expenses with earned revenue. One of the better examples is the work of a private convention center management company, AEG Facilities. They’ve taken the step of thinking and acting strategically in announc- ing that covering expenses with earned revenue as a primary goal for - geles Convention Center for successive years. They have been able to increase occupancy from 55 percent, when they assumed management in Dec. 2013, to 72 percent currently, a notable turnaround. It has Center achieved an $8.1M operational surplus. Additionally, similar progress has been made at the Hawaii Convention Center which AEG - - ten surprising how rapidly the fund accumulates cash. At some point, a improvements can keep pace with the market and deferred mainte- nance doesn’t grow out of control. AEG Facilities accomplished this with cost cutting (principally payroll), renegotiating terms, commis- private management companies compete. Normally, private manage- ment proposals are strong on cost cutting measures which they can all do consistently well. Rarely is there a stated and clear objective of covering operating expenses with earned revenues in privatization proposals. We reviewed many service order forms and found some meaningful
the same market sectors. Recommend that a pricing audit be conduct- ed and see how you compare to current market prices. Perhaps, you have more pricing power than expected. item entitled “rent credit.” We learned that this was a way of account- have learned, non-cash revenues, i.e., convention centers do not actu-
ally receive a partial or full reimbursement. Some of the credits were 2016 rent credits of $6M. Rent credits occur mostly with association meetings and exhibits. These terms are negotiated by CVBs. This hap- pens whenever there is a “citywide” event measured by the number rent. Zero rent became common in the early 2000’s. The dot com bubble had burst, more exhibit space was coming online, and cities were concerned about losing market share. Then 9/11 hit, and the recession followed in 2008. Now, zero rent is a common negotiating tactic, especially for professional associations. I believe convention cen- these reasons: • It is wrong that one organization crafts transactions that are not par- • Generally competing on price alone diminishes the perception of your city’s brand and creates an impression that event locations are - vention centers are not. Reasonable price competition can work, but once you start leading with price, especially zero rent, the expectation is that you will do it all the time. them to obtain more corporate intelligence about the client’s real in- zero rent or not, for associations – is your city part of a predictable rotation increasing the probability of a booking – are there less costly value added parts of a proposal that all together are as attractive as zero rent. Additionally, engage in conversations with the general deco- rating contractors, hoteliers, board, or advisory association members, but clear information about location decisions are sometimes revealed. FM
Myles McGrane is a principal with MTM Consult, where he provides consulting services for convention centers including development, sales and marketing, opera- tions and management.
46 Facility Manager Magazine
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