Conference sessions are sometimes, well, boring. But no one fell asleep during seminars about third-party vendors and housing fees at the January annual meeting of the Professional Convention Management Association (PCMA). Here's a sample of some of the contentious questions and views raised:
From an association meeting planner: "If hotels pay third-party housing companies commissions, why don't they pay associations commissions when we handle the housing?"
From a third-party housing vendor: "Everybody's talking about the unreasonableness of hotels paying commissions to third-party housing companies. But if you're going to question that, what about the commissions audiovisual companies and decorating companies pay hotels?"
From another third-party housing vendor: "What about when an association client asks us not to disclose our costs because they don't want their boards to see this as a line item in the meeting budget?"
In the current hotel seller's market, the old assumptions about who will pay housing fees for citywide meetings are collapsing. "There is no free lunch," say many hotels, convention bureaus, and even some third-party housing companies. And following the failure of the industry to create the Central Convention Housing Reservation Service (CHRS) last year, there are no new solutions proposed for standardizing housing fees and services.
One thing is clear--in today's market, planners need consistent housing management and accurate pick-up reports more than ever before, and many have turned to third-party housing vendors for these reasons. But questions are being raised about what's a fair fee to charge for housing, who should pay it, and when those fees should be disclosed.
Pricing Structures Challenged One area of debate revolves around pricing structures for third-party housing services. Under the commission system, the cost of housing can change drastically depending on the city where the convention is held. When paying a ten percent commission, the cost per night increases ten dollars, for example, when booking a $200 hotel room versus a $100 room.
"Why does it cost more to do business in Washington than in Smalltown, USA?" asks Andrea Arabak, director of convention and visitor services with the Washington, DC Convention & Visitors Association, which charges $9.50 per reservation. "Are we subsidizing other cities?"
Regardless of the convention location, many industry experts feel commission charges are exorbitant. "Any major hotel corporation can tell you it costs between seven and nine dollars to process a reservation," says Gregg H. Talley, vice president, Talley Management Group, an association and tradeshow management firm in Woodbury, NJ. "Ten percent of a room [rate] can equal hundreds of dollars. It makes no sense."
But planners who use housing vendors that charge commissions contend that the service is well-worth the cost. Mary Ann Saks, senior meetings manager, Environmental Industry Associations in Washington, DC, has only praise for the housing companies she uses: International Meetings and Marketing in Arlington, VA, and Global Reservations in Dallas.
Depending on the type of meeting, the companies provide a range of services. Besides maintaining the all-important accurate histories and tracking room blocks, they search for properties, negotiate with hotels, and prepare. She asserts that the housing companies negotiate a better room rate than her association would be able to get on its own, and that rate offsets the commission charge.
Housing companies are able to charge ten percent commissions because associations are willing to hire them, remonstrate some opponents. "I don't put the onus on housing companies," says James H. Sweeney, associate executive director with the Chicago-based American Dental Association (ADA). "I put the onus on meeting planners and hotels."
The willingness of associations and hotels to pay private housing companies angers at least one CVB executive. "It baffles me when the [planner] says, 'No, I'm not going to give you any money,' and the hotel community, which is supposed to be part of our team, says, 'No, I'm not going to give you any money," says one executive who heads a major bureau and asked not to be identified. "And they both roll over and let somebody come in and rape them for ten percent and walk out of the community. They felt they got better service. Give me ten percent a night and watch the service I can provide. We're talking economics."
Jim Sweeney is sensitive to those concerns, and did feel a loyalty to the local CVB and the city--until now. Because of the inconsistency in CVB services, the ADA will use a third-party housing vendor for the first time next year, one that charges a flat fee per room night.
But fees per room night are another aspect of the pricing system many other planners and suppliers find outrageous. It takes the same amount of work to process a reservation for two nights as it does for twelve, they argue. Why should the charges be so much higher?
"You could convince me either way, flat rate or commission," says the CVB executive. "But a commission on the first night, not each night. That's where I go ballistic. That's where the abuse takes place. The amount of money being made by these people is scandalous."
At the core of the debate is the question: What is a fair pricing system for housing? Talley weighs in at $18 per reservation. "Knowing that some companies are better at tracking blocks than CVBs, you can double the industry average," he says. But that is as far as he goes, no matter how terrific the service."I've allowed they can charge a premium beyond what the industry does," Talley says. "But should that premium be a multiple of twenty? No."
The Truth Will Out: Disclosure No less contentious than housing fees are the disclosure issues around them. There is, first of all, the scenario of housing companies charging hotels a commission, and then asking the hotels not to disclose that commission to the association client. Another disclosure issue: when an association adds fees to the negotiated room rate to cover the cost of housing or some other convention-related service, should those fees be disclosed to attendees?
As to the first scenario, Jacy Rosen Hanson, director, meeting services, American Diabetes Association, Alexandria, VA, admonishes that sometimes associations only care about getting a good room rate, not about how the third-party vendor got that rate. "If you hire a vendor to negotiate your room rates, then you really don't know what the housing company is getting and what the hotel is getting," she warns, "and a lot of planners don't ask."
While the practice is not illegal, as some people assume, planners should inform themselves. Jed R. Mandel, attorney-at-law with Neal, Gerber & Eisenberg in Chicago, advises planners, "Are [third party vendors] working for you but getting paid by someone else through commission?" he asks. "Clarify those issues."
Regarding the second scenario, most planners interviewed came down solidly on the side of associations disclosing to attendees any add-on fees to the room rate. "I feel, in principle, and in the best interests of the member and the association, that you have to disclose," asserts Lisa Sykes, CMP, meeting services team member with the American Dietetic Association, based in Chicago. "The more honest you are, the more readily [members] will accept these things. They won't think you're trying to pull something over their eyes or making bucks at their expense."
A different perspective is put forward by Bruce Harris, president of the Twinsburg, OHbased Conferon, Inc., a meeting planning company. He believes it is imperative that the board of directors is informed, and that they should decide, as the members' representative body, whether or not to disclose fees to attendees. He adds that boards make many decisions about contracts in the normal course of business, and the details are not necessarily disclosed to members. "If IBM sells the association a computer," Harris says, "I don't see [the association] writing a letter to attendees about the IBM guy getting a commission."
For associations booking at Hilton hotels, the dilemma will be forced into the open. As of the first week of February, Hilton rolled out its new disclosure policy. When fees are added on top of the room rate for shuttles, convention center rental, and for housing company commissions--whether those fees pay third-party vendors or go to the association in the form of rebate--a stamp appears on attendees' folios informing them that a fee has been paid for such purposes. At press time, Hilton was not planning to reveal the specific fee paid or to itemize it on the folio. And Hilton contracts now stipulate that groups will divulge that information to attendees who ask.
"This is us saying to the attendee: Be aware of these fees in your rate," says Dave Scypinski, director of meeting and convention marketing with Hilton Hotels Corporation, based in Washington, DC. "There is no hocus-pocus on the part of the groups or housing companies. "
ITT Sheraton does not currently disclose fees on attendee folios; rather their contracts stipulate that associations inform attendees if costs for services have been added to the room rate, says Beverly W. Kinkade, vice president, director of association sales. Hyatt Hotels & Resorts has an informal policy of disclosing add-on fees on folios, says Cody Plott, vice president of sales.
But both Kinkade and Plott, while saying they will consider Hilton's new policy, distinguish between housing commissions and other fees. Kinkade questions whether a housing fee is much different from the reservation fee incurred when someone books through a travel agency. But she feels strongly about disclosing other costs. "Where a consumer has a legitimate right to know is when funky things like transportation or convention center costs are added," she says. Plott explains that Hyatt's philosophy differentiates between fees that the hotel is collecting for another party, and housing commissions--which Hyatt pays for. "If it's coming out of the hotel's pocket, I think [disclosure] is irrelevant," Plott says. Hilton's Scypinski argues that Hilton does not pay housing vendor commissions, and that those costs are passed to attendees, who have a right to know.
When Scypinski announced Hilton's new policy at the January PCMA meeting, some planners were incensed. "We package the whole [meeting] in the best way for our collective membership and how we do that is our job," declares Alvin Lever, executive vice president and CEO, American College of Chest Physicians, based in Northbrook, IL.
"They want disclosure? They will have tons of disclosure to do before I sign a hotel," Lever adds. "How much do they get in fees back from in-house AV companies? How much discount do they get buying liquor for functions? Let's talk the ridiculous level of this. Are they going to disclose that the meeting room cost was folded into the hotel room? I'll tell you what will happen. [Members] will look for somewhere else to stay. We have signed an clause, and we will end up being screwed."
Lever also predicts the new Hilton policy will cause havoc at hotel front desks. "When someone goes to check out, and says, 'Wait a minute; I didn't use the bus. I don't want to pay you, Hilton,' is Hilton going to say, 'Go talk to your association'? Give me a break."
"Hotels should say, 'No problem. Here's your three dollars back,'" Scypinski responds. "It's not our money to begin with." Scypinski believes that Lever's point "hits the whole malady on the head." Attendees who don't use the bus shouldn't have to pay--and hotels should not be caught in the middle. He agrees in principle that disclosure is the association's responsibility but insists that Hilton's policy is necessary "because too many corporations and associations are ducking their responsibility." The solution, he says, is to incorporate costs such as housing fees into the registration fee.
Hilton's policy highlights still another inflammatory disclosure issue: Some associations get a percentage of the commission paid to housing bureau companies--a practice called "revenue sharing" by those in favor of it, and "kickbacks" by those who oppose it.
Hanson of the American Diabetes Association acknowledges that associations have a right to a cut, but she emphasizes the importance of disclosure. "It's up to each organization--if you're not afraid to tell attendees you are keeping part of the profits," she says, adding, "I would never do it. It is highly unethical."
Conferon refuses to participate in the practice. His company's fees, Harris says, cover the cost of doing an excellent job. Companies that can afford to give away part of their fee, he notes pointedly, must be "making a heck of a profit margin."
Are Standards the Solution? Enough debate, some planners declare. "We've kicked [the issue] around for how many years and have yet to come to an acceptable answer?" asks Talley. "We have to start forming a consensus."
Harris of Conferon adds his view about hotels disclosing commissions they receive from housing vendors to their association customers. "Our industry is unfortunately spineless. When it comes time to take a stand, everyone looks to everyone else." The American Society of Association Executives, Meeting Professionals International, and the Professional Convention Management Association all need to set ethical standards and insist hotels abide by them, Harris states.
While many see establishing a standard for full disclosure as an important step, there are obstacles to setting standards on pricing. "If everybody gets together and sets fees," cautions Mandel, "there is a real potential for an antitrust problem." But, Mandel adds, that doesn't mean there can't be industry guidelines.
Sweeney is one planner leery of standards, saying "The market needs to drive fees. Meeting folks need to drive the market." Other planners and suppliers disagree, saying that legally acceptable fee standards would help. Some suggest a scale, with fees commensurate with services offered. Some even point to CHRS as being the right idea with the wrong execution, and advise reexamining the idea of a standardized system through CVBs.
Others underscore that planners need to examine their own decisions. "What I suggest is that planners take responsibility for the cost that is ultimately borne by their attendees," explains Cheryl K. Nordstedt, associate executive director, management services, American Academy of Dermatology, Schaumburg, IL. By responsibility she means "figuring out if they can justify the amount in their minds." Nordstedt, for example, could not justify a private housing vendor's ten percent commission for her 1995 New Orleans conference. Instead she used the CVB, which provided the service free to her association, and charged hotels about nine dollars per reservation.
But Nordstedt points out that even when using a "free" CVB housing service, the cost will inflate room rates. Eventually, bureaus will set membership fees to cover those costs, and hotels will adjust their room rates accordingly. "Where does a bureau get its money? From hotels," says Nordstedt. "Where do hotels get money? From guests."
Nordstedt adds that if housing services that charge on a commissionable basis were collecting those commissions from associations, "and those association people had to put it in their budget as a line item, there would be screaming." For her 1995 New Orleans convention, for example, the ten percent commissions would have totaled about $362,000. "Even in a budget of over two million dollars, that figure does not go unnoticed," she says.
"It's a catch-22 situation," sighs Sykes, of the American Dietetic Association. She plans to hire a vendor that charges a per-transaction fee of about ten dollars, which she thinks she can justify to her board. She is considering splitting the fee 50/50 between attendees and the association.
Christine P. Pruitt, department head for meetings and expositions, American Chemical Society in Washington, DC, handles housing in-house, including the cost in the registration fees. "We have a preference not to include anything in the cost of rooms. It keeps everything clean. No one can ever be suspect for what they do in my office," she asserts.
As these varying approaches to housing fees indicate, the industry is far from a consensus. One thing is certain: the industry is in metamorphosis. So take a deep breath and prepare yourself. As Arabak of the Washington, DC Convention & Visitors Association sums up, "We're in for a roller coaster ride."
Some experts forecast that technological advances will change the housing picture dramatically. One new product may solve the longstanding connectivity problem between hotels and whomever is handling housing for citywide meetings--the association, CVB, or third-party vendor.
UltraRes is an automated reservations system designed to lower housing costs, reduce errors, and create an industry standard, say makers, Dallas-based Pegasus Systems, the parent company of THISCO (The Hotel Industry Switch Company), which provides the switch for translating and downloading travel agent reservations directly into the reservation systems of the major hotel companies.
Here's how UltraRes works: After compiling a meeting's rooming list, the association, housing vendor, or CVB sends that list to THISCO. The list can be sent via e-mail, file transfer, or disk. THISCO UltraRes then translates the information to fit a hotel's computer reservations system and downloads it directly into that system. No one at the property has to key in the information. The process not only greatly reduces mistakes, but condenses a week's worth of labor into one hour of automated data transfer, according to THISCO.
The cost of the service has not yet been determined, but will be a nominal fee for hotels and for groups using the service, such as the association or housing company, say THISCO representatives.
Chains such as Hilton, Sheraton, and Marriott already have their own in-house data transfer systems. Hilton's Rapid System (Reservation Automated Processing Input and Delivery), for instance, is free to groups. So, what is the benefit of paying even a nominal fee to use UltraRes?
"The biggest difference is that the planner, housing company, or CVB has to send one format one time, to us, instead of using a different layout process for each different locale," explains Kathy Burbank, director of product development with Pegasus. Streamlining the process will reduce costs by saving time and labor, Burbank says. "It's a tool to create an industry standard," underscores John Davis, Pegasus president and CEO.
Davis says they have received tremendous response from CVBs and associations. But, ultimately, the success of UltraRes will depend on how many major hotel companies buy in. Hyatt has tested the product and will be using it, and Pegasus is now marketing it to other chains. "We have aggressive plans to bring on two to three large chains this year," says Davis. Pegasus is owned by fifteen hotel and travel companies, and because of that relationship, Davis expects hotels to be receptive. ITT Sheraton, for one, is interested, says Marietta L. Baldwin, vice president, director national sales at ITT Sheraton Corporation.