The invisible hand behind the Tokyo Olympics

And with the Olympics about to begin, some of Dentsu’s largest clients have begun pulling back. Toyota, a top sponsor, said Monday that it would not run Olympics-themed television ads in Japan during the Games, reflecting concerns about a possible public backlash against companies underwriting the event.

For the clients that continue their Olympic advertising campaigns, Dentsu faces a serious test of its message control. Polls show that about 80% of the Japanese public opposes holding the Olympics, which were postponed by a year and will now be held amid a state of emergency in Tokyo.

“What kind of message do you send right now? It’s a really difficult question, and sponsors are definitely troubled by it,” said Osamu Ebizuka, a veteran of Dentsu’s sports marketing department who is now a visiting professor of business management at J.F. Oberlin University in Tokyo.

Dentsu, asked how it would shape its clients’ approach toward the Olympics, said that it was “not a sponsor,” so it was “not in a position to comment.”

Even with its challenges, Dentsu remains an unparalleled force in Japan. It is by far the country’s largest marketing firm, with a grip on nearly 28% of the country’s vast advertising budget.

Dentsu started life in 1901 as a news agency before realizing it was more profitable to package its content with advertisements. In the lead-up to World War II, it was merged into a state-run news service that pumped out propaganda for Japan’s Imperial Army.

Under U.S. occupation, the organization split into three parts: the ad agency Dentsu and Japan’s two largest news services, Kyodo and Jiji Press.

In the years since, Dentsu has become hard-wired into nearly every major institution in Japan. In addition to its many corporate and media connections, it has served as the unofficial communications department of the governing Liberal Democratic Party over its more than 75 years in nearly continuous power.

The conspiratorially minded sometimes refer to the company as Japan’s CIA, a puppet master using its vast network to gather information and shape the nation’s fate.

The comparison is fanciful, said Ryu Honma, an author who began writing about the company after working at its rival Hakuhodo. But the company has unquestionably made itself indispensable to Japan Inc.

Dentsu is the nation’s fixer, with a reputation for getting things done, no matter how difficult. For years, it was known for a ruthless work ethic expressed in a credo called the Devil’s Ten Commandments, instructing employees to “never let go of a job, even if it kills you.”

Its clients are a who’s who of corporate Japan — part of a roster, Dentsu likes to say, that includes 95 of the world’s 100 top advertisers. It recruits from the ranks of Tokyo’s top universities and is said to show a preference for the children of politicians, celebrities and titans of industry.

Whereas most ad companies outside Japan avoid conflicts of interest by representing only one company in any given industry, Japanese firms are often less exclusive. Dentsu frequently works for competing firms in the same sector, one of the keys to its ubiquity.

Dentsu offers virtually every kind of service related to communications. Dentsu ad executives sell commercials directed by Dentsu, starring actors represented by Dentsu, to TV stations where Dentsu manages ad sales.

The company buys up entire blocks of airtime before it has sold ads to fill them. Its hold on television advertising is so tight that Japan’s competition regulator has twice issued it warnings.

It exerts considerable influence on traditional media, both broadcast and print, which are loath to offend the company and its clients for fear of losing ad dollars.

Dentsu’s TV dominance has made it an indispensable partner to Japan’s political class. It was Dentsu that persuaded Prime Minister Shinzo Abe to appear at the closing ceremony of the 2016 Olympics in Rio de Janeiro dressed as the character Mario from the video game series by Nintendo — also a Dentsu client.

Sports has long been a critical piece of the company’s business. Dentsu was one of the first ad agencies to recognize how international sporting events could raise clients’ profiles abroad and help them break into new markets, said Michael Payne, who for years led the marketing division of the International Olympic Committee.

Dentsu has leveraged its role as a conduit to Japanese ad dollars to become integral to the finances of global track and field and swimming, while also developing strong relationships with FIFA, the governing body of soccer, and Major League Baseball, among others.

The company’s ties to the Olympics date back to the 1964 Tokyo Games, when Dentsu was in charge of public relations. The Games had not yet been commercialized, and Dentsu’s role was more a sign of its stature and political sway.

But in 1984, when the Los Angeles Olympics became the first to rely entirely on private funding, Dentsu rushed to put its corporate clients in the mix.

Dentsu took the lead in the bid process when Japan hosted its second Olympics, the 1998 Winter Games in Nagano. And when Tokyo decided to vie for the 2016 Summer Olympics, the company was the obvious choice.

Tokyo lost out to Rio de Janeiro after a Dentsu-led bid that was widely criticized for being ham-handed and exorbitantly over budget. Regardless, Dentsu came out ahead, pocketing almost 87% of the Tokyo committee’s expenditures, according to a government hearing at the time.

Concerns about the company’s 2016 performance did not prevent it from playing a significant role in the 2020 bid, said Nick Varley, a consultant who was brought on to shepherd the presentations.

The bid committee assured him that Dentsu would not be involved, he said. But when he received his contract, he was surprised to find it was an agreement with Dentsu.

On the surface, at least, Dentsu mostly provided logistical support and handled the domestic side of the campaign, Varley said.

But behind the scenes, the situation appears to have been murkier.

The French authorities have spent years investigating allegations of corruption surrounding the Tokyo 2020 bid process. Among the questions is the role that a powerful former Dentsu employee played in lobbying people with long-standing connections to the company in an effort to sway the outcome.

The scandal led to the resignation of the head of the Tokyo Olympic committee. Dentsu has said it had no involvement in the matter.

Regardless of how the Games were won, the company stood to make an enormous profit. Within a year, the Tokyo Olympic committee had named Dentsu its marketing partner, after a bidding process that competitors described as a foregone conclusion.

The first thing Dentsu did was to eliminate the custom of having only one company represent each product category. Whereas past Games were sponsored by only one bank or one airline, for example, Tokyo 2020 is sponsored by two of each. That allowed Dentsu to use its connections to persuade almost 70 domestic companies to pay over $3 billion to support the Games.

“The Tokyo Games were kind of obliquely called amongst those of us in the business — this is not pejorative in any sense — the Dentsu Games,” said Terrence Burns, a sports consultant and former International Olympic Committee executive.

“If you’re going to do sports marketing business in Japan, they’re kind of your first and last stop, to be honest. They hold a lot of the cards,” he added.

Dentsu was in need of a win. It has struggled to adjust to the rise of digital media. It was damaged by a massive overcharging scandal and a high-profile suicide linked to the company’s intense work culture. And, even before the coronavirus, the firm had begun posting losses.

But when the pandemic hit, Dentsu’s Olympic bet went sour. While the exact financial impact on Dentsu remains unclear, said Ebizuka, the former company executive, there is no doubt that it is “suffering.”

For now, all Dentsu can do is hope for the best as it tries to help its clients navigate the uncertain situation, Ebizuka said.

They have no choice but to send a “subtle message,” he said: “Let’s look toward the future and just get through the pandemic together.”