Disclosure of Third Party Payments, Rebates, and Commission

The information provided in this video does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information in this video may not constitute the most up-to-date legal or other information. Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter.

In this video, you'll learn what third-party payments, rebates, and commissions are and why they are used. As well as, things to consider when groups attempt to seek rebates.

Check out what Barbara Dunn (Partner at Barnes & Thornburg LLP, representing groups) and Lisa Sommer Devlin (Devlin Law Firm, P.C. representing hotels) have to say in Legalease With the Ladies- powered by HopSkip!

Video Transcript:

Disclosure of third party payments, rebates, and commission 

Lisa:

Hi, I'm Lisa Sommer Devlin, an attorney who represents hotels and resorts regarding convention-related matters.

Barbara:

Hi, I'm Barbara Dunn, an attorney representing groups concerning their meetings, travel, and hospitality contracts. 

Lisa: In today's video, we'll discuss disclosure of third-party payments, rebates, and commissions. A number of years ago, groups in the meeting industry started asking for details to add to the guest room rates for their events so that they would be paid for expenses such as bussing, convention center fees, or other things related to the event.

Hotels became concerned about this for several reasons.

First, increasing the rate could make it uncompetitive, driving attendees to other hotels or leading to attrition issues.

Second, the hotels were concerned about whether there were any legal implications for these third-party payments.

After some research, it was discovered that, depending on the state law that applies, taking a portion of a room rate and paying it to a third party without telling the attendee who's buying that room about that third-party payment could be considered commercial bribery.

Now, there are many legal complexities to this. Again, it depends on state law. However, hotels were worried because both the hotel and the group receiving that third-party payment or directing it to somebody else could be found criminally and civilly liable for not making these disclosures.

So, it's been the custom for many years now in the meeting industry that hotel contracts will say, “If we're agreeing to make a third-party payment out of the guest room rate, the group or customer has to determine whether or not there has to be the disclosure of that third party payment.”

And frankly, it makes sense. If you have to hide how you're making money, you probably shouldn't be doing it.

Barbara:

Lisa, yes. As you mentioned, rebates are a very good way for groups to generate refunds or revenues to pay for things like a convention center or shuttling. And yet, there is a concern on the hotel's part that those rebates are not disclosed.

So, I think before the group just thinks that everything could be parked in a rebate, it's certainly worthwhile for the group to consider whether the registration fee might be increased slightly to offset expenses.

This is particularly true when individuals or guests may be outside the block, meaning they may have reserved rooms at another hotel or through a vendor like Airbnb. And they're not paying the rebate on those rooms.

So, when generating revenue, it's important to first consider the proper source.

However, if the group determines that a rebate is a proper source, that should be discussed with the hotel. When the rate is quoted, it should include the rebate. And if the contract doesn't say that, it should. Typically, we're talking about a particular dollar amount, either based on the per reservation or on a per-night basis. Again, that's something really important to include.

As Lisa mentioned, hotels want to know that the groups are going to disclose the rebates to attendees. And for most groups, that's not a concern. Certainly, within their registration materials, they can note that a portion of the hotel rate will be used to offset expenses associated with the meeting. And that's sufficient.

Lisa, you raised the issue of commercial bribery is certainly one reason maybe not to have that or not to do that. Another circumstance that I'm also aware of is that many groups have state, local, and federal government room blocks as part of their meeting.

And for those folks, for the government per diem rates, again, that might be an add-on that is inappropriate as to coming back to a third party in the way you describe it. I’d use the term kickback, whether informal or not, but it is a concern.

So, again, I caution groups that if you want to use the rebate, really look into it. Make sure it's the best business thing to do to generate revenue. But then also ensure you've crossed any hurdles or obstacles, as it might relate to legal issues associated with a rebate coming out of someone's room rate.

Make sure the hotel is comfortable with your disclosure, what you're telling attendees, and, ultimately, how it will be calculated. As you know, Lisa, there are so many moving parts in that clause that if the groups aren't specific, these are the things that land across our desks.

Lisa:

Yes. Another thing to consider is that you can address many of these issues simply by educating your attendees. They may not think that somebody is paying for those shuttle buses they get onto when they're coming to a big citywide event. They may not think about the costs involved in a convention center.

So, it's important to educate your attendees and say, “Look, by reserving your room within the official convention room block, we are getting free meeting space. We are getting upgrades for our VIPs.” You may not want to say that. “We are getting discounts on our food and beverage or other things that we don't get if you don't reserve your room as part of the official group room block.”

You can then say, “Your registration fee goes to pay for some of these things that we are paying for, all the meals that you're having during the event.” Now, you don't need to add that rebate to your rate; you're putting it into your registration fee, and your attendees understand they're getting value and something meaningful for that.

Then, the whole disclosure issue goes away. Barbara, do you see that your clients incentivize people to preserve within the official block?

Barbara:

Yes, I am, Lisa. I think there's always the carrot and the stick approach. And I think a carrot is a good approach for many organizations. Offering discounts on registration fees for individuals who stay within the hotel's or the group's room block at the designated hotels is one strategy. I think it works well. Certainly, other groups use it as a stick strategy, in other words, charging more for registration fees.

With the change in the economy to come, and who's to know what leads down the pike, rates will be competitive. I think they'll continue to be competitive. So, the fact that someone could save $20 by sleeping at a hotel 2 blocks down and walking into the convention center or utilizing an Airbnb or other rental service for their room is certainly going to become an issue for groups to raise funds for those important offsets for the convention center, license fees, and for shuttling.

So, again, I go back to the groups and say, “Why are you doing the rebate? And is there a better way to do the rebate?” And then, as you point out, Lisa, about people staying inside the room blocks, “What are you doing to incentivize the people to stay in your room block? What extras? What carrots are you giving them? Maybe, better yet, cookies instead of sticks? What are you doing?”

And I think, Lisa, when groups talk to hotels and negotiate rates, the more the group can tell the hotel what it is they're doing to make sure that individuals are staying inside the room block, I think that's more bang for their buck in terms of negotiating concessions. Would you agree?

Lisa:

I would agree. The hotels are willing to partner with their clients to help develop incentives to get people to book within the room block. So, the bottom line is that adding on rebates or third-party payments, commissions or housing fees, or whatever you want to call it onto the room rate to cover your expenses is one way to do it. However, there are many other opportunities to raise that money to avoid the disclosure issue and the other problems that can come from inflating your room rate to cover these expenses.

So, work with your attorneys and third parties to determine how you can best approach these problems.

Thank you for joining us on Legalease With the Ladies powered by HopSkip. Please leave your comments and questions below, and we look forward to seeing you in the next video!

The information provided in this video does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information in this video may not constitute the most up-to-date legal or other information. Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter.