Sites Unseen

Meetings & Conventions - Sites Unseen - June 2000

June 2000

Show me steel: Wayne Stetson of the National Association of Home Builders won't bank on expansion plans until building is well under way.

Sites Unseen

Planners who book 10 years out or more are betting on facilities not yet built and predicting future needs of fast-changing organizations. Here’s how the game is played

By Cheryl-Anne Sturken

Wayne Stetson is a “show me” kind of guy. He has to be. As staff vice president of the Washington, D.C.-based National Association of Home Builders’ convention division, he is constantly fielding overtures from convention and visitor bureaus that come courting with tales of dazzling convention center expansions and bragging rights to new brand-name hotel developments.

With NAHB’s annual four-day convention snapping up close to 20,000 sleeping rooms per night and 1.5 million square feet of exhibit space by day and drawing upwards of 71,000 attendees snagging a contract with Stetson is a coup for any city. This year’s show, held in Dallas in January, was pegged at a value of $130 million. And that’s just the annual show; 14 smaller events also are up for grabs, all under Stetson’s stewardship.

He is a tough sell, though. “Right now, only three or four cities can handle us. But there are a few we are keeping an eye on,” says Stetson, who has NAHB business booked through 2018. “Before I’ll even consider them as a serious bidder, I need to see steel in the ground and hotels being built.”

Planning 18 years out is hardly an industry norm. But many association planners grapple with the challenges of planning events six, eight, 10 and even 14 years out. Not surprisingly, the regular logistical and contractual challenges surrounding room rates, housing blocks and exhibit space requirements are magnified tenfold when placed in a future context laced with probabilities and variables beyond even the most experienced planner’s control.

Membership fluctuations can wreak havoc with contracted meeting space unexpected growth can force a planner to curtail exhibitors, while a dramatic drop in numbers means paying for unused space. Likewise, a stalled or delayed convention center expansion can have a domino effect, jeopardizing contracts for sleeping rooms and exposing the meeting sponsor to substantial liability. And then there is the real possibility of a once-desirable host city losing its appeal 10 years down the road.

So how do they do it? It takes planning smarts and sheer luck to avoid getting burned, say those who live in the fast lanes of future planning. Survival hinges on industry savvy, contractual know-how, vigilant internal monitoring and tracking, and a stomach for tough negotiating. Even then, there are few guarantees.

Expansion butterflies
The expansion plan sounds impressive, but wait. If the funding is not in place (think hardened concrete) and the voting public has not weighed in, forget about it at least until steel sprouts.

“We would never recommend going into a city whose expansion is not signed, sealed and delivered,” says David Weil, director of information technology, conferences and trade shows for Chicago-based association management firm Smith, Bucklin & Associates.

Because of all the politics, the bonds that have to be sold, we will not consider a city’s promise that they are going to expand or build unless it is in a certain phase of construction,” says Stetson. “There have been times in the past where, had we been committed, we would have been in trouble.”

Currently, says Stetson, NAHB is considering Dallas, but is hesitant until scheduled construction is well under way. Plans call for the Dallas Convention Center’s expansion to be completed in 2002.

For many, the choices are slim. Patricia Quinlan, CMP, director of meetings and conventions for the Newark, Del.-based Produce Marketing Association, needs more than 550,000 square feet of exhibit space and 5,500 nightly sleeping rooms. Not many cities can meet those requirements. Quinlan, who books nine to 13 years out, is now eyeing San Diego, Orlando, New Orleans and Atlanta all of which have major convention center expansions in the works. Adding to the wait-and-see anxiety is the fact that convention centers rarely sign contracts with a meeting sponsor more than 18 months out. Instead, they prefer to issue letters of intent that convey the center’s intention to hold a stated amount of space for specific dates.

While letters of intent are standard industry practice, they create a challenge for the planner looking to book supporting business at surrounding properties, because the successful execution of those contracts hinges on the convention center and the meeting sponsor sealing their agreement with a firm contract.

“We hope we have a center contract finalized at least nine months in advance of convention dates,” says Quinlan. “But once contract negotiations go to the lawyers, things take time.”

For this year’s convention, slated to be held in Anaheim, Calif., in October, it will be a particularly tight call. “We still don’t have a contract,” says Quinlan, who says the association’s lawyers and the city’s legal team had yet to arrive at a final agreement at press time. “Sometimes it goes relatively quickly, and sometimes it’s a slow process,” she sighs. Expansions also can create problems for planners who book business at a convention center based on its current space, years before any expansion is announced. Just ask Robert Mesirow, vice president of conventions at the Washington, D.C.-based Cellular Telecommunications Industry Association. CTIA’s 2001 annual convention abruptly was moved from the Dallas Convention Center to the Las Vegas Sands Convention Center earlier this year, after Dallas officials notified Mesirow that ongoing construction for the facility’s expansion would severely limit access to the building. CTIA decided to exercise its option to walk.

“We had to go out and scramble a bit and get a place to host this event,” says Mesirow. “Luckily, we were able to get out of our obligations with the Dallas hotels because of our good relationship with them.”

Still, finding an alternate location proved to be a challenge. CTIA’s annual event draws more than 30,000 attendees and requires one million square feet of exhibit space and auditorium seating for more than 5,000. “Because of our size, it was slim pickings,” says Mesirow, who says despite the headache, it looks like a happy ending. “Vegas will be good for us. International attendees absolutely love going there, so it will be a big draw.”

What power do planners have when counting on a future expansion to go off without a hitch? Experts say the following precautions allow for at least some measure of control.

Insist on a contingency clause. It is sheer madness to hedge bets on a convention center’s expansion readiness or to bank on relationships holding up under liability fire, says Atlanta-based meetings attorney, John Foster, of Foster, Jensen & Gulley. “Whenever the success of an event is dependent on a third party, a clause needs to be built into each contract stating that,” warns Foster. He recommends meeting sponsors protect themselves with contingency clauses with the convention center as well as each contracted hotel. The contingency clause with the convention center should state that coming to the center is contingent upon space being ready and available by a certain date. The clause with hotels should state that use of the property is contingent upon the group getting its needed space at the center.

Book the center first. All too often planners expose themselves to serious liability by inking first with a hotel and then trying to deal with the convention center. “It is foolish” to work the deal in that order, Foster says. At the very least, letters of intent from the center should be in hand when approaching hotels.

Keep track of progress. Regular construction updates go a long way toward combating uncertainties and fostering confidence in a center’s readiness. Even better:“We specify key dates in our contract with the convention center, spelling out what should be completed when,” says Smith, Bucklin’s Weil. Missed milestones, he says, are immediate red flags.

Greg Elam, senior vice president of communications at the Dallas Convention & Visitors Bureau, says 71 events are scheduled to meet at the Dallas Convention Center during its two-year construction. “We met with each of those planners to talk about what would be happening when they were in-house and to hear any concerns they may have.”

Robert Imperata, executive vice president of the Greater Pittsburgh Convention & Visitors Bureau, says planners can judge the strength of a city’s ability to deliver a proposed expansion by its willingness to provide timely and candid updates on all aspects of the project, from funding and union commitments on zero work stoppages to a developer’s track record. “It gives the client a good, comfortable feeling. It lets them know we are not going to book business and then leave them in a lurch,” stresses Imperata, who is overseeing the CVB’s efforts to book business in the city’s new David L. Lawrence Convention Center, scheduled to open in 2003.

Befriend the builder. Speaking directly with the contractor can be the best way to get the skinny on a project, some insist. Not all convention centers, however, are keen on the idea. “My personal feeling is that direct contact with the contractor will not clarify anything for the customer,” says Don Engler, director of marketing for New Orleans’ Ernest N. Morial Convention Center.

More rooms, please
Planners booking large events, primarily those banking on expanded convention center facilities, should seriously consider whether the city will be able to provide the sleeping rooms needed to support the expansion. In reality, planners hardly can afford to wait until all room inventory is in place before booking hotel business. And therein lies an often monumental contractual challenge: booking business with multiple properties even unbuilt ones that is contingent upon all contracted properties delivering room blocks in lockstep precision.

Room inventory, says Stetson, was of critical concern when selecting New Orleans to host NAHB’s 2013 and 2014 annual conventions. “Right now, we need more rooms than they have in New Orleans. But I am keeping my eye on that situation,” says Stetson.

“Stetson won’t book on anybody’s ‘gonna’s,’ but you know we are going to have those rooms,” says the center’s Don Engler. The city currently has 30,000 rooms and is adding an average of 2,000 per year, says Engler, more than enouh to meet NAHB’s volume.

In Pittsburgh, says Imperata, “Some groups have put their decision on the back burner until we make the announcement on additional hotel rooms.” Still, 16 groups had signed on as of press time.

The most effective way to head off potential housing problems in later years, say sources, is to implement backup measures early on.

Tie commitments to a contingency. When multiple properties are involved, include a contingency clause with each property that states the meeting sponsor is committed to doing business with the hotel, if and only if the sponsor can get all the other hotels under contract.

“I have seen instances where one or two hotels will pull out of a block because they get in-house business and they don’t want to participate in the citywide anymore,” says Foster. How well such a clause is received by the hotels, he says, depends heavily on the strength of their relationship with the convention and visitors bureau and with the meeting sponsor.

Work closely with the CVB. Because citywide bookings are handled through the CVB, developing key relationships is critical, says Stetson. The stronger the relationship, the better the chance of developing a realistic, mutually agreed-upon “pull-out” date if things are not progressing fast enough. For NAHB, that date is usually five to seven years out.

Coming soon
Booking business at a property that exists solely on paper is risky. Weather, work stoppages and cash-flow problems all can create construction delays. “For a group to bring significant business to a hotel in the first six months of operation, that property really needs to meet expectations and stand behind what it said it could deliver,” insists David Lutz, CMP, executive vice president of Twinsburg, Ohio-based Conferon Inc., a meeting planning firm with close to 400 clients.

Plenty of planners are willing to take the plunge, though, especially when recognizable chains dangle tempting “first-in” rates. At the Nashville, Tenn.-based headquarters of Opryland Hotels, pre-opening group business is brisk for the company’s Opryland Hotel Florida, now under construction in Orlando, and Opryland Hotel Grapevine, in Texas (which has not yet turned dirt). As of April, the two properties had a total of 300,000 room nights on the books.

“Groups who book early with us get 25 to 35 percent off regular group rates. That is our thank you to them for putting their faith in us,” says Tod Roadarmel, vice president of national sales for Opryland Hotels. As sweet as the cut-rate deal may seem, planners should be cautious.

Protect against liability. What good is a great rate if the hotel does not materialize? Insist on a contingency clause that protects against liability and includes financial restitution for the group. “The builder has to pay the hotel developer a certain amount for every day they are late. That gives [the hotel] a cushion and availability of cash to make things right for the planner,” says Conferon’s Lutz.

Insist on construction updates. This, too, should be in the contract.

Space games
For many planners, predicting attendance and space requirements several years out is akin to predicting next week’s Nasdaq. Some find themselves stuck with too small a space and are forced to limit exhibitor growth. Others are left holding unused blocks and stiff attrition penalties.

“The wireless industry is changing so fast, I would need one hell of a crystal ball to predict my numbers,” says CTIA’s Mesirow. “Bureaus are so used to dealing with cookie-cutter shows. It takes a lot to get them to understand how we could triple the size of our show in three years.”

“It’s a guessing game. So many of our members are involved in group practices and managed care, who knows what that field will look like five years from now,” says Carol Wilke, CMP, director of meetings and conferences for the Englewood, Colo.-based Medical Group Management Association. Hired recently to replace another planner, Wilke fears her predecessor was overly optimistic. “We are in a situation this year where we are overcommitted in our sleeping rooms, and we will be faced with paying attrition,” she says.

Lorna Walls, director of conferences and exhibits for the Washington, D.C.-based Special Libraries Association, has the opposite problem. Space, she says, will be tight at this year’s annual convention, to be held at the Philadelphia Convention Center later this month. SLA, which booked the event in 1990, has seen attendance mushroom from 5,000 to 8,000. “We grew so much in the last few years that now our exhibit hall is too small for us and we have to waitlist exhibitors,” says Walls.

Some solutions:

Track and project. Thorough post-convention reports should be the planner’s first tool. Take the last five to 10 years of post-convention report numbers, calculate the event’s average percentage rate of growth (or decline) over each preceding year, and use that figure to project numbers for successive shows.

CTIA’s Mesirow uses that technique but ups the numbers. “I track and put down very aggressive growth projections and just go for it,” he says. “It is better to have too much space than not enough.”

Limit growth. Turning exhibitors away is bad for business, says the Produce Marketing Association’s Quinlan. A much better strategy is carefully controlling growth during tight years. This keeps would-be exhibitors interested in future opportunities and maintains the credibility of the event. “Eight years ago we negotiated to be in Philadelphia in 2001. We were a lot smaller then,” says Quinlan. “Now we have a challenge to fit in there, so we will carefully limit our growth until we are past Philadelphia.”

Bigger is safer. Picking a center that is just slightly too big builds in a safety net for possible growth, says Walls. “We try to be where we would fill up two-thirds of the center. That pretty much ensures we will be the only group in-house at the time and leaves us room for overflow,” says Walls.

Another option is to book a definite amount of space and to hold additional space tentatively at the same facility until a specific date. However, warns Foster, when the date to contract for the tentative space arrives, planners should “be prepared to put up or shut up.”

Firm up later. Ask hotels to agree to a two-year-out “second look,” suggests Wilke, who books 10 years out. Her contracts let her look at the block two years before the event and reduce or increase it without penalties. “Some hotels are willing to deal and some are not,” says Wilke.

Consider bailing. Sometimes it pays to jump ship. “I know some planners who breech contracts at a convention center, pay the damages and then move to a bigger facility because they know they can make more money selling additional booth space,” says Foster. “If it turns out to be a good business investment, why not?”

Dealing for dollars
Locking in a room rate too early can mean getting stuck with a higher rate. Wait too late, and the early-bird bargains may be gone. The same goes for food and beverage rates. While most hotels rarely will talk F&B more than 12 months out, some will seal a deal earlier.

Cap the rate hikes. When setting room rates, start with the lowest group rate as of a specific date, and then negotiate and agree to a yearly percentage cap, above which the rate cannot exceed (for example, 5 percent). Sources say the current room rate percentage cap is between 2 and 8 percent and hinges on factors such as destination, volume of rooms booked and whether the group promises repeat business.

According to Gary Hughes, director of marketing for the new 703-room Tampa Marriott Waterside (which opened in late April), 5 percent is a typical room rate cap. But, he admits, the cap formula is not a favorite with hotels. “To be honest, we would rather not have a cap. It is not necessarily in our best interest. What if we become the next San Antonio and our market could command 7 or 10 percent?”

Many hoteliers will agree to a cap albeit grudgingly. Tricia Nicholson, convention and meetings administrator for the Greensboro, N.C.-based North Carolina Association of Realtors, used this strategy to set F&B pricing in 1998 for a 2000 conference. “Every time I speak with the banquet manager, she reminds me the only reason I’m getting such a great deal is because it was in our contract,” says Nicholson, who locked in at a 5 percent yearly increase over 1998. Prices have since almost tripled.

Specify a percentage discount. Ask for a set percentage discount off the lowest future published rack rate for a specific date, based on the difference between the rack rate and the group rate.

Explains Conferon’s Lutz, “If the group rate in 2000 is $150 and the lowest rack rate is $200, then the group rate is 25 percent off rack rate. So, for a meeting in 2006, contract at a rate no less than 25 percent off the lowest rack rate.”

Tie increases to Consumer Price Index. Linking the room rate increase to the Consumer Price Index, the country’s official inflation tracker, is a nonbiased way to set room rates, says John Foster. Be sure to stipulate the CPI used will be that of the host city, not the association city.

Stetson says the CPI is something his attendees home builders understand. Adds Foster, “The CPI is the fairest measurement, because it doesn’t allow either side to dictate it. If the economy goes to hell, the hotel is still protected.” But, he warns, many hotels aren’t too keen on the CPI formula. “Right now inflation is low, 2.5 or 3 percent. They want to do what the market is doing. If everyone is raising rates $20 per night, they want to be able to do that.”

Negotiate to renegotiate. Ask to firm up rates at a later date, for example, two years out. “You can always ask to have things renegotiated. Whether hotels are willing to do that is another thing,” Foster says.

CLAUSE AND EFFECT

Just as planners take risks when planning years ahead, so do hotels. How far out on a limb will they go? Hospitality industry lawyer Stephen M. Rudner, based in Dallas, weighs in on the game of contractual give-and-take.

Will hotels contract business contingent on a convention center’s readiness? “You can make a contract contingent upon the happening of some event, such as a convention center expansion. But you have to define the event give a specific date and you can’t exploit the condition. We’ve seen groups try to insert clauses relating to the economy or their membership. That is unacceptable. Hotels have no control over the economy. If it tanks, we are all in it together.”

Will a hotel contract for business contingent upon another property being available? “This is a challenge. You are asking the hotel to accept a clause it has no control over. You have to put dates on the risk involved for both parties.”

What about signing a contract with a property that is not built? “If you contract with a hotel already under construction and it is not ready for the specified dates, that is a breach of contract and you receive damages for cancellation. The cancellation clause should cover any expenses involved in moving the meeting. If the hotel hasn’t broken ground yet, I would specify a provision in the contract that allows direct access to the contractor. The contract also should specify that the contractor will not be penalized for speaking freely.”

C.A.S.

SAN DIEGO’S SAGA

In 1995, San Diego had its sights set on Super Bowl weekend 1998, when it planned to unveil the San Diego Convention Center’s expansion. But it wasn’t to be. Construction was halted for three and a half years as a lawsuit over the project’s funding, filed by several members of the state’s Libertarian Party, worked its way through the courts, ultimately landing in California Supreme Court.

By June 12, 1998, when the court finally weighed in on the city’s side and the backhoes resumed their work, the financial damage to the city created by the delay tallied up to 75 lost conventions and trade shows and an estimated $697 million in lost delegate spending.

Now back on track,with a new opening target of September 2001, the future is looking brighter for the San Diego Convention Center, which will double the size of its exhibit space to 525,701 square feet. But, according to Fred Sainz, vice president of communications for the San Diego Convention Center Corporation, the painful effects of the delay go well beyond the loss of hard convention dollars.

“It left us in a position of weakness,”says Sainz. “The litigation created a perceptual value in the marketplace that we are a city that can’t get it together. We now have to overcome that.”

C.A.S.

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