Is Your Live Event Protected from a Hotel Cancellation?
Hi there. I'm Bari Baumgardner, founder of SAGE Event Management. I'm here to talk to you today about a trend that is driving event planners crazy: hotel cancellations. It's a new trend that's emerging strictly because we're in an incredibly strong economy right now, and it’s something you need to be prepared for. What happens if your hotel cancels on you?
Your Contract Protects the Hotel - But What About You?
Like many people in our industry, I spend a lot of time negotiating contracts specifically around hotel cancellation clauses. Generally, event managers are most concerned about the amount of money will we pay if we cancel on the hotel.
Cancellation clauses are typically staggered, which means that the amount of money you would owe is determined by the length of time between your cancellation and the event date. The closer you cancel to the event date, the more money you would owe the hotel.
But here's what they don't tell you: hotels can cancel, too. In a strong economy like this, hotels are actually canceling on clients.
Why Hotels Cancel & What Happens Next
Here’s what happens: the hotel receives an offer for a better piece of business - a client that they believe will deliver more revenue. Your business, all considered, is valued at X number of dollars. A new, better client comes along and their business is valued at Y number of dollars. The hotel weighs X and Y and says, "Y is a better piece of business. You know what? I'll cancel on the first client so I can make more money."
Guess what happens next? If you have no protection in your contract, the hotel sends you a note that says, "Sorry to tell you, but we're actually going to be canceling on you." That's right. They owe you nothing because most people don't have any protection in their hotel contract to guard against it.
With a Good Contract, Hotel Cancellations Have a Silver Lining
Let me tell you a quick, little story about this. One of our clients, Marcia Wieder, had booked her event at a certain hotel for a couple years in a row. We really loved this hotel. When it came time to renew her contract for her next event, we went straight to that hotel, negotiated the contract, and back we were. Super simple and easy.
We were just about to start marketing for her event when we received a letter from the hotel. Guess what? They sold to a condo development company. Now that hotel is turning into a condo, and it's happening before her event was supposed to take place. The hotel is cancelling on her - but there’s a silver lining.
We had negotiated a cancellation by hotel clause in Marcia's contract, which meant the hotel had to pay her because they were canceling on her without fair notice. They wrote her a check for $100,000.
That's right. When you're about to start marketing your event, it’s a nice little bonus to get a six-figure payday. She received $100,000 because the hotel cancelled on her, which was a lost opportunity. She had to delay her marketing. We had to find a new venue. All of that takes time and money - and that's why we received a really nice payout.
Stronger Economy & Seller’s Market: Why Hotels Have the Upper Hand
Here's the deal. It's a really strong economy, no matter what anybody tells you. The hotel industry swings on a pendulum like everything else. Sometimes, it's weak. Sometimes, it's strong. We just came out of about a five-year period where hotels were in a buyer's market. Event planners and clients like you had the upper hand when it came to hotel negotiations.
But now that pendulum has swung, and we're back in a seller's market. In a seller's market, especially after a drought like the one that we just came out of, hotels are hungry to make up lost revenues.
Cash Is King at Investor-Owned Hotels
Another massive trend is that many hotels are now owned by investors, which means that cash is king. Investors are driven by cash and they want to make as much money as possible. Hoteliers have to report to those investors, and they're doing anything they can to boost those profits. So if a better piece of business comes along, the hotel is more likely to take that business over yours. How do you keep this from being a problem?
Realistically Evaluate Your Business Value with Three Factors
Look at the value of your business realistically, just like a hotel does. When hotels evaluate the value of your business, they are looking at three things: rooms, food and beverage, and meeting space rental. How much are you bringing in room revenue? How much are you bringing in food and beverage revenue? How much are you bringing in rental space? Those are the three factors that determine the value of your business to a hotel.
You can assess the same information to evaluate pretty quickly how much your business is worth. Using these three factors, if another client offers them more money in rooms, more money in food and beverage, and more money in space rental - you could quickly find yourself in the firing line.
Hotel Discounts Can Be a Double-Edged Sword
You can also assess your value based on how much the hotel is willing to give you in discounts. If they're giving you a low room rate and a low F&B, it's obviously a weak time for them. You've caught them in a soft spot, which is really good for you from the perspective that you can keep your costs down. But it can also make you a little bit vulnerable if the hotel gets a better piece of business than the one you brought them.
You really want to know where you're stacking up with the value of the business. You want to make sure that you're factoring that into your own cancellation clause for what you'd owe the hotel. You should never owe the hotel more if you cancel and didn't have the event than if you did. That's the one side of it, but the flip side is that you also evaluate what the hotel would owe you.
Put Teeth in Your Contract: Make Hotel Cancellations Hurt
At SAGE, we put teeth in the contract under the cancellation by hotel clause. Our goal is to make it so painful and expensive for the hotel to cancel on you that it's not worth it to take that better piece of business.
Our contracts usually state that the hotel must help find a new venue. They must also pay for site selection, marketing costs, refunded travel costs, and the difference in cost between their hotel and the new venue. All those things start to add up really quickly for an event.
Think about it: the closer you get to the event date, the more you've invested in marketing. Your attendees have invested in travel. Those are all refunds that have to be made - and the hotel would have to pay them. That's a really hard, tough pill to swallow.
Smart Contract Negotiations with SAGE Event Management
Are you planning to book a hotel for a live event anytime in the next six months to a year? Are you concerned about how to navigate hotel cancellations? Do you have questions about contracts or contract clauses? Post it in the comments here or send us a quick email at firstname.lastname@example.org. I’ll be happy to take those questions and answer them in a future video.
To recap: The economy has shifted. The pendulum has shifted. You are now in a seller's market: buyer beware. You have to be super careful, not only to negotiate the clause around your cancellation but also the clause around a cancellation by the hotel.
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