Mr. Kremp

Finance & Investment

Reduce Rebates and Save Your Beloved Convention Center

By Paul R. Kremp, General Manager, Rochester Plaza Hotel & Conference Center

Over the years cities across this country have used the terminology "We will build it and they will come" in there economic development plans to revitalize their cities by building Convention Centers. Unfortunately, this isn't always the case. Many municipally owned Convention Centers operate with annual deficits that can reach into the millions and become ongoing tax burdens to there communities. By the increased competition and economic downturn it appears that many facilities continue to operate with little or no oversight. Local governments typically are charged with the oversight and accepting the fact that Convention Centers are just another part of their government outlays, and must be supported with little change.

We will build it and they will come was the mantra of the late 70's and 80's. Many small to large cities across the country built Convention Centers as a cornerstone of economic development. Funding these projects typically came from local municipalities passing new hotel occupancy taxes or increasing the existing hotel occupancy tax. Though, in recent years raising taxes for hospitality and tourism has become harder and harder to pass through local governments. However when taxes do pass legislation, they can end up being earmarked for different general fund expenses. Rarely do they support in earnest the Convention Centers they were originally created for. Now, years later, cities are faced with Convention Centers operating at deficits well north of a million dollars annually.

Convention Centers are such a financial burden on communities they have now turned to the hotels once again to fulfill the financial shortfalls. To offset these operating deficits Convention Center leaders are increasing rebates on every hotel room sold. Rebates are typically a flat dollar amount based on each room night sold in a convention block. At the end of a convention, the hotel pays the agreed upon amount per occupied room back to the convention center for its cost of hosting the convention. Who pays the room rate including the rebate? The convention attendee. Try asking your local Convention Center sales person for a cost breakdown. Good luck, transparency in their operating cost is another factor of concern of some hoteliers.

Typically Convention Centers operate under corporations that are not a part of the government and usually do not have to report there financial statements and balance sheets to the general public for scrutiny. The executive director is left to simulate a private business but knows all to well they're just an arm length away from government funding.

While hotels and other small businesses are trying to survive by cutting staff, and dealing with rising utility costs, health insurance, and many other costs, all the Convention Center has to do is raise the rebate to cover there costs. I've heard more than once from the convention sales personnel, "if you want this convention to come to us you must stay in this price range, including the rebate". Is this the free market we intended? These costs are being dictated by the Convention Center with little or no regulation. The cost of the rebate forces the hotel to lower its rate just to stay competitive in the bidding process. A client will only pay so much and the competition is fierce between communities to win a convention.

To keep the pricing in this competitive environment, the room rate is lowered, but not the rebate amount, with no clear picture of the actual Convention Center costs. When multiple hotels are involved in housing a convention, there are different room rates quoted with the same flat rebate amount. The hotel with the lower rate receives much less revenue than the higher rated hotel, thus making it unfair. If we have to live with rebates shouldn't rebates be a percentage of the rate instead of a flat rate?

Rebates could be seen as just another tax paid by the customer on top of sales tax and occupancy tax, with no or little government regulation. When is taxing too much? The corporations they set up to operate the convention center should be scrutinized much more closely. The executive director of a convention center is charged with building the business and reducing the deficit. Unfortunately, this mission can be lost with minimal oversight and little transparency outside there existing board of directors primarily consisting of government officials, or government appointed friends.

The Convention Center was originally built with millions of dollars of tax payer money in an effort to revitalize the community. In some cases this mission has been successful and has created a winning situation. But many cities are faced with ongoing deficits and a lack of leadership to seriously deal with these deficits.

To rebuild a healthy Convention Center there needs to be a review of the entire Travel and Tourism industry with-in the community. Travel, Tourism and Convention business are bothers in arms, but in some communities they can be like oil and water depending on there organizations.

Is your Convention Center built and operated to meet the needs of the market which it competes. Over the years I have had the opportunity to work in various cities both large and small across the country. I have seen beautiful Convention Centers with multiple services, and upgraded facilities. I have also seen very utilitarian facilities that look like they came off the government building assembly line. However, these facilities can meet the needs of there clients and communities based on there general market demands.

What communities need to know is that the Convention Center is meeting the needs of the core purpose of its existence, is it competitive in the convention business. Larger cities have the opportunity to compete for large regional, national and in some cases international conventions where thousands of people attend. When competing for these conventions, location, location, location, is the key to success. International Airports, world class attractions, golf, resort hotels, whether in the city center or outlying areas.

In small and medium size cities competition can be just miles apart, Driving distance for most convention attendees. Easy access and low airfares are also important, and the balance of hotels rooms and size of the convention center must be taken into consideration. When smaller conventions take place, shuttle services are just another added cost for the convention they would hope to do without. Local attractions become less important as the attendee usually already knows your community well. There budgets also dictates the amount of time they will be able to spend in the community. A safe city and plenty of restaurants and nighttime activities in walking distance can be key to your competitiveness.

Another factor to consider in smaller markets has to with the business plan. Does the Convention Center business plan reflect the type of services being offered for the market it serves. Market conditions change over time. Has the Convention Center changed to meet these changed needs. At one point in time local companies may have used the facility due to capacity. This would have created the need for upgraded facilities, and services. But now, we know most companies have eliminated these extra outside activities for various reasons, budget constraints, government oversights, and executive accountability resulting in a significantly changed market.

With the changing market, the Convention Center must focus on the convention business and get back to basics. However, this may not be the case in your market. This brings back to focus the rebates and taxes, and the ever rising costs.

It appears that in some communities Convention Centers have made business plan changes, but these changes have come in direct conflict with other local private businesses. Does your Convention Center, with its tax and rebate support from the community compete with your hotels by hosting community events such as weddings, lunches and dinners for various organizations? Some Convention Centers have created outside catering businesses in direct competition with those privately owned and in many cases, family owned catering companies. I have even seen the in-house production company of a Convention Center compete in the outside market for services. When these "privately held convention centers" compete with businesses they are supposed to serve, in creates a conflict. What ever happened to just focusing on the basics of the original purpose the Convention Center - hosting conventions.

Each community has to determine there overall needs and may have to make tough decisions. I hope that in this time of economic challenges community leaders will welcome a thorough review of the general operating procedures, costs, and direction of there prized Convention Center. Let's get back to basics, and have the Convention Center go back to what brought it to the community in the first place, hosting conventions.

Paul Kremp is General Manager of the Rochester Plaza Hotel & Conference Center, one of the largest hotels in downtown Rochester, New York. The hotel, which is owned by Summit Hospitality, Inc of New York, has 362 rooms and suites, several restaurants and extensive meeting services and banquet space. A 35-year hotel veteran, Mr Kremp has worked in both hotel management, franchise and owner operator capacity throughout his career at brands including Radisson, Ramada, Marriott, Red Roof Inn, Microtel, Crowne Plaza, Holiday Inn, Hampton Inn, and for independent hotels. Mr. Kremp can be contacted at 585-324-0032 or pkremp@rochesterplaza.com Extended Bio...

HotelExecutive.com retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by HotelExecutive.com.