Diageo’s Virgin Islands Deal, Fatal Flaw #1

A fatal flaw is an imperfection that will kill you. A person can have a weak heart, ruptured spleen, be in kidney failure and have a rotted liver and it won’t do much good to address just one of the fatal flaws because the others will still kill you. Perhaps the most dangerous fatal flaw to the territory is in the Marketing Activities and Support Payments Described in the contract between Diageo and the Virgin Islands.

On page 17 under section 5.1.1 Marketing Activities

5.1.1(b)Diageo’s Marketing Activities shall be in furtherance of its promotion of the Captain Morgan rum brand (or any other products utilizing the bulk rum produced by the Project for sale in the United States), and when advisable from a marketing viewpoint “Virgin Islands Rums” or “Caribbean Rums”, in the United States.

5.1.1.(c)Diageo shall regularly report to the Government on the content and effectiveness of the Marketing Activities performed hereunder. The Government shall have the right, at reasonable times and upon reasonable prior notice, to meet with the representatives of Diageo to discuss the Marketing Activities and progress in promoting both the Captain Morgan brand and Virgin Islands Rum or Caribbean Rums generally.

Now the first paragraph is confusing and seems to imply that its rum made in the facility but lets break it down into a simpler form.

Let “CAPTAIN” be the Captain Morgan rum Brand (or any other products utilizing the bulk rum produced by the project for sale in the United States)

Let “CRUZAN be Virgin Islands Rums

Let “MYERS” be Caribbean Rums

Now let’s rewrite the paragraphs in far simpler forms:

Diageo’s Marketing Activities shall be in furtherance of its promotion of CAPTAIN, and when advisable from a marketing viewpoint “CRUZAN” or “MYERS”, in the United States.

The Government shall have the right, at reasonable times and upon reasonable prior notice, to meet with the representatives of Diageo to discuss the Marketing Activities and progress in promoting both the Captain Morgan brand and CRUZAN or MYERS generally.

Clearly the money can be spent on promoting any product from the factory and “CRUZAN or MYERS” but when reporting to the government they don’t necessarily have to document expenditures on MYERS. I don’t see how a court could rule in any other manner.

One reason they might want to do this is when visiting trade shows, they might carry Captain Morgan Brands and their other minor rum brands and have the Captain Morgan Brand pay for it.

Another reason might be that the Government is giving them too much money to spend on Captain Morgan alone. After all in 2003, they only spent $15 million on media advertising to grow about 10% while Bacardi is spending $60 million a year to defend their market share which is declining anyway. Clearly, $89 million is just too much money to spend on advertising a hot brand like Captain Morgan and the cash reserves could be used to promote another Virgin Islands brand or Myers Jamaican rum which is the fastest growing rum in America and obviously gaining market share at the expense of Cruzan Rum and Puerto Rico’s Ronrico. These funds will accelerate the direct assault on the financial stability of the Virgin Islands and Puerto Rico and be paid for by the people of the Virgin Islands. Now that’s sick.

Unbelievably we could finance an even sicker move by Diageo which owns Pampero made in Venezuela which has a better and truer marketing story for a premium rum than Cruzan or even the fictional Captain Morgan. The last time I checked, Venezuela was a Caribbean Nation and they could use their $89 million of marketing money to promote Pampero and increase employment and taxes for the Government of Hugo Chavez.

Now when Congress figures out that the people of the Virgin Islands are using rum rebates to assist the government of Hugo Chavez and destroying the financial stability of Puerto Rico and themselves, I doubt that even Donna Christiansen can keep the Rum rebates flowing to the Islands during a period of National recession.

I don’t want to believe that Diageo really believes that Virgin Islanders should pay for the development of the Myers and Pompero Brands and jeopardize the whole rum rebate program and impoverish the Virgin Islands. But it’s up to them to alter the paragraph as the Governor has already signed off on it, the Delegate has approved it and the Senate will rubber stamp it. It may have been their intent to say that rum made here and packaged in Bermuda as Caribbean rum could use funds from the rum rebates to promote the work done in Bermuda but it does not say that. Even in that case, I’m not sure Congress would be happy about using American funds to promote offshore jobs. Whatever , there intern, they can clarify it in the hearing and add an amendment which reflects the change. Something very simple like:

Diageo’s Marketing Activities shall be in furtherance of its promotion of the Captain Morgan rum brand or any other products utilizing the bulk rum produced by the Project for sale in the United States.

This would cover every product produced in St. Croix regardless of what it was called in the market.

Islanders should thank Kennith Mapp for taking the time to read the document and bringing up all of the fatal flaws as a topic of discussion. If one fatal flaw is not enough to kill this deal there are more to come.

Tags: Bacardi, Captain Morgan, Cruzan, Diageo, Myers, Pampero, Ronrico, St. Croix, Virgin Islands