The Tables Have TurnedDecember 1, 2012

Negotiating the Resurgent Seller’s Market By
December 1, 2012

The Tables Have Turned

Negotiating the Resurgent Seller’s Market

437_3026586Anyone who knows sports is familiar with Drew Rosenhaus, sports agent extraordinaire to National Football League superstars — and a champion in his own right when it comes to contract negotiations. Representing approximately 150 football heavies, Rosenhaus has negotiated as many as 90 such contracts in one month. And he’s built his reputation and client list on securing the best deals in town.

For those who engage in contract negotiations by profession, it might seem that an association meeting planner’s job is a dream by comparison. But, not in today’s newly emerging marketplace. That’s because the perfect storm of less space, fewer rooms, higher rates and hard-to-get concessions have all come together, as reflected in this industry’s stricter contracts and the look of dismay on the faces of too many planners.

“The trend began early in 2012, and I was shocked,” Denise M. Burke of the American Beverage Association, headquartered in Washington, DC, remarks. As vice president of administration and membership, she’s experiencing the sudden trend towards a much tighter marketplace for meetings and conventions than in prior years, resulting in more stringently worded contracts with fewer concessions to be had at the negotiation table.

“In the past, I would always find facilities and hotels willing to work with me in order to accommodate the needs of our group. But, the tables have turned. Now, it seems, meeting planners pretty much have to settle for the leftovers,” Burke says. “Yes, it is definitely moving to a seller’s market and, unless you are booking a very large block of rooms, the meeting planner is at a disadvantage. The competition for sleeping rooms and event space is fierce out there.”

While there is room for debate, most planners tend to agree with Burke, including David Nershi, CAE, executive director of the Society for Industrial and Organizational Psychology (SIOP) located in Bowling Green, OH. He says, “The market is indeed shifting in favor of sellers this time, and this very much affects our options at the negotiation table. As a result, we probably will not book as far out as we used to, especially since we don’t want to lock in higher rates than what we have enjoyed the past several years. What will happen is that we will consider going to a different rotation of cities because we’re not willing to pay a huge premium to go to the top three convention cities they used to in the past.”

Information is Power

As the market for meeting and convention space at hotels, convention centers and other facilities tightens up, rates go up all over in a domino effect. But, Nershi thinks this is perfectly understandable. “Hotel revenue dropped precipitously following the 2008 economic downturn and is just now coming back. Consequently, higher room rates, fewer concessions and less-than-generous attrition terms have resulted,” he believes.

So, what can association meeting planners do to counterbalance the scales?

“If you can book within a short window, there are a lot of deals, although that won’t work in the premier locations, and it could hurt your marketing efforts,” Nershi claims, stressing that “information is power” and planners must do their homework. “They should first find out all they can about rates at other hotels in the same city during the meeting time frame and leverage that accordingly,” he says. “This benefits all parties because you really don’t want attendees booking outside the block. You have to know the value of your meeting in terms of food and beverage and other revenue-producing activities, too.”He also reminds planners that they have to read the contract very closely and be ready to cross out and revise freely. “Often the hotel will have no objection if some charges are made or removed altogether. But, of course, they are happy to get the revenue should you overlook it,” he notes.

What about attendees booking through various websites to get the lowest hotel rates and at the last minute? Burke notes that it is fast becoming next to impossible for planners to contract for rooms and meet the set quota, especially with so many registrants doing this. “This is a huge problem because, in a seller’s market, hotels no longer work with planners who operate outside of the contract commitments,” she states.

Peter J. O’Neil, FASAE, CAE, has a quick fix, though. He’s the immediate past chairman of the ASAE Foundation and executive director of the American Industrial Hygiene Association in Falls Church, VA. He recommends, “Charge your members more money for registration if they do not stay in one of our contracted hotels. This has worked extremely well for us,” he says.

Spell it Out

When it comes to hidden costs in contracts, the best case scenario is that planners should have an addendum in very simple language that emphatically states that the association won’t pay for anything that is not outlined in the contract. Ellen Shortill, director of conventions and meetings at the American Speech-Language-Hearing Association, says, “I have specific language added in all of my contracts that says no additional fees or surcharges beyond government-required taxes or surcharges can be charged that are not explicitly defined in the contract at the time of signing.”

But there is nothing like bringing in your own vendors to overcome higher rates, hidden fees and other charges. In this case, Burke says, “Some hotels will work with you and some won’t, but it’s worth a try. Also, contact the group that came in before or after you and try to piggyback on the lighting, décor, AV setups, F&B, etc. Each group can save on the setup and tear-down costs if they share.”

More than anything else, get it in writing. Shirley A. Krentz, manager of event management at the American Society for Quality located in Milwaukee, WI, says, “As new items and their corresponding fees surface, we always add a pertinent clause as needed to address the issue,” she says. “For the room rates, we include a clause in the contract that states no additional fees or service charges can be added to the rate.”

A number of planners have expressed some backwardness about negotiating for food and beverage at events. So, while it might seem a little “hands-off,” Nershi steps up to the plate and asks for a discount of up to 15 percent off the menu price.

“You can also try to negotiate a set menu price, for example, pay 2012 menu prices if the meeting is in 2013 or ’14,” he suggests. “A good practice is to ask your convention services manager for any tips on savings. They can be very helpful and business-minded. Sometimes, too, planners can go with a chef’s choice selection of appetizers at a lower price than selecting them individually.”

Multi-Year Contracts

The use of multi-year contracts in booking cities, hotels and facilities has historically been a good negotiating tool and great for keeping costs down. But, in a time when the economy has been so uncertain, some planners have found themselves on the losing end.

“Booking multiple-year contracts presents at least some leverage in negotiating,” says Burke. “With room rates inching up every year, I used to book multiple-year contracts, but then the market dropped, and I was suddenly stuck with rates that were higher than the market. Planners should not be deterred by this, however, because now the current atmosphere would be a better time to exercise such multiple-year leverage.”

Nershi agrees and says that multi-year contracts can work to a planner’s advantage because they automatically allow the planner to ask for just about anything — lower room rates, rebates, complimentary receptions and discounts on F&B. “The sky is the limit,” he claims.

Working with Unions

Krentz says RFPs should require hotels to specify the areas that are governed by unions, such as ballroom space, which in some locations may require a four-hour minimum. She adds, “For convention centers, you would need to work with your decorator and know up front what the union charges are. In both instances, it could make the difference in whether you use that city or not.”

But destinations that are union-regulated are a hard nut to crack. “While it’s true that unions play a role in a successful event,” admits O’Neil, “they’re often bad for city and convention business. In fact, there are several cities we won’t go to or even consider due to the union labor rules that exist there.”

O’Neil points out, however, that Chicago has done a good job educating their unions and making them much easier to work with than in the past. “But, most cities won’t do this, and that is a big, big disconnect,” he states. “But if you are booking outside vendors, make sure they are experienced in working with unions or it could be very costly.”

Attrition and Cancellations

Most of the planners have their own take on the subject of attrition and cancellation clauses in contracts, but O’Neil takes a strong stand: “We try not to have them in our contracts,” he says. “When we do, we book conservatively. On the rare occasion there is attrition, we negotiate it away. If we can’t, we question whether we will use that property or chain ever again. No kidding.”

Shirley Krentz elaborates on these clauses as follows:
Attrition: “Know your group’s history, considering the location of the property as well, as there may be less expensive hotels in the area for your attendees to consider. Negotiate a 70–75 percent room pickup and begin watching your group pickup beginning at nine weeks out and compare to previous years. Include all the necessary clauses, such as ‘Any rooms booked outside of the group block would be credited to the group regardless of rate’ and ‘Should the hotel achieve a 90 percent overall occupancy for any night during the official event dates, the group will receive full credit for full achievement of the contracted block for that day.’ ”
Cancellations: “Work with the hotel and create the sliding scale based on room revenue only. Thirty to 45 days prior to the event use a 70 percent room revenue and a 30 percent food and beverage scale. This same sliding scale would be applicable to both parties (hotel and group) in the event of a cancellation. Cancellation by group: Insert a clause into the contract that if the group is able to reschedule a meeting of the same revenue or larger as the original meeting at the hotel, that occurs within 12 months of the cancellation, the hotel will credit 100 percent of the cancellation fees towards the new meeting.”

Final Analysis

Planners have a lot of points to make on the subject of win-win contracts, but, Burke claims, “I now feel like we’re being gouged for the years of lost revenue,” and that may be true. But Shortill, on the other hand, believes that the best contracts are those that are true partnerships. “When you can be clear about what matters, and understand what the other side needs, you can both bring things to the table,” she points out. “Both sides need to minimize risk and feel like the contract is fair and balanced. I don’t want to beat down a contract so far that the hotel or property has not benefited and then wonder why I’m not getting the best service.”

At the end of the day, Nershi’s best advice to other planners is threefold: 1. Let them know that you are considering other cities and other hotels. 2. Provide solid history on room blocks and food and beverage spending. 3. Negotiate down as best as you can but not so low that it no longer is appealing to the property.

O’Nezil, however, reiterates that planners should employ everything in their arsenal, from personal relationships to demonstrating prior long-term commitments to a chain or destination. “When it comes to contracts, question everything and times it two,” he stresses. “As such, we must make sure we know what’s in the contract. Shame on us if we don’t.”

He also indicates that convention and visitors bureaus are the real heroes. “CVBs play an important role from an overall value of the meeting perspective. That is, a hotel or convention center might see a small fall meeting and say “oh, it’s small, we don’t care about it.” But, a CVB may well know that the same organization’s spring meeting is huge and that if the fall meeting does well, the city gets looked at for the bigger meeting,” he says. “So, I think CVBs tend to take the larger view, not the smaller, day-to-day, year-to-year view. And that translates into better bargaining chips at the table.” AC&F

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