©2017 Ian Framson, Trade Show Internet
In the free market, telecommunications carriers compete for your business. They make investments to keep up with demand. When the market is functioning well, competition puts downward pressure on prices and forces vendors to improve their quality of service. With relative ease, consumers are able to switch providers to obtain the best service for their needs. However, as you’ve likely noticed, hotels and convention centers operate as highly constrained, closed ecosystems - environments which only vaguely resemble the free market.
As an event planner leasing meeting space in a hotel or convention center, if you plan to order Internet or telecommunications services for your event, it’s critical to understand the underlying business model in play, and the negotiating landscape, so that you can obtain the best possible service and price.
Background
Most major hotels and convention centers in the U.S. have installed enterprise class bandwidth circuits and specialized indoor cellular and WiFi infrastructure to support large events. A few venues purchase their own infrastructure and offer information technology (IT) services in-house. However, the predominant business model for non-core service categories is to outsource them. Commonly outsourced service categories include telecommunications (Internet, WiFi, phones), audio/visual, and electricity. Outsourcing involves a bidding process
whereby a venue will solicit bids from 3rd party vendors and award a multi-year “exclusive†contract, in exchange for the vendor’s investment in fixed infrastructure and commitment to provide on-site support. “Exclusive†contracts effectively create a mini-monopoly for the 3rd party vendor - a dream scenario. As a condition of the “exclusive†contract, a 3rd party IT vendor will typically pay 30-50% of their revenue as a commission to the venue.1
It’s important to point out the distinction here that the “exclusive†contract to provide services is between a venue and their 3rd party vendor, not between you (the event planner) and the 3rd party vendor. Further, a venue has no ability to bind you, the event planner, to use their 3rd party “exclusive†vendors, unless you agree to it. More on this subtlety in a moment.
For Whom Does the In-House IT Vendor Work?
In-house IT vendors have one primary customer: the owner of the venue. In the case of a convention center, the owner is typically a municipality. For hotels, the owner is usually a corporate hotel chain. If the venue is happy with the revenue share and performance of their IT vendor, then the vendor has a good chance of getting their contract renewed. Much like a politician up for reelection, it should come as no surprise that the IT vendor’s decision framework revolves around the primary question: how will our actions affect the likelihood that the venue owner will renew our contract?
Venue Lease Agreements
To reserve meeting space for your event, you must commit to specific dates and sign a venue lease agreement. Just as you are likely evaluating multiple venues for your event, venues are constantly evaluating the revenue potential of multiple groups looking to lease space. If there is more than one group looking to lease space during the same dates, the venue’s sales department must make a business decision as to which group to select.
Since most venues operate as for-profit enterprises, their lease agreements are expertly written with the venue’s best interests in mind - to extract the maximum possible revenue from each event group. Venues earn their highest margins on revenue earned from core services such as renting meeting space, guest room reservations, and food and beverage sales. For ancillary 3rd party service categories like telecommunications, it’s often difficult to determine the scope, and corresponding cost, in advance, when the original lease agreement is signed. As such, venues use a cleverly designed shortcut to ensure they capture their revenue share down the road. Savvy venues structure their lease agreements with flow-down “exclusivity†terms, forcing event planners who agree to such terms to purchase services from the venue’s designated vendors.
Negotiate Your Venue Lease Terms Up Front
Since every contract negotiation is a starting point for discussion between the parties, you should welcome this opportunity to bargain for your group’s best interests. Imagine if you were to present the venue with your own lease agreement, with your own vendors and terms - a contract which puts your best interests first.
If you desire to retain your free market bargaining power and possibly bring in your own 3rd party suppliers for certain non-core service categories, you must state this up front during your lease negotiation. If your venue says that they have an “exclusive†provider for telecommunications services, this should not deter you, since you now know this “exclusive†relationship only exists between the venue and their chosen vendor. There’s nothing stopping the venue from waiving this part of your lease agreement, so long as you present your intentions up front, and give the venue the benefit of considering your overall spend prior to accepting your business.
Only if you accept a service category “exclusivity†and agree to use the venue’s chosen vendor are you then subject to the exclusivity clause. Accepting category-exclusive vendors severely limits your negotiating leverage and may subject you to shockingly high costs, well above market rates, with no viable alternative after the contract has been signed.
Since an event’s floor plan, attendee count, and technology needs often change in the run up to the event, it can be very difficult to determine your group’s telecommunications requirements up front. In the best case scenario, you disclose your intention to bring in your own 3rd party suppliers prior to signing your venue lease agreement. You negotiate any unfavorable aspects of the contract, including the removal of vendor category exclusivity clauses, and retain your leverage until it gets closer to your event. Of course, this doesn’t preclude you from using the venue’s in-house vendors; it simply creates the freedom to evaluate multiple vendors based upon merit.
Combating the “Bundling†Tactic
A common tactic for 3rd party in-house vendors is to bundle the pricing of Internet, audio/visual, and electrical services together, often at a perceived discount. However, if you replace the in-house vendor for any of these categories with your own vendor, it can feel like playing the old whack-a-mole arcade game when the price of any remaining in-house services shoots up. The best way to combat this clever tactic is again to remove any vendor category exclusivity clauses from your lease agreement up front, and force the venue to declare all fees up front, including electrical fees.
Other Common Red Herring Venue Negotiation Objections
Over the years, we have encountered (and have overcome) dozens of objections designed to
prevent event planners from bringing in their own 3rd party vendor. Here’s a short list of common objections, each of which can be addressed by requesting the relevant rules or requirements in writing and working cooperatively with all parties involved to remain in compliance.
- Union rules
- Fire code
- Insurance requirements
- Security concerns
- Business disruption
Favorable Contract Language
Feel free to copy and paste this paragraph directly into your venue lease agreement during your negotiation:
“Event planner retains the right to use their own 3rd party supplier for audio/visual, Internet, Wi-Fi, and related telecommunications services. Prior to contract signing, venue must disclose in advance or otherwise agree to waive, all fees for associated services, including but not limited to electrical, MDF/IDF closet access, fiber cross-connect, copper cross-connect, port access, patch panel, Ethernet drop, roof access, gear storage, and labor supervision.â€2
Negotiating When It’s Too Late
Event planners get into trouble when they try to change the terms of their venue lease agreement after it has been signed. Venues don’t like losing out on revenue categories after the fact, especially when the expected revenue from these categories was a material factor in the venue’s decision to book your event over other alternatives. Unless the venue has told you that they are unable to internally provide for your telecommunications needs, you should expect your venue to put up a fight if you try to remove this previously agreed upon source of revenue. If you find yourself in this situation, you should expect your venue to charge a “corkage†fee of some sort to grant you the right to bring in your own IT vendor. The fee will be high - designed to compensate the venue on the lost revenue they expected to earn had you gone with them in the first place. As such, don’t expect to generate a cost savings by using a 3rd party IT vendor after you’ve already awarded this service category to your venue. Even if your 3rd party vendor’s fee is lower than the comparable quote from your venue’s in-house vendor, once you add in the “corkage†fee you likely won’t have saved any money.
Bringing In Your Own IT Vendor - What To Expect
There are two main reasons to bring in your own IT vendor to a hotel or convention center: higher quality of service and lower price. In some cases, both goals can be achieved.
An independent IT vendor works exclusively for the event planner and is not bound by fixed infrastructure or forced to share revenue with the venue. Independent IT vendors operate in a competitive market environment with more latitude to negotiate contracts, procure the latest equipment for high-tech events, and take dvantage of market forces to benefit the event planner.
If you bring in your own IT vendor, you can expect the vendor to review your requirements, provide a corresponding proposal/quotation, and ultimately sign a contract which details the service to be provided and the costs. As a best practice, you should insist upon a service level agreement in the contract.
Prior to your event, your IT vendor will install their own temporary network infrastructure. Common network infrastructure components include a bandwidth circuit, router/firewall, switches, cabling, and WiFi access points. This installation involves some cooperation from the venue, which is why it’s important to get a list of all associated venue fees in advance (or get these fees waived so that there are no surprises).
Our white paper How to Discuss Your Event’s WiFi Needs will give you the background necessary to have a productive conversation regarding your event's WiFi and Internet connectivity needs. Whether you plan to work with your venue's in-house IT vendor or bring in your own vendor, this white paper will enable you to confidently articulate your bandwidth, WiFi coverage, capacity, and support requirements.
Conclusion
If your event takes place in a hotel or convention center, and you are looking to preserve your ability to evaluate multiple telecommunications vendors, you must negotiate the right to do so up front, before you sign your venue lease agreement. By removing contract exclusivity clauses, you can gain valuable negotiating leverage and tilt the balance of power in your own favor.
Notes:
1. Source: Las Vegas Review-Journal
https://www.reviewjournal.com/business/as-cox-subsidiary-takes-over-las-vegas-
convention-center-telecom-services-legal-fight-continues/
2. This white paper has been prepared for general informational purposes only. The information presented herein is not legal advice and is not to be acted on as such.Please consult your own counsel to review your venue lease agreement prior to signing.
