SBJ/20090817/This Week's News

A host of issues for hospitality

Editor's note: This story is revised from the print edition.

Over a six-day span last September, as many as 40,000 spectators per day descended to Louisville, Ky., to watch the Ryder Cup unfold at the Valhalla Golf Club. Among the crowd were guests and employees of approximately 260 companies that spent up to $1 million each to give employees and guests the five-star treatment at the exclusive sporting event.

Scattered among rows of white tents, executives from prominent global companies entertained clients on a course appropriately named for a hall in Norse mythology where Vikings partied with the gods.

While the good times rolled at Valhalla, the financial industry was crumbling under the Lehman Bros. bankruptcy and the AIG bailout.

By the morning of Sunday, Sept. 21, as the U.S. wrapped up an improbable win, government officials were making the rounds on Sunday talk shows to build support for a massive federal bailout of the financial industry. Two days later, on Sept. 23, a Senate committee held its first hearing on a $700 billion plan to bail out the financial markets.

Looking back, some suggest, the Ryder Cup marked the end of a free-spending 15-year run that took corporate hospitality from a simple ticket and cold beer to filet mignon and half-million-dollar chalets.

How did we get here?

The clearest indicator of the impact the economic recession is having on sports is the cut in corporate hospitality, which was quickly labeled as an example of gross excess and became an easy target for members of Congress and the media.

From U.S. Rep. Barney Frank, D-Mass., calling sports marketing “ego-boosts” to New York Times columnist Maureen Dowd writing about Sheryl Crow entertaining guests of TARP recipient Northern Trust at its PGA Tour event in Los Angeles, corporate hospitality and spending on sports quickly carried a scarlet letter.

“Hospitality has been one of the harder hit sectors of the marketing arena,” said David Abrutyn, head of global consulting at IMG, whose clients include Allstate, Coca-Cola, General Electric and Visa. “There’s a perception and a reality issue associated with hospitality that maybe doesn’t exist with some of the other investments.”

The 2008 Ryder Cup sold out its $500K
packages, but are those days gone?

Corporate hospitality sales at weekly PGA Tour events are down by as much as 20 percent from last year. The U.S. Golf Association sold one-third fewer tents for the U.S. Open than it did in 2002, the last time the event was held at Bethpage State Park on Long Island.

NASCAR speedways say their revenue from hospitality is down 20 percent this year. The biggest hit came from DuPont, which slashed its hospitality program from close to 20,000 guests a year across 37 NASCAR events to 2,000 guests this year at six events. NASCAR speedways have seen other sponsors pull back, albeit on a smaller scale than DuPont’s massive withdrawal.

“We’re seeing a resetting of the industry,” said John Saunders, president of International Speedway Corp., which owns 13 tracks and hosts 19 Sprint Cup events. “Prices are coming down and we’re going to see lower barriers to entry.”

Corporate hospitality is down 15 percent to 25 percent for packages sold on the secondary market by agencies like Premiere Corporate Events and RazorGator to events such as the Super Bowl, Final Four, BCS games and golf majors. Agencies based in Augusta, Ga., that sell corporate hospitality packages for the Masters said it was the worst year on record.

Some of the premiere annual events did not see the same falloff as golf and NASCAR. The Super Bowl sold out hospitality packages at prices ranging from $5,000 to $10,000, said Frank Supovitz, NFL senior vice president of events.

Agencies that exclusively sell packages for the BCS, Final Four and Kentucky Derby said those events sold well, but at slightly reduced prices.

Smaller, smarter packages

Corporate sales have picked up since late spring and early summer for events in the third or fourth quarter, but companies are buying in a more measured approach than in recent years. What’s in are smaller, less expensive options, forcing agencies, events and properties to make additional sales calls to sell the same amount of inventory.

Corporate hospitality sales at the U.S. Open Tennis Championships have picked up since the end of Wimbledon in early July. Organizers were able to hold prices by splitting up inventory and selling smaller packages to companies. Pierce O’Neil, USTA chief business officer, is selling more individual sessions instead of multisession packages than ever before.

The USTA’s new Indoor Tennis Complex
is hospitality HQ for the U.S. Open.

“A year ago, a company might come in and want hospitality on 12 different sessions for 20 to 30 people for each one of those sessions,” Pierce said. “Now we’re doing a lot of deals that are a day here, a session there, kind of thing.”

June marked the PGA Championship’s best sales month since the end of 2007, but organizers still expected last week’s event to fall short on corporate hospitality revenue. The tournament sold space to 110 companies this year, down from 140 when the event was last held at Hazeltine National Golf Club in Minnesota in 2002.

Joe Steranka, CEO of the PGA of America, said one reason sales were lagging was because companies were buying smaller packages than in previous years.

“I believe corporate America is going to be like every other business, in that they want to do more with less,” Steranka said. “They will still continue to invest in sports marketing and hospitality because it has proven to work, but they’ll spend less while they’re doing it.”

Mimi Griffin, president of MSG Promotions, which sells hospitality for the U.S. Open of golf, estimates 75 percent of all companies buying corporate hospitality tents used to opt for the larger 100-person venues. She said that figure has dropped to 40 percent as more companies instead buy tents that accommodate 50 people or fewer.

Besides buying smaller venues for shorter periods of time, most hospitality buyers are bypassing expensive add-ons like luxury hotels or private meals, opting for modest accommodations and dining.

Under the tent

Corporate hospitality packages are sold by properties, event organizers, facilities and/or agencies, depending on the event. NASCAR tracks and golf tournaments generally sell their own packages. The NFL and the Kentucky Derby license agencies to sell hospitality packages for their events.

Packages for golf tournaments or NASCAR races generally come with an entertainment space such as a tent or chalet, tickets, parking passes and co-branded merchandise. Packages for events such as the Kentucky Derby and Super Bowl can include everything from transportation and accommodations to dinners, celebrity speakers and tee times.

For events such as the Masters, which does not sell corporate packages, dozens of agencies secure tickets on the secondary market and sell all-inclusive deals with transportation, hotel, food and beverage, and entertainment.

Costs usually start at a few hundred dollars per person, which include a ticket and a buffet lunch. The more expensive annual corporate packages at golf events can sell for upward of $500,000 and include 150-person, fully outfitted tents with tickets, parking passes, food and beverage, and golf outings on the host course after the tournament.

A drop in corporate hospitality sales affects a number of areas, and results in revenue drops in merchandise and concessions. In the case of golf, it also can create a stigma about an event. New York City media outlets used the lagging hospitality sales at this year’s U.S. Open on Long Island as an example that corporate spending, specifically by banks, had not yet rebounded.

Quint Events, the exclusive seller of hospitality at the Kentucky Derby, has traditionally sold most clients on all-inclusive food options that include jumbo shrimp, filet mignon and premium bar service. This year, however, two-thirds of those clients bought packages with access to cash lounges that served burgers, hot dogs and beer.

“It’s a value-driven market now,” said Ken Murrah, partner in Quint Events. “It’s not just throw anything out there and customers will buy it.”

Bank of America, a TARP recipient criticized earlier in the year for its sponsorship of the NFL Experience at the Super Bowl, cut the number and tone of events where it bought corporate hospitality in the first half of 2009.

“You might have seen something a little more opulent in the past and you now see much more bare bones, which reflects the environment and the tone of the country right now,” said Ray Bednar, sports sponsorship executive at Bank of America.

Bednar, along with sponsorship executives at AT&T, predicted a flight to higher-profile events. This year, Bank of America hosted clients at the Daytona 500, Super Bowl, Final Four and U.S. Open golf, but scaled back on the number of PGA Tour events it attended and parked its Champions Club hospitality venue that travels to NASCAR races. “I think we’re seeing that prudence is important and you have to look at every single event on its merit to see if it’s an honest-to-god revenue generator,” Bednar said.

Conversely, some companies are entertaining on a regional basis by picking events closer to offices to avoid overnight travel. Premiere Corporate Events had a client in the technology industry that bought a significant package each year for the Daytona 500, but this year divided the money into seven races in different regions so employees and clients did not require a hotel.

Companies and agencies said properties and events are doing a better job of adding value to packages without increasing the cost, but more still needs to be done. Use of facilities for business and networking meetings, already a staple of NASCAR deals, are becoming more common.

Hospitality packages for events such the BCS
championship game sold well, but
at reduced prices.

Special access to facilities, athletes, executives and coaches is also being offered. Golf majors are throwing in post-event access to courses. Daytona International Speedway is being flexible with ticket packages and menu choices for companies that buy suites for its two NASCAR races. “We’ve got sponsors that have been with us a long time and we’re not just going to let them go,” said John Guthrie, vice president of business development and partnerships at Daytona.

Sponsors may also ask for additional hospitality to gain tangible assets when they renew deals, said corporate consultants. The USOC plans to double the size of its hospitality offerings for sponsors at the Vancouver Games (see story).

However, properties are still faced with the negative perception associated with corporate entertaining at events, specifically golf, said industry executives. Anonymity, which was rarely requested in the past, is becoming prevalent among brands in the banking sector.

Some financial institutions have asked event managers to remove their names from on-site placards. The PGA Championship replaced signage this year with customer service representatives to direct credentialed hospitality guests to their respective areas.

Requests for privacy also extend to internal documents. Glass Entertainment Management, an agency that sells hospitality packages on the secondary market, was asked by a company to draw up a contract under “client event” instead of the MLB All-Star Game. “We’ve got to protect the client that we’re working for,” said owner Patrick Glass.

What lies ahead?

The next few months will paint a better picture of what to expect in 2010 and beyond. Most people predict single-digit percentage increases in the next 12 to 18 months. Some suggest a full recovery by 2011.

At the Derby, the all-inclusive lounge (top)
lost ground to the cash bar this year.

Events such as the 2010 U.S. Open at Pebble Beach are scaling back sales forecasts in corporate hospitality for the next 12 months. The Super Bowl, which expects to sell out of hospitality packages again in 2010 in Miami, has fewer signed contracts at this point than it had in recent years, Supovitz said. But Quint’s sales for the Kentucky Derby are 50 percent ahead of where they were at this point last year.

No consensus exists about which sectors will see more or less growth. IMG’s Abrutyn expects business-to-business brands to be flat or up in the next year, and believes there will be a dropoff in spending among consumer-product goods.

Others are seeing new interest among tech companies and manufacturing, and expect financial companies to make a moderate return soon as they repay TARP loans and continue to post quarterly profits.

Events, properties and agencies are optimistic that signs of improvements in the economy and corporate spending will have a positive impact on their bottom lines.

“It has gotten better already,” said Pete Bevacqua, chief business officer of the USGA. “I feel better about it today than I did six months ago.”

Staff writer Michael Smith contributed to this report.

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