The new Mexican Advertising Transparency Law goes into effect in early September.

This legislation focuses on transparency and preventing “bad practices” in the industry.  While the genesis of this law is unclear, it appears to have been drafted by people with knowledge of industry practices regarding rebates, transparency, and opt-in transactions (inventory buys) done by agencies as principal. However, the law itself is only three pages long and not …

Continue reading “The new Mexican Advertising Transparency Law goes into effect in early September.”

This legislation focuses on transparency and preventing “bad practices” in the industry. 

While the genesis of this law is unclear, it appears to have been drafted by people with knowledge of industry practices regarding rebates, transparency, and opt-in transactions (inventory buys) done by agencies as principal. However, the law itself is only three pages long and not very well drafted.  There is a lack of specificity in some areas and language is not very clear.  Anyone with proper knowledge of current advertising practices can quickly imagine several ways in which the intent of the law can be skirted through use of barter agencies and/or other “third-party” or “non-agency” entities within or related to agency holding companies and other mechanisms. While the law provides an opportunity to improve the advertising ecosystem in Mexico, advertisers should expect new models that may allow current practices to continue in one or another form.

Transparency law for fighting and preventing bad practices in the purchase of advertising time and space: 

Here is a short summary of what the law contains and some recommendations for advertisers. 

Key Points:

• Agencies may not buy media inventory as principal for resale to advertisers. Agencies can only buy media that the advertiser orders. 
• All discounts that the agency receives from the media must be transferred to the advertiser. 
• An agency can only receive compensation that has been agreed with an advertiser. 
• An agency that provides services to an advertiser may not provide services to a media vendor at the same time. 
• Neither an agency nor third parties used by the agency can receive compensation, commissions or financial benefits from a media vendor. 
• Agencies must inform advertisers about financial relationships that they may have with media providers.
• Media vendors will have to issue the invoices directly to the advertiser and not to the agency, although the invoice can be paid through the agency. 

For Programmatic Media:

• Agencies must inform media vendors of the identity of the advertiser as soon as possible. 
• Media vendors will have to comply with transparency obligations to advertisers by providing detailed information on the dates and location of campaigns, ad formats, unit costs, including all discounts provided by media vendors. 
• Agencies must provide detailed reports to the advertiser during the month following the media activity. 

Sanctions:

• The law indicates that for violating it there will be fines for the equivalent of 2 percent of the income to the advertiser or the agency that does not comply with the law.
• Agency that acquires advertising space on its own, for its subsequent resale will receive a fine equivalent to 4 percent of its income.

Recommendations for Advertisers:

• Consult your legal team on how to be compliant from a contractual and operational perspective. 
• Review your current agency contract as soon as possible and make changes to ensure compliance with the new law. The law will go into effect in early September 2021. Consider using vetted agency contract templates, such as those available through ISBA or the ANA, as the basis for agency contracts that would be compliant with Mexican legislation and regulations. 
• Expect agencies to encourage advertisers to increase activity through their barter agency or another party that will be purchasing or receiving free inventory for resale. There is lack of clarity on how the law may or may not apply to barter companies related to the advertiser’s agency. If there is a separate contract between an advertiser and a barter company that is reselling media, it is recommended to get a legal opinion on how this relationship should be governed and how it should be reflected in the contract in order to be compliant with the law.
• Issue strict operational guidelines to all personnel involved in media decisions to ensure compliance with the law. This particularly important in regard to any “inventory” buys or any transaction through a barter agency or similar entity.
• Have a conversation with your agency on how 2021 rebates/AVBs that have accrued this year will be returned to advertisers. These conversations should happen as soon as possible and rebates/AVBs should ideally be settled before the law goes into effect.
• When negotiating media rates, keep in mind that media vendors will no longer be paying rebates/AVBs to agencies, as this may allow for improved pricing.