Marketers expected to scrutinize partner contracts post-SVB collapse

The collapse of Silicon Valley Bank on March 10 has led to widespread ripple effects across the global financial industry, causing stocks to tank and businesses scrambling to move money and renegotiate contracts.

The economic volatility caused by SVB’s failure affects not only technology businesses that banked with SVB, but also their partners, which includes major brands and their agencies.

As a result, marketers and agencies are expected to more carefully scrutinize vendor contracts to safeguard against financial risk going forward, according to advertising economy experts.

While the government’s bid to contain damage has minimized panic, the SVB news has still added uncertainty to an already cautious industry, the experts told Campaign US.

Nevertheless, while the full impact of the SVB collapse is still unfolding, ad leaders are optimistic that global ad growth will not be heavily impacted in 2023.

See their full responses below.

Ashwini Karandikar, EVP of media, tech and data, 4A’s

There will be ripple effects from SVB for quite some time, and while the economic impact on marketing and advertising agencies is yet to be seen, the financial uncertainty and resulting volatility may result in a future slowdown in hiring or accelerated layoffs — specifically in the technology sector. This news may also cause the Fed to pause its plans for additional interest rate hikes.

Marketing and advertising agencies should consider several precautionary measures moving forward. Agencies will need to revisit contracts and clauses with vendors, especially startups. This is also causing agencies to revisit how they are conducting due diligence with vendors and revisiting any auto-renewal clauses, ensuring that contracts and liability clauses have specific end dates. It is critical that agencies ensure that sequential liability is in place with all vendors.

We may not fully understand the impact that the SVB news has on media investments for another 60-90 days. Before undertaking new financial relationships, marketing and advertising agencies should use caution when reading the fine print about where new potential business partners bank. Currently, standard tech contracts do not offer in-depth visibility about who their bank is, where the money is or if they can sustain the business.

Martin Sorrell, founder and executive chairman, S4 Capital

[The collapse of Silicon Valley Bank] certainly can’t help with marketers’ confidence and has added to uncertainty and recessionary fears. Most seriously, it has choked off the supply of loan funds to small- and medium-sized businesses and startups, which will place greater stress on the venture capital community to provide equity and loan capital. Valuations of illiquid, leveraged portfolios and commercial real estate (given vacancy levels) will come under closer scrutiny. Having said that, I am sure that alternative sources of loan and equity funding will develop as a result in the very sophisticated U.S. financial community.

The immediate impact has been to move deposits and surplus funds to the top-tier banks. My own view is that we will see the top-tier banks figure out alternative sources of funding, e.g. the HSBC takeover of SVB in the U.K.

As far as media investments are concerned, I don't think there will be any reduction of interest in investing in such areas as AI. There will be no shortage of disruptive interest in areas such as copywriting and media planning and buying.

Brian Wieser, principal, Madison and Wall

With respect to the broader economy and the advertising industry, SVB’s collapse was concerning as it was occurring, but the rapid action of the U.S. government to guarantee deposits likely limited the degree to which there might be any direct impact on sentiment among consumers and marketers in the U.S. However, to the extent that other issues around the financial system arise — as we saw this week with concerns around Credit Suisse, which is bigger than SVB was — there could still be some risks that might yet play out.

However, I don’t think that a “base case” assumption for how 2023 plays out should include negative consequences on the advertising industry because of these recent events. As a matter of normal course, marketers should always have a view on the solvency and future outlook for their significant media partners, or otherwise be mindful of the health of those businesses in order to ensure those partners can fulfill commitments they make.