Bankruptcy proceedings in Zug, Switzerland have brought to an end Dentsu’s lucrative relationship with ISL, the Swiss sports marketing company. ISL was founded by former Adidas CEO Adi Dassler in 1982 in partnership with Dentsu who once owned 49%, but reduced that to 10% 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 for muscle 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. And so the Zug court declared ISL bankrupt on May 21st.

The full consequences for Dentsu will not be clear until ISL’s financial affairs are unravelled. However Dentsu’s 10% 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 organization’s financial difficulties and as a consequence of ISL’s bankruptcy, this has resulted in a loss to us. This loss was already appropriated in [our] financial statement ended March 31," said a Dentsu official in Tokyo who subsequently confirmed the guarantee was for about Yen 5.1 Billion, or US$ 42 million.

ISL’s failure caused consternation in Tokyo where sponsors and broadcasters worried whether FIFA, who have taken over ISL’s marketing functions for the 2002 World Cup in Japan and Korea would honour ISL’s commitments.

Not to worry. Dentsu had already had banked a letter from FIFA president, Joseph S. Blatter, dated January 17th giving the necessary assurances. And so Dentsu has recently signed both Toshiba and NTT as corporate sponsors for the 2002 World Cup, in addition to Fuji Xerox, Fujifilm, JVC who signed earlier.

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," said a Dentsu official in Tokyo.