No winner for Lottery: $125 million advertising review is nullified for third time. (Media & Technology).

If advertising is supposed to make you look good, why does everyone associated with the California Lottery campaign come out looking so bad?

The $125 million Lottery account has become the laughingstock of the ad industry, a dubious distinction solidified last month when it invalidated the results of its review process for the third time in 18 months and was forced to begin the entire exercise all over again.

There is plenty of finger pointing over the failure of the state to come up with a new vendor, with the agencies blaming Lottery officials, who in turn plead they are just misunderstood.

Wherever the blame lies, it is a saga that Adweek magazine recently described as exemplifying "everything that's wrong in the advertising business."

Jim Hasegawa, director of marketing for the state lottery, defended the lottery's actions, insisting that the rigid selection process comes along with being a public entity.

"What the ad agencies have to understand is that we are a government agency and the people of California have a right to know who we are doing business with," he said. "It's very different than the private sector. We have to adhere to the highest standards of competitive bidding."

Jerry Gibbons, executive vice president of the American Association of Advertising Agencies, said he sympathized with the Lottery, but only to a point. Gibbons said he has been invited to meet with Lottery officials later this month to help smooth out communications between the state agency and the advertising firms.

"They have regulations they have to be aware of and constrictions that private companies don't have," Gibbons said. "But there are other states that do this in a way that seems to work and other state agencies (in California) as well."

Steady revenues

What's at stake is a lucrative account that will run for years, something that competing agencies covet in an environment of scaled back ad spending.

"An account of this size would be important no matter what, but in an economy like this it's that much more important," said Kim Franklin, who heads the local office of Reister-Robb Advertising.

That's why, despite all the hassles, the jilted finalists and several newcomers are likely to throw their hat in the ring when new proposals are accepted later this year.

Although the lottery account is not make or break for the agencies involved, all of which are industry heavyweights, it's considered an especially valuable piece of business because of its high visibility.

The most recent wrinkle came last month when three of the four finalists either dropped out or were disqualified from bidding on the 5-year account. That left the Los Angeles office of McCann-Erickson Worldwide Advertising as the last agency standing and the apparent winner of the competition.

Within days, however, lottery officials said McCann-Erickson failed to disclose information about its corporate parent, Interpublic Group of Companies Inc., and disqualified it as well.

The sometimes public squabbling over the review has been damaging to the reputations of everyone involved. Besides McCann-Erickson, other finalists were the San Francisco office of Foote, Cone & Belding, another Interpublic holding, and the local offices of DDB Worldwide and Grey Worldwide.

Officials at Gray, the incumbent, and McCann-Erickson declined comment, while officials at DDB and Foote, Cone & Belding did not return calls.

"They're all concerned because there have been lawsuits threatened," Gibbons said. "It's an unusual situation and the agencies don't know how to respond to it."

Hasegawa said there were no suits related to the account review, despite protests by several agencies. But fear of litigation might be one reason the Lottery has been so quick to nullify its results and start the process over.

The first winner of the ongoing account review was DDB, which in January 2002 was awarded what was then a four-year, $100 million account to create ads and buy media for the agency. But after narrowly losing out to DDB, Gray protested the decision and the Lottery ultimately decided to start the process over because two of the competing agencies submitted incomplete bids.

After a new evaluation, Foote, Cone & Belding was declared the winner in August 2002 for what was increased to a 5-year, $ 125-million account. This time DDB protested the decision, charging that some of the other agencies had used incorrect methods for calculating costs that allowed them to lowball its bid. A month later, Lottery officials nullified their decision again, and earlier this year, limiting to submissions to the four finalists, it accepted new bids.

That led to the most recent review, in which McCann-Erickson was named winner before that decision was rescinded.

Meantime, Grey, whose contract was originally up at the beginning of last year, has kept the Lottery account and continues to work on Lottery campaigns, including its latest campaign for its new Bingo game.