Hotels in North America don't do math like they used to. Meetings contracts used to calculate group room-night obligations cumulatively over the course of an event. So even if planners fell short of filling rooms on a peak night, if they exceeded the contracted bookings over the course of a three-day event, they could avoid paying attrition fees.
"As long as the customer achieved whatever percentage was assigned — 80 or 90 percent of the total, generally — they had met their obligation," says Brett Sterenson, president of Hotel Lobbyists, a conference site selection firm based in Washington, D.C. "That was an advantage for the customer — it gave them an out. But at the end of the day, the hotel was getting its money."
Today, however, thanks to industry consolidation and an unprecedented run of economic success, hotel companies wield a tremendous amount of negotiation leverage. Hoteliers are no longer willing to overlook those soft nights. Increasingly, contracts stipulate that attrition fees will be levied for each night that groups don't meet their numbers. "So you could significantly exceed those obligations for three nights, but if you fall short on the fourth, you're in trouble," says Sterenson. "It doesn't matter anymore by how much a customer may have exceeded their obligations on previous nights."
The topic is coming up often, say a number of independent planners. "It is a huge shift for groups to change their mindset from cumulative to daily," says one third-party meeting professional. "It depends on the group, but some will likely cut back on the number of rooms booked so they aren't left with unused rooms."
What's more, many hotels have changed the way they assess room-night obligations, says Jonathan T. Howe Esq., founding partner of the Howe & Hutton law firm. "It used to be if there was a head in the bed, you got credit," he notes. "Now the head in the bed is not going to be counted — it's how much that head in the bed paid for the room. Credit is increasingly based on what revenue was recovered, not whether the room was occupied." More often than not, those revenue goals — like room-night obligations — are being calculated by the day rather than cumulatively.
Negotiating Better Event Contracts
Hotels Hold All the Cards...
Attrition recalculations aren't the only result of a market that currently favors hotels. "Requests to negotiate many details of clauses, until recently often granted, are now being turned down regularly," says Howe.
In many cases, says Sterenson, the power of Marriott following the Starwood merger has helped to lead the evolution in contract clauses. "Your buyers have less choice right now, certainly because of the merger, but also because the demand is so high. So [hotels] have been able to pull off some stunts contractually that they couldn't have possibly tried a decade ago."
"Requests to negotiate many details of clauses, until recently often granted, are now being turned down regularly."
Jonathan T. Howe Esq., founding partner of the Howe & Hutton law firm
Because market forces play a key role in the change, though, Sterenson believes that hotels might not keep up their hard-line stance for long. Howe agrees: "If we get a little economic bump in the road, we'll likely see some adjustment to their approach."
That said, the contract changes already are becoming entrenched: Marriott properties in New York City made the switch two years ago, and the company has since rolled them out across North America. Many hotels from other companies and brands have gradually followed suit.
...But They Are Open to Discussion
Even in the current market, Howe urges planners to attempt to negotiate attrition and any other bones of contention. "You never know what you can get if you don't ask for it," he points out.
Some planners report having success negotiating the terms of attrition calculation. "I think hotels are pretty flexible with it," says Keri Kelly, founder of Chicago-based SoulMining, which specializes in event management services. Kelly mostly works with citywide events, though. Event type, location, timing and brand can be huge factors in the negotiations, she notes.
In fact, Kelly just finished successfully rejiggering cumulative attrition terms in a contract for an upcoming citywide event, but only after demonstrating specific historical data and current pickup for the program. Still, her gathering is happening concurrently with a major local event and another citywide meeting. "With intense compression like that, I can certainly see why a hotel would be looking for nightly guarantees," she allows.
There is some wiggle room, confirms one hotel group's sales director. "The changes are the way we're moving forward," the source noted, "but we're not going to lose big pieces of business over it either."
Other planners have benefited from existing agreements. "We have prenegotiated contract terms with a lot of hotels that guarantee our clients' attrition based on cumulative room-night production," says Christine Kavanagh, an Asheville, N.C.- based global account director with third-party firm HPN Global. "We're starting to see some hotels move to a day-by-day model, but my goal is always to try to negotiate that away where I can. I'm generally able to get the terms back to a cumulative basis."
Still, Kavanagh is noticing less flexibility with attrition clauses overall, particularly in high-demand destinations. And the numbers are a bit more challenging: Where filling 80 percent of the room block was a common objective before, now 90 percent often is required to avoid attrition charges. That is affecting the blocks themselves, she notes.
"Some of my association and nonprofit clients are going back and taking a closer look at their block size," Kavanagh adds, "and they might reduce it a bit just to make sure they protect their bottom line."
The Rationale for Tougher Terms
Regardless of market conditions, the current approach to attrition isn't just a power play by the hotels. Sterenson, who previously worked in revenue management and sales for Kimpton and Millenium Hotels, sees where they're coming from.
"From the hotel standpoint, I understand it," he notes, "because to be out on any one night is a hardship for the hotel. Their product is perishable, and you can't sell more rooms than you have. If you miss on a night, you're not going to be able to recoup that. So I get what they're trying to do, and I get why they're getting away with it right now."
"We evaluate business based on what it can bring in on shoulder nights and weekends; when a group says they're going to do that, we want to know that they're going to on those specific nights."
Hotel sales director
Sterenson also understands quite well why hotels didn't get away with it during the buyer's market: "Hotels were pushovers for a long time. Clients would miss their obligation by a significant margin, and the hotels would very often let them out of the attrition with the promise of future business. So I don't mean to present this to say hotels have always dictated the way that this works; on the hotel side, I let folks walk away without paying their attrition bill all the time on good faith that they would bring us more business — and they often did."
Kelly of SoulMining has a hotel background as well, and she shares Sterenson's perspective. "It was always bewildering to me how hotels were treated," she recalls. "They're perishable — it's not like buying cars, where it doesn't matter if they're used. The hotels want a guarantee that their rooms are going to be used. It's not at all surprising to me that we're moving in this direction."
The fact is, hoteliers now have the power to ensure they're getting the business for every night promised in the contract. "A group may represent a great piece of business for us, but if they're not picking up their shoulder nights, that's not really the same piece of business," points out a hotel sales director. "Our hotels can fill Tuesday, Wednesday and Thursday all day long in major cities, just with transient travelers. We evaluate business based on what it can bring in on shoulder nights and weekends; when a group says they're going to do that, we want to know that they're going to on those specific nights.
"We're telling people that up front, before they select our hotel," continues the salesperson, "so it doesn't come as a surprise to the customer. Have we lost business as a result? Possibly. But no one has said outright that they selected another property because of the attrition clause."
While decreased flexibility might be challenging for some clients, the changes are not without logical motivation, Sterenson says. "In no other industry that I can think of can you miss your contracted obligation and routinely get away with it," he notes. "I think we got to a place where we were comfortable with the status quo, and now the hotels finally have the upper hand and are being strict on attrition again. My take is to let them — let them for as long as they can, because it'll just change again."
Trust But Verify
Hotel contracts should provide you with the right to audit the hotel's guest list for the days of the event, advises attorney Jonathan T. Howe Esq. of Howe & Hutton Ltd. Without that, you can't be certain you're getting credit for all of your participants. "As an attendee, I might register as Jon Howe, but when I check in to the hotel, I'm using a credit card that says 'Jonathan Howe' — it's possible the hotel can miss that. You'll want to have that chance to verify."
For citywides, many times Howe's clients collect info as backup: When picking up credentials, attendees can be asked to confirm where they're staying and for how many nights. "That gives me a secondary record to consult," Howe notes. "And we will use it — I have yet to have one single case in which we did not find extra heads in the beds who came to our meeting."
Traditionally, it has not been acceptable for hotels to "double dip" — groups should not pay attrition on rooms that weren't available. "How many rooms were out of service?," asks Howe. "How many were booked? How many rooms did the hotel receive some kind of compensation for? I want to make sure."
Planners shouldn't accept it when hoteliers don't want to provide credit for attendees who booked outside the block, Howe adds. "My answer to that one is, 'Sorry, Charlie, but you're making it available to them to book outside the block. The biggest competitor against filling the room block is the hotel itself. So why should I not get credit for you guys underselling me and my clients?' "
Know Your Worth
Ultimately, changes to attrition clauses underscore the importance of understanding how many rooms your group needs, according to Kelly. "It's crucial that you contract sleeping rooms based on what your demand is," she says. "That's either based on history from previous events, which will help dictate how many rooms you need each night, or using whatever data you have to reasonably estimate the room count. That's first and foremost — that you're contracting accurately and responsibly."
Cumulative room-night calculations are more fair for her clients, says Kelly, but she can see where hotelier frustration comes from. "I've seen many times when groups are just following a pattern to book a general block, without paying much attention to the actual required number of rooms," she says, noting that a good relationship with hotels requires due diligence and careful consideration. "I think it's so key to make sure you have it accurately done."