a way to demonstrate the potential of AOL's interactive properties to drive traffic to Wembley USA websites."
AOL ran enough ads to book $16.4 million in that quarter. In the same three-month period ended Sept. 30, 2000, AOL converted another unresolved legal action into ad revenue, a $13 million deal with Ticketmaster, a majority-owned unit of USA Interactive Inc., according to internal company documents and sources.
Ticketmaster declined to comment.
Several accounting experts took issue with the Wembley deal, saying money from an arbitration award owed to a company that AOL acquired should have been booked as something other than ad revenue.
"To say that was $23.8 million in ad revenue, I have to question that," said Walter P. Schuetze, the chief accountant at the SEC from 1992 to 1995 and the chief accountant of its enforcement division from 1997 to 2000. "That's pulling white rabbits out of black hats."
AOL said it booked the Wembley and Ticketmaster deals appropriately. "It is entirely common and appropriate to resolve litigation by creating or amending a business relationship -- even if that litigation has reached the point of a judgment," said AOL's attorney. ". . . Such resolutions are one way in which unproductive disputes are turned into productive, and hopefully continuing, business relationships."
After AOL and Wembley signed the ad deal, sources said a handful of business affairs officials gathered in a vice president's office at AOL and celebrated by blaring a popular song on a personal computer: "Who Let the Dogs Out."
After the Merger
When AOL closed its merger with Time Warner on Jan. 11, 2001, it quickly began touting the combined company's synergies, or its ability to generate growth in all areas of the business by cross-promoting properties and leveraging deals made by one unit across others.
One example involved a deal between AOL's Time Warner Cable division and the Golf Channel, a majority-owned unit of cable giant Comcast Corp.
According to sources familiar with the deal, the Golf Channel agreed in June 2001 to pay $200 million over five years to have its sports programming carried on Time Warner Cable, the nation's second-largest cable television provider. But once the deal was essentially in place, the online unit weighed in, asking Time Warner Cable to share a piece of the Golf Channel deal, the sources said.
Complying, Time Warner Cable told the Golf Channel to spend about $15 million of the $200 million transaction for advertising on AOL's online unit, according to sources.
Cable companies often use such negotiations to extract concessions out of programmers. AOL sources said the Golf Channel had few options -- if it wanted to be carried on Time Warner Cable. "We told them where and when" the ads ran, said a source familiar with the deal. "They didn't have a choice."
Golf Channel spokesman Dan Higgins confirmed his company agreed to buy the online ads because it wanted the cable deal.
"When you're trying to negotiate long-term deals with them [cable companies], there are certain things that matter to them," said Higgins, who would not discuss details of the negotiations. "If they want the money to go to certain places, as long as it's in line for us . . . you come to a deal that both can live with." He called the agreement "mutually beneficial."
Higgins said that while AOL stipulated that the Golf Channel buy online ads as part of the cable agreement, it benefited the Golf Channel. "AOL reaches a lot of people," he said. "From a branding perspective, it's good for us."
The $15 million ad deal also helped AOL's online division report better numbers in its third quarter, ended Sept. 30, 2001.
Yannucci, AOL's attorney, wrote that "it was perfectly sensible to advertise the Golf Channel on AOL."