Negotiating Fair Market Rates: A Planner's Guide

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, Sean Whalin (Co-founder and CEO of HopSkip) sits down with Barbara Dunn (Partner at Barnes & Thornburg LLP representing groups) and Lisa Sommer Devlin (Devlin Law Firm, P.C. representing hotels) to discuss how planners can ensure they're getting the fair market rates for their meetings.

Video Transcript:

How to ensure you're getting the fair market rates for your meeting?

00:00- Sean Whalin
Room rates are at an all-time high. With a looming recession, is there a recommended way to protect our clients to ensure they pay fair market rates when their events occur?

00:14- Lisa Sommer Devlin
So I will jump in because Barbara knows this is my biggest contracting pet peeve. A hotel contract is a futures agreement. You now agree to buy inventory on a date on agreed terms and conditions. You are not entitled to change those terms and conditions based on what happens when the event occurs. So, it's just like buying pork bellies or stock options. You're taking a risk, and you hope that you're taking a reasonable risk and that it turns out to be good for you. But if it doesn't, that's called the romance of business. So, customers are constantly coming in and wanting these clauses that say, we're agreeing today that we're going to pay $200, but if there's a lower available rate, you will lower that available rate. And that is just not fair or appropriate.

01:05- Lisa Sommer Devlin
When they ask for that clause, I always tell people, okay, if you want to get the lowest available rate. If our prevailing speeds are higher, will you agree to pay higher rates? And in all the years I've been doing this, I've never had a group agree.

So, if it's not fair to pay higher rates, why is it appropriate to get lower rates, those lower-rated rooms, if it happens and the market shifts? Because right now, transient rates are usually higher. But if there are lower-rated rooms, they aren't getting free meeting space; they’re not getting concessions; they’re not getting one per 50 comps NSO. An individual transient room has nothing to do with your group convention contract. That contract is negotiated based on the entire revenue package and the commitment you're making, and there's no legal obligation for the hotel to adjust that rate.

01:55- Lisa Sommer Devlin
When you get on a planner, if you've paid X amount for your plane fare and find out that the person next to you booked the flight the day before at the last minute and got a much cheaper rate, you wouldn't expect to get a refund. And the same is true in the hotel thing. If you want to guarantee that you’ll have that availability, you want to ensure that meeting space, you want to ensure those concessions, then you must take the risk that it might turn out your deal is not as good as you would like it to be. So that's my position. Everybody's taking a risk, and you have to guide yourself accordingly. Now, I'm sure Barbara will have a different take on it. Barbara yeah.

02:36- Barbara Dunn
Lisa, no, those points are all well suited, and I would tell from the group's perspective that every group will try to negotiate the best rate possible when they can. And as groups extend their booking lead times, I've seen groups and hotels be willing to agree and commit to room rates farther in advance than what they may have done in the past. And the days of having a confirmed rate for the current year with a percentage increase cap, if the meeting is seven or eight years down the road, are still there to some extent but are largely being replaced with parties negotiating the rates themselves. So that's a good thing. And as you point out Lisa, the rate is a material term of the contract, what the issue is from the group's perspective. To me, this is room block management.

03:26- Barbara Dunn
And my first question to the group is, what kind of meeting is this? Is this a meeting where people choose to come, they have to register through a link or call in for the hotel, and they book their own, in other words, or is this a board meeting? Are these committee or leadership meetings where we're making rooming lists or having folks come in, or even a corporate meeting where company employees are coming in, and we're doing all this? The answer to that question is going to map out your approach.

Again, we want to be competitive in either instance, but in the case of the individuals making their reservations, that's essentially the marketplace. And then my next question would be, what locations are you looking at? Are you looking at a place that might have a lot of lower-priced options or hotels nearby, in which case you're setting it up for a concern that folks might only stay at this hotel if the rates are competitive?

04:25- Barbara Dunn
So that's first. The other point you make, and I agree with Lisa, because transient rates are higher, is that in days gone by, it used to be that quick rates at the same hotel would be lower, and folks would want to take advantage of that. It’s probably the opposite, at least for a while. But room block management also means, of course, getting credit for anybody who's coming in the door. And indeed, we always talk about attrition, getting commissions, getting rebates, getting credit for the rooms, the comps, et cetera, based on the spend and the room count. So that issue that is credit for rooms often is one that the groups and hotels can come to terms with regarding getting credit for attrition and the rest. But on the rate side, the honoring the rate side, that continues to be a debate.

05:16- Barbara Dunn
And my concern with language and contracts about changes in economic conditions is that it just leaves it wide open. There needs to be more wiggle room there. And sometimes, and I agree, the language is written such that the rates could be increased, which is something other than what the groups want to see. Another compelling argument for groups as you go to hotels and negotiate rates. Your members will examine the history, where you've been, and where those rates are. So you've got to factor that in, and that's the pitch to the hotel. We increase our rates yearly depending on the marketplace and the changes, but a jump of $50, for example, will cause a problem because no one wants the issue of poor pickup to be dealt with those 30 days out. We want to be proactive. So the bottom line is to negotiate the best rates and then think about how you will manage the block from the group's perspective.

06:20- Barbara Dunn
How are you going to commit? Folks will stay at the hotel. What incentives are there? What disincentives are there to not stay at the hotel? And all the things that go along with it. At least I know. Over the years, we've talked about groups that do the like. Our hospitality industry attorney group does the one-stop shopping. I'm coming to the meeting that will include my hotel reservation, et cetera, to manage that. And I agree that some groups in some settings work well. For other groups, citywide events, trait shows it takes much work to do and police it. But again, the bottom line is doing the soul searching on the group side, on the locations, those types of things. Room block management, to me, is the most critical thing that groups can do nowadays because we know the rates are going to fluctuate up and down, but we've got to be prepared to sell our room, fill our block, and live up to all the other contractual commitments.

07:19- Lisa Sommer Devlin
Sean, I want to highlight something Barbara said about room block management. People understand that they must pay a registration fee to attend an event. That's the cost of doing business. If I want to go, I have to pay a registration fee.

For some reason, groups have not adopted that in terms of room block management, saying, if you want to attend this event, you must reserve your room block, either that one-stop shop, as Barbara said, or you have to book your room as part of the official block. If you adopt that approach, this lower rate availability will immediately disappear because it doesn't matter if there are lower rates in the marketplace or at the hotel.

After all, they are required to book as part of the official block. So that's the way that I think that this issue can be handled, that in educating your attendees, that the people that are staying in those lower rated rooms are not getting all the things that your association or group is getting, such as the meeting space, such as the concession, such as those other things.

Those are the two things that I would like to emphasize on that.

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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.