IT’S DEMANDING: Dave Radcliffe, CVB veter- an and hospitality consultant, provided
some historical perspective regarding con- vention-center pricing: “Convention centers have, over the last several years, been in a tough spot, because the customer is in a
position to really make some demands that historically [they] haven’t been able to make, in terms of either complimentary space or heavily discounted space.”
position to really make some demands that historically [they] haven’t been able to make, in terms of either compli- mentary space or heavily discounted space.” At the same time, Radcliffe said, convention-center cus-
tomers have been tightening their belts in other areas as well —cutting back on food-and-beverage functions, negotiating for free or heavily discountedWi-Fi access, and balking out- right at certain services for which the center would like to be the exclusive provider, such as security and audiovisual sup- port. Plus, “megahotels” such as Gaylord and Marriott World Center properties have increased the pressure on con- vention centers to deliver a discounted product. “They have all that revenue stream, from all their outlets and all their rooms, so their space is free,” Smith said. “We don’t have 1,500 rooms sitting on top of the center,…but at the same time we almost have to replicate that.” Another wrinkle is how the centers have been paid for.
Some of them, especially newer buildings, “were financed in the context of a different economy,” Radcliffe said. “So the guarantees associated with bond payments at a certain percentage are now also very hard to meet.” So even as some convention centers are finding their operating income challenged, their mortgage payments are going up. “At the end of the day, [the building has to be paid for],” Radcliffe said, “and the source of the payments is part of the issue.”
This is where the CVB or other destination marketing organization (DMO) comes in, acting as a broker between the center, the customer, and the hotel partners—the latter of which are frequently relied upon by the DMO, through either special assessments or room rebates, to generate rev- enue to keep the center running. “In other words,” Rad- cliffe said, the idea is “to get the hotels contributing a rebate or an assessment…included in the room rate, in order to help the DMO pay for [convention-center] space, in order to attract the business.” This results in what Radcliffe calls a “vicious circle,” in
which an average hotel room rate—say, $100—is increased by a $15-per-night rebate in order to finance the convention-center rental. In some cases, a 10-percent third- party commission is added on top of that—and suddenly the guest room that often still can be found for $100 a night outside the room block costs $126 a night within the block. “In many of these cases,” Radcliffe said, “it’s the individual that is in effect financing the competitive offer for their parent organization, that’s being delivered by the destination.”
Attrition, Education, and Incentives Meanwhile, the threat of attrition still exists—perhaps even more so after the rebates and commissions are tacked on. Indeed, for many planners, attrition is a looming—and
The CVB or other destination marketing organization (DMO) often acts as a broker between the convention center, the customer, and the hotel partners—the latter of which are frequently relied upon by the DMO, through either special assessments or room rebates, to generate revenue to keep the center running.