Ad Revenue Probe Reveals AOL Tarred with WorldCom Brush

23 August 2002

Of the $49 million (€50.52m; £32.21m) in advertising revenue currently under investigation at AOL Time Warner, insiders allege the majority relates to a contra-deal with WorldCom – the US telecoms giant that recently imploded in an imbroglio of fraud.

The relationship between the two corporations has been fireside-cosy in recent years, with AOL TW chairman Steve Case sitting on WorldCom’s board while AOL channelled most of its internet traffic via the telecoms operator, spending upward of $900 million yearly and making it WorldCom’s largest customer.

In July 2001, the bosom buddies agreed a massive contra-deal: AOL would continue to route its internet traffic via WorldCom; while the latter would return the favor and ‘buy’ over $200m in advertising across the AOL online network.

Insiders reveal that the AOL side of the deal was handled by its recently deposed e-vp of sales David M Colburn, famed for his bare-knuckle negotiating tactics. In the WorlCom corner was former cfo Scott Sullivan, who has since been charged with securities fraud.

Following an AOL internal probe last week, it emerged that a total of $49 million from three transactions might have been “recognized inappropriately as advertising and commerce revenues.” The identity of the other parties was not revealed – but the name ‘WorldCom’ is repeatedly on the lips of AOL insiders.

AOL TW is reviewing “these and other advertising transactions at the [America Online] division” to determine whether the accounting was inappropriate.

John Sidgmore, WorldCom’s current chief executive and key contact with AOL, is said to have a close relationship with AOL TW’s Steve Case – although Sidgmore insists he didn't participate in the deal currently under investigation.

WorldCom is equally insistent there was nothing improper in its dealings with AOL. “These were perfectly legitimate business deals,” averred WorldCom spokesperson Bradford Burns. “If people find issue with them, all of corporate America might as well close the doors and go home.”

Data sourced from: The Wall Street Journal Online; additional content by WARC staff