Reduce Rebates and Save Your Beloved Convention Center
By Paul R. Kremp General Manager, Rochester Plaza Hotel & Conference Center | February 19, 2012
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?