Agencies often do. Creatives frequently do. It's become nearly standard practice for companies to request free creative work. Ode to the dreaded RFP.
In the advertising/marketing world, free work is called "spec," possibly because it sounds more legit than "free." How did this start? I have no clue. But here's one agency's take on what working on "spec" would look like for the rest of the world.
PS: This agency no longer does spec work.
Tell me again how spec is legit?