Consolidation and globalization within the hospitality industry, and especially in the hotel sector, are changing how meeting planners negotiate contracts, said Jonathan Howe, president and founding partner of the Chicago-based Howe and Hutton law firm, which specializes in meetings and hospitality law.
“Part of the problem today is, the empowerment of a salesperson in a hotel today is substantially reduced,” he said.
Revenue managers and other forces in the property are trying to maximize their return and have more of a “what’s in it for me” approach.
And that means planners need to show hotels what’s in it for them in order to get the best deal. It’s important, Howe said, for planners to know their event’s history, know their group and know their habits. Does the group buy a lot of in-room movies? Go to the spa? Have rounds at the bar or play a few rounds of golf? Knowing the group’s economic impact can help in negotiations.
“Know your group, and know their clout,” Howe said.
Negotiating contracts well can make the difference between a financially successful meeting and one that leaves your organization in the hole. Here are more negotiating tips from Howe and other event contract experts.
Hotel Rates and Terms
Planners have to create options for themselves; if you have only one option, “you’re going to be robbed blind,” said John S. Foster, an attorney whose Atlanta-based firm, Foster, Jensen and Gulley, specializes in the legal aspects of meetings and conventions.
Request for proposals allow planners to identify four or five hotels and to figure out which are most interested in their business. From there, Foster advises meeting planners to choose the top two or three contenders and start negotiations to see which will offer the best rates and terms.
Timing is important. Planners should figure out the market’s peak, shoulder and off seasons — and even peak weeks — then aim for times when venues need the business.
And, Howe said, it never hurts to ask the hotel, “When is your soft period? When can I help bring people to your property?”
“In negotiating, be a good listener,” he said.
Small Meeting, Big Power
Small meetings have more power than they realize. An event with 2,000 attendees has to book years in advance, and there are only so many venues that can accommodate them; whereas “small meetings can get good terms on very short notice,” Foster said.
“There are hotels out there that are dying to have that business. A meeting with 200 rooms, you can find a great spot within six months or even 30 to 60 days.”
Smaller meetings can also “piggyback” off larger meetings. Maybe a hotel already has a large event booked but still has some niche meeting space the larger event can’t use and the hotel hasn’t been able to fill, said Lynnea Honson-Walsh, director of operations for Total Event Resources, an event agency in Schaumburg, Illinois.
“We’ve been very successful going in when a hotel has specific, niche space left that a smaller meeting can use,” she said.
Planners can also bring future events into the negotiation. A planner may offer to bring bigger meetings to the hotel in the future if the hotel cuts a better deal on these smaller meetings.
Food and Beverage
When it comes to food and beverage (F&B), planners should negotiate a dollar amount, not a menu, Howe said. Sit down with the chef and say, “I have $90 a head; what can you do for me?” That allows the chef flexibility to provide a better experience for attendees.
Planners should not let the hotel set their budget and shouldn’t overpromise. If the budget is $30,000, a group shouldn’t be talked into guaranteeing a higher amount. If a group isn’t spending enough to meet its F&B guarantee, one creative way to handle that is for the planner to agree to add $1 to $2 to the room rate and then credit that amount to the F&B department, which lets the hotel manage its revenue flow, Foster said.
Planners should always consider asking for slippage on F&B, especially if the guarantee feels high for that event. If the guarantee is $300,000, ask for slippage of 20% to 30%, and “then you’d still be OK if you didn’t meet it,” Honson-Walsh said.
Also, when signing a contract in 2019 for a 2020 event, for example, planners should try to get 2019 F&B pricing even though it’s for the next year, which puts a hold on pricing.
Attrition clauses aren’t all bad, but planners should make sure they’re structured correctly and are favorable to the group, Foster said. Planners should make sure it’s a realistic number and that the hotel attempts to resell the rooms and credit them back to the group.
If a group is meeting in Arizona in July, when the hotel usually runs at 50% occupancy, it doesn’t make sense to agree to pay for rooms the hotel wouldn’t have sold anyway.
Instead, Foster suggests using the “best efforts” clause. That means a planner will make the best effort to advertise the meeting and get attendees to book at the hotel by the cut-off date, but there’s no guarantee.
“Most hotels will go for that if it’s in a time they need your business,” Foster said, “but that won’t work for peak times.”
Also, attrition should be based on room nights, not revenue, and room nights should be calculated “horizontally” across the entirety of the event, not broken out by night.
Planners also want to be sure they have the right to verify available rooms and people who came to the meeting but didn’t book through the block.
“Trust the hotel, but have the right to verify,” Howe said.
Cancellation Clauses and Damages
When it comes to cancellation clauses, “F&B should not be in the cancellation clause because [the hotel is] not even paying for F&B until way down the line when the event gets closer,” Honson-Walsh said.
Planners should also make sure to base damages on lost profit and not lost revenue, Foster said. “Damages can’t be speculative; they have to be based on actual losses.”
Planners can agree on a range, like 20% to 30% of profit margins for F&B and 70% for guest rooms, but the hotel “is not entitled to be reimbursed for expenses they don’t incur,” he said. “If you don’t show up, they don’t have to buy the food.”
When it comes to cancellation clauses, buyers should also negotiate credit for replacement business to include business already booked on other dates. For example, if a group that is booked for the third week of October moves into your canceled slot the first week of October, the hotel may try to say that doesn’t count because it was already booked, but now they’ve “precluded it from being resold, and that’s not fair to the group,” Foster said.