“What are these people thinking?”
asks Reint Reinders of San Diego’s
decision to drastically slash
its CVB budget.
Reint Reinders’ job hasn’t been easy. The San
Diego Convention and Visitors Bureau, of which he is president and
CEO, was granted $13.9 million in city funds in 2003. Then came an
audit of the CVB. It showed nothing worse than excessively kind
perks for bureau employees, but the resulting public outcry was
damaging nonetheless.
The PR mess, combined with a severe budget shortfall in San
Diego, meant the bureau’s public funding was cut by 10 percent, to
$12.5 million. For fiscal year 2005, which started last June, the
city lopped off another 21 percent, knocking the CVB’s funding down
to $9.8 million. To remain afloat, Reinders laid off 31 staff
members, almost a third of the total, and revamped the bureau’s
business plan.
“We had to circle the wagons,” says Reinders. “We focused very
heavily on the sales and marketing we do and got rid of the extra
stuff.”
The San Diego CVB’s position isn’t enviable, and it’s just one of
many bureaus around the country that has struggled to make ends
meet. City and state budget gaps, local audits and declining
occupancies all have contributed to an epidemic of belt-tightening
that already has begun to transform the way CVBs operate.
Drastic reductions
A decade ago in San Diego, the bureau received 20 percent of the
city’s hotel tax revenues; today it sees just 9 percent. But it’s
not the only California city to take a hit. The state’s budget
crisis has filtered down into the spending plans of all its cities
and prompted a series of across-the-board cuts, including reducing
funding for tourism and convention promotion.
Los Angeles, for example, halved its contribution to the CVB in
July 2003 from 14 percent of the occupancy tax to 7 percent. And
the City of San Francisco threatened to cut its bureau’s budget by
$3.7 million, nearly a quarter of its current budget, but settled
on a $550,000 reduction.
“What are these people thinking?” Reinders gripes. “It’s like
we’re not really a business, that people will come to the city
anyway, that they don’t need to be marketed to.”
Lisa Irvine, San Diego’s financial management director, tells a
different story. The transient occupancy tax goes toward all sorts
of projects that benefit tourism, she notes, and ConVis, as
residents call the CVB, still receives the largest percentage. In
1995, ConVis received an extra $2 million per year, which was
supposed to be withdrawn after six or seven years. But the city
didn’t take it away until the budget crisis flashed its teeth.
“The city is really committed to ConVis, and we’re proud of
them,” Irvine insists. “But we’re also committed to public safety
and our museums and arts programs. These things also drive
tourism.”
According to Reinders, the CVB’s audit facilitated the budget
cuts. “We pretty much got a clean bill of health,” he says, “but it
was a lot easier for them to take shots at people under the clouds
of an audit. It was really a tempest in a teapot, but the damage is
done.”
The city sees the cuts less as a slap on the wrist and more as
a process that found room for trimming. For example, the city (and,
once word got out, the public) didn’t approve of spending public
funds on entertainment and liquor, or a year-end bonus for
employees. The bureau was asked to adjust its policies and repay
the city $89,000.
Bureau audits don’t always bring about a budget cut, though.
Indeed, the Greater Cleveland CVB’s 2003 audit seems actually to
have strengthened its claim to its funding.
“The fact that we were audited and open to the public wound up
helping us,” says Dennis Roche, the new bureau president who
stepped in after the audit. “There has not been a call for close to
a year now on the part of elected officials to take our money.”
Still, Cleveland’s budget has dropped by 1.5 to 2 percent each
year for the past four years, because local occupancy is down.
Bookings have been inching up this year, and Roche believes the
bureau’s budget will have recovered by 2006.
Cleveland’s case points to yet another factor in this perfect
storm of budget-cutting: diminishing hotel occupancies and room
rates, as well as slumping convention-center bookings.
The San Jose (Calif.) Convention and Visitors Bureau is a
textbook casualty of the lazy economy. When the city’s income,
including hotel-tax revenues, was inflated during the tech boom
years, the money supply seemed inexhaustible. But since the dotcom
market crashed, the CVB saw its budget drop from $9 million to $5
million. To compensate, the city laid off 10 bureau staffers.
Dan Fenton, San Jose CVB president and CEO, regrets that
marketing dollars weren’t stashed away during the fat years.“If you
truly ebb and flow with the hotel tax, you’re going to have more
money in the good times and less in the bad,” he says. “We should
have kept a reserve quantity to smooth out the peaks and
valleys.”
Had the CVB spent more energy drawing association meetings
instead of ephemeral corporate business in those days, adds Fenton,
“we wouldn’t have seen a 40 percent fluctuation, regardless of the
outrageous economy.”
Chicago, which receives only 2 percent of the hotel tax, lost
nearly $2 million during the post-9/11 recession because of room
rates that still haven’t fully bounced back.
In tough economic times, bureaus should be given more funding,
not less, argues Deborah Sexton, president of the Chicago
Convention and Tourism Bureau. “A challenge we as bureaus have is
convincing our stakeholders that we are revenue producers,” she
says. “You feed the forces that drive the dollars. You don’t starve
them.”
The difficulty, Sexton adds, is that stakeholders often live in
the state capital, which might be miles from the state’s largest
city. Convincing legislators who don’t live in the convention city
to pump money into a CVB’s budget can be trying.
The Denver Metro CVB has a different problem. The budget hasn’t
been reduced, but with a recently expanded convention center and a
1,100-room headquarters hotel coming later this year, Richard W.
Scharf Jr., president and CEO, feels the CVB needs a boost in
funding.
“The goal of any bureau is not to increase its budget,” Scharf
says. “But given the city’s $650 million investment, if we had
additional resources, we could continue to generate returns.”
What’s being cut
Fortunately for meeting planners, bureaus with flagging budgets
have prioritized the “C” in the CVB. When the ax has fallen, it has
hit the membership department or visitor services. If anything,
bureaus have bulked up their convention sales and services
departments in recent years, despite slender funding.
“When we had the reduction in budget last year and this year,
we made a decision that we are not cutting services and sales in
this destination,” Sexton attests. “We’ve managed to provide the
exact same experience, if not better.”
To that end, the Chicago CTB pumped up its sales and marketing
staff while cutting office services, finance and support positions
in marketing. Then Sexton’s team studied all the programs the
bureau provided and snuffed any that weren’t being used enough. The
bureau stopped attending some minor trade shows.
In San Jose, advertising, sponsorships and merchandising all
were cut. Now, marketing is done by targeted direct mail and,
naturally for Silicon Valley, a sophisticated e-mail marketing
program that delivers newsletters full of tips, rather than
straight-out offers. “We’re trying to create an e-effort that’s not
just spamming our customers,” says Fenton.
To reduce costs even more, the San Jose CVB’s e-mail efforts
entirely are being done in-house, as are all of the bureau’s
marketing pieces.
In San Diego, Reinders reduced the staff in the main office and
set up small offices in major cities so salespeople can meet
one-on-one with customers on their own turf. The bureau also is
using technology to try to get ahead affordably. It adopted a new
computerized lead-retrieval program to save time for the sales
staff and make it easier for planners to work with the CVB online.
And the bureau turned to web-based advertising and search-engine
optimization to build a presence in web surfers’ minds without
incurring high costs.
Perhaps most noticeably, the bureau has cut more than $1
million in expenses by ceasing to sell the convention center.
Thanks to the budget shortfall, the center assumed total
responsibility of selling its space without increasing its budget.
Of the 19 people who lost their jobs last year, 10 were offered
jobs by the convention facility.
This means planners of meetings in San Diego could potentially
receive sales pitches from both the CVB and the center. Reinders,
however, doesn’t think it’s a problem. “We work very closely with
the convention center,” he says. “We’re cognizant of not
duplicating things.”
More good news for planners: Cities have not stopped hosting
familiarization trips, despite the cost of treating meeting
planners to what laypeople often misconstrue as a junket. Bureaus
are hosting more trips than ever, only now they’re called “Buyer
Education Trips” in Denver, and they’ve become far more personal
than two dozen planners riding around on a bus.
“The word fam has a connotation that has a very mixed review,”
says Denver CVB chief Richard Scharf. “Anytime you can get
customers out to see the destination firsthand, that’s ideal.”
This Bureau Hit the Jackpot
Not every convention and visitors bureau is suffering. In fact, many are flourishing. One prime example of a bureau with enough money to flex its marketing muscles is the Las Vegas Convention and Visitors Authority, which currently commands a budget of $190.3 million. That figure has increased substantially every year since 1989, when Steve Wynn opened the Mirage.
“They are generating revenues in one year comparable to what a convention center expansion costs for a great many cities,” says Marshall Murdaugh, a destination marketing consultant based in Memphis, Tenn.
Part of the reason for the hefty budget is that it includes debt service and operation costs of the Las Vegas Convention Center and a nationwide advertising campaign. This year, $30.8 million will go toward marketing and sales, a 12 percent increase over last year.
However, unlike most other large cities, where only a small portion of the hotel tax funds the CVB, the LVCVA reaps 47 percent of the city’s 9 percent occupancy tax, which draws from a mind-boggling 130,000 rooms.
So what does the gambling metropolis get for its bureau money? First of all, the LVCVA has helped the city build an enormous presence in the minds of meeting planners. Bureau representatives visit cities of all sizes across the country on a regular basis and make a splash at major and minor trade shows alike.
“Other cities have to focus on Chicago, New York and Washington, D.C.,” says Terry Jicinsky, above, senior vice president of marketing for the LVCVA. “We have the funds to go to all the cities across North America.”
When Vegas hotel and bureau executives visit meeting planners in their home cities, they make it memorable. They’ll host a small cooking class for planners with a name chef, jointly sponsored by a major food magazine. Planners go away satisfied and knowledgeable about opportunities for Vegas meetings.
All of these efforts have been a whopping success. A telling statistic from Tradeshow Week: Las Vegas held 38 of the top 200 trade shows in 2003, the most of any American city, and has come out on top for 11 years running. -- J.V.
New revenue streams
Reint Reinders blames San Diego’s funding trouble on its
complete reliance on occupancy taxes. If alternative revenue
sources made up more of the budget, he says, then funds wouldn’t
fluctuate as much in hard times.
“Bureaus around the country are going to have to figure out how
to operate differently,” says Reinders, “and they’re going to need
new ways to rely less on government dollars.”
To relieve some of the burden on bed taxes for funding, many
bureaus are turning to private sources. The San Diego CVB has begun
to collect a commission on business it passes on to hotels in
nearby areas like Coronado and Carlsbad. “It seems reasonable that
hotels should pay some fee for the business opportunity we
provide,” says Reinders. “It’s not unlike the way they pay third
parties.”
San Diego also sees revenue and marketing potential in allying
with local corporations. The organization hired IEG, a sponsorship
consultancy based in Chicago, to determine where the sunny city
could plunk down its name. “We can leverage the fact that we reach
millions of people through all of our marketing and promotional
areas,” says Reinders.
Recently, the CVB worked with Petco, the pet-supplies company,
to promote San Diego in Petco’s stores. The CVB also has garnered
promotional mileage through credit card companies, by giving away
free vacations in high-profile drawings that the companies
hold.
Most bureaus have taken advantage of such alliances. Through
partnering with the Port of Los Angeles and Los Angeles World
Airports, the CVB in Los Angeles has reduced its dependence on
hotel taxes from 68 to 39 percent of its total budget, so that a
$7.5 million reduction in occupancy-tax funding in 2003 reduced the
overall budget by less than $3 million.
The Chicago Convention and Tourism Bureau’s strategic marketing
partnership department has teamed up with companies such as
American Express, LaSalle Bank and Walgreens to create promotions
that actually make money for the city. Not only did the division
net $700,000 last year at little cost to the CTB, Sexton estimates
the free marketing was worth at least $1.5 million more.
As an example, “If American Express wraps a promotion of our
Winter Delights program to all their members, that’s a marketing
reach we couldn’t possibly capture,” says Sexton.
The San Jose CVB takes alliances a step further and not only
solicits sponsorships from local corporations but also combines the
marketing efforts of the CVB and the convention center. (See a
related story, “This Bureau Hit the Jackpot," above.) And in
Cleveland, CVB management is toying with comarketing with various
other city-promoting nonprofits, such as the Downtown Cleveland
Partnership and the Greater Cleveland Sports Commission.
CVBs’ convention services departments also are attempting to
bring in revenue, perhaps to the distaste of some meeting planners.
For example, the San Diego CVB recently announced it will charge a
fee for housing and registration, as well as for promotional
pamphlets and giveaways.
“While we’re not out to make loads of money on our customers,
we’re looking to find some cost recovery on our services,” Reinders
explains. “Just because things cost money doesn’t mean they’re not
perceived as a great value.”
A long climb
All these bureaus now face the challenge of recouping their
budgets, or at least stanching fiscal bleeding before the money is
all gone.
Sexton says a CVB’s stakeholders will be more likely to up
funding if the bureau is consistently driving revenues to the city.
“If more people understood what bureaus did, they’d be more likely
to restore their dollars,” she adds.
In Denver, the CVB is considering whether to propose an
increase in the bed tax. For now, Scharf has already seen increases
in occupancy and room rates, which will bring about an increase in
the budget.
For the San Diego CVB, the prognosis isn’t so healthy. Reinders
thinks it’s doubtful the city will continue to fund the bureau at
the current level, much less restore the budget to 2002 levels. In
fact, further cuts are under consideration. For Reinders, that
reality is sobering.
“I’ve been telling our industry to take charge of our own
destiny,” he says. “We can’t put our eggs in the government basket
anymore.”