News Limited-controlled REA Group offered to establish a slush fund worth tens of thousands of dollars for a leading Melbourne real estate agent if it committed to an exclusive two-year advertising deal.
The text of a so-called “premiere package” offer from last month, marked “commercial in confidence” and obtained by Crikey, shows how a leading agent was offered the cash to run “training”, co-branded marketing material and other “collaborate initiatives” if it sealed an agreement with the market leader.
The document shows REA’s offer of a “First Annual Incentive Trip!” — or travel junket — if the agent agrees to ink the two-year tie-up. The text of the attached contract appears to permit Leader to directly contact vendors to bend their ear if they elect to book ads with a rival competitor.
A robust email sent yesterday by Metro Media CEO Antony Catalano to all Melbourne real estate agents accused News of breaking the law by offering “large cash offers” and “lavish incentive trips, staff training and free ads … to major real estate players in each area to sign long-term contracts with realestate.com.au and Leader Newspapers”:
“It works like this: sign up the big players with cash and other incentives thereby locking them in; and then ramp the price for all other agents and their vendors. Make no mistake, if the money was intended to be passed on to vendors it would be in the form of a reduction in advertising costs. Quite clearly, this activity drives the price higher for vendors.”
Changes to Victorian law in 2004 prohibit an agent from retaining a rebate from media companies to remain loyal to a particular publication. Agents that fail to pass on a “benefit” to sellers — and the companies that pay them — are liable for prosecution if the benefit relates to vendor spend. Vendors typically stump up to 2% of the sale price of their home for advertising and marketing campaigns booked by agents on their behalf.
REA Group is currently involved in a high-octane slugfest with Fairfax’s Domain and the joint-Fairfax owned MMP Media for control of Melbourne and Australia’s multi-billion dollar online and printed ad market.
The company’s CEO Greg Ellis confirmed the trip’s existence this morning, but said it did not fall foul of the law: “REA Group is currently planning an incentive trip for its realestate.com.au customers. While the details are still being established, it will be offered by REA in strict compliance with all applicable laws.”
Last Monday night, a group of inner-suburban agents met to discuss the offer of a six-figure sum by REA Group to sign a two-year deal which not been offered to the other agents. The agents rejected the entreaty, fearful the non-participants’ rates would be jacked up.
Catalano confirmed this morning he had lodged a complaint with Consumer Affairs Victoria alleging that directors of north-eastern agent Mason White McDougall had failed to pass on quarterly cash rebates from Leader.
REA’s Ellis appeared to admit yesterday that the company had provided the inducements but that he was “very confident the company complies with all state and national legislation”.
In a statement, Catalano said Leader had offered discounted long-term contracts to several leading agents at the same time as ratcheting up rates to gouge smaller operators:
“To accept these cash inducements, lavish incentive trips, staff training and free ads without returning the benefit to vendors is to breach the law. MMP has already referred matters to Consumer Affairs Victoria and the Australian Competition and Consumer Commission and will continue to do so. In the past two weeks we have become aware of several agents who have been offered six-figure sign-on fees.”
Crikey asked Catalano whether the ownership structure of MMP — which is 26% controlled by directors of real estate agencies — was liable to result in profits that would then have to be passed on to vendors. “Those agents don’t care about profit,” he said. “They have another job … when they established The Weekly Review the aim was to provide competition in the market.”
A spokesperson for REA Group, Jessica Langmead, says trips for agents are a common feature of the industry and that some agents had recently returned home from their own sojourn. She recalled that Catalano, in his previous role as Fairfax advertising director, had designed a “Real Estate Marketing Alliance” — or a so-called “rebate in drag” — to keep advertisers loyal.
That arrangement involved a fee-for-service set-up in which agents were paid to promote The Age and Domain on “Sold” signs, in-house publications, and Age clocks attached to shopfronts. At the time, it was suggested that Fairfax paid well over the odds for the ads and the difference may have been pocketed by agents. It was technically legal because the benefit did not relate directly to vendor spend.
In 2010, Catalano defended the arrangement: “As far as I am concerned I developed a program which in the company’s opinion was legal and as far as I’m concerned, as the person responsible for it at the time, I went to great lengths to ensure it was managed within the strict guidelines that were set.”
In an earlier statement, Ellis said:
“REA encourages fair competition in the Australian property advertising market and believes in full market transparency for property seekers, vendors and agents.
“We would welcome a full and thorough review of the media industry’s current and historical business practices.
“Our customers benefit from committing to longer term subscription products by the ability to provide discounted enhanced products to vendors. REA has also entered into various cooperative marketing initiatives with franchise head offices, in strict compliance with applicable laws.”