Letters to AV Matters

What follows is the original email that I published in the January 2012 AV Matters. What follows are some of the comments and perspectives that were emailed to me in response and my replies. 

Outrageous Rigging Charges

Dear Tom,

I was hoping to pick your brain and discuss the ever-worsening effects of the drastic increase in rigging, power and liaison charges being imposed by [in-house AV providers] as a way of keeping us independents out. It seems to have reached the ridiculous point. Just 2 weeks ago I was quoted over $5,300

to rig 1 40′ downstage truss w/ 3 pick points and I had to supply the lift. After getting on the phone with my client, the hotel Convention Service Manager, the in house av rep and myself, we got the price down to $2800.

It seems the price points that venues are trying to hide in their “3rd Party Agreements” are just getting out of hand.  These agreements are not provided to our clients when booking the space unless they know to ask for them in advance.  Once the space contract is signed, they have little room to get the charges/fees reduced. I am looking to get a forum to make this a more known problem in the events industry and get this info in front of the event planners.

What are your thoughts on this and have you heard any discussions in your travels?

-Frustrated Stager 

Dear FS,

This is a timeless discussion topic. After all the philosophical discussions about who is better equipped to perform the work or who is gouging whom, it all comes down to the same conclusion now as it was in 1980: The venue owns the space, the venue assumes the risk, the venue gets to decide what profit it wants to make and how it makes it. Clients have the power to change contracts before signing them and have a great deal of influence afterwards too. MPI has been teaching Meeting Planners about the ins and outs of convention services contracts and third-party provider clauses for years. We can complain about stupidly expensive and occasionally inept rigging services, but at $300 per gallon of coffee – that rigging charge is chump change to the overall meeting costs.

And before we blame the in-house AV company for the pricing, the hotel owners have a great deal to do with this. Since the hotel gets between 50-70% of the revenue (40-60% of the service cost plus a hotel service charge on top of that), the net revenue to the supplier often looks like what you would have charged. The hotels can be very greedy and downright illogical about these fees. (What do you think the hotel service charge would be if the client wanted to bring in its own caterer?)

So, you have my sympathies, but the in-house AV provider has to pay a huge fee to get the contract, is constantly ordered by the hotel to comp charges that were fair, has to provide tons of free support to the hotel itself (from editing the GM’s kid’s birthday party video to handling AV for weekly staff meetings) – all for the privilege of watching you come in and do the show. Stagers complain all the time about individuals selling shows from their apartment and renting the gear from [insert your competitor's name here]. These independents have no overhead, insurance, or responsibilities that legitimate companies like you have. Now imagine that you are the one that built a huge convention center and hopes to pay it off by providing services to the guests and then some stager that only has a couple of employees and much lower overhead wants to take that away. I think it is a wonder they let outsiders in at all!

Educate your clients, explain their options – you are supposed to be the expert. Bottom line is that this situation is one of the unchangeable conditions of our industry. It will sometimes cheat you out of business, therefore it is your job to be aware, be resourceful, and educate your clients. In my opinion, the venues are not going to change any time soon.

– Tom

Qualified Personnel

Dear Tom,

Great reply to your rigging email.  The only comment I would have is that it is not necessarily venues that are looking at a “direct” increase in profit but the in-house audiovisual providers.  I know from personal experience after 9/11, vendors were looking for additional revenue streams they could capture to not only prop up their revenues but the revenues in commissions to the hotels.

While I agree with you that when rigging, the facility is ultimately responsible as you are attaching to their structure.  My problem is that when they try to charge for personnel that are not certified or qualified to make the necessary decisions.  That on top of not bringing your own lifts, certified motors (that come from the same place they are sub renting them from) and mark up the cost sometime 5x what we would.

Also, those of us that do the proper rigging have the same if not better rigging liability insurance.

The best defense is having an educated client during the contract phase.  The earlier you can bring in your trusted AV vendor, the better chance you have of removing some of these charges.  And to your final comment, you will be surprised how many sales agents will strike the rigging and exclusive audiovisual services to get the butts in beds!

Thanks! I am glad you brought up the issue of qualified personnel – especially in regard to rigging. A few hotel AV companies tout their training programs, but when it comes to rigging some training just falls short (pun not intended). The Entertainment Technicians Certification Program (ETCP) provides independent testing to certify the knowledge of entertainment and theatrical riggers and entertainment electricians. The key word here is independent. Programs that train, then test their students tend to be focused on passing the test-takers. ETCP does not provide training and the tests are developed by a diverse group of experts. As an oldtime theater rigger (flyman for a roadhouse), it disheartens me to see hotel AV technicians with cursory rigging training and no real experience taking responsibility for evaluating the safety of a truss rig. Granted, some of the riggers sent by outside companies aren’t qualified either! But I would bet the experience of a veteran touring guy over someone that was setting up flip charts the day before. -Tom

Terms and Conditions

Tom,

I have to agree with you 100% and this is right after getting quoted $20,000 for a pretty simple rigging project in Orlando.  I also complained and the CS [convention services] manager and in-house folks worked things out so that I was only 50% over budget.

In the end I’m grateful for the service they provide and just need to accurately warn my client and budget accordingly.  As you said that’s what experts do.

Sometimes all we can do is warn our clients and point out the battles they need to fight for themselves. As their expert and agent, we can give them the fuel they need to persevere. I want to bring up one more point about your Terms and Conditions as an outside provider. When you build a budget for your client, sometimes the tendency is to presume that the venue is friendly and the outside provider rules standardized. Production rental companies have to protect themselves by citing exclusions in their T&C for venues that have exclusive contracts, union agreements, or preferred provider agreements. You do run the risk that the in-house provider can use your exclusions to prove why they are a more cost-effective choice for AV, rigging, or labor. However, you eliminate the risk that your client can hold you responsible for charges that you should have RESEARCHED before you wrote the quote. If your comeback is that sometimes you don’t know the venue when you write a quote – then circle back to my point: write the exclusion in your proposal! Maybe then your client will be better informed before they choose a venue.

PS – If your next point is that you fear losing the job to another outsider because you cite extra charges to cover the in-house expenses, then you need a better proposal or a better salesperson.  –Tom

Outside the Box Thinking

Obviously I am biased however full disclosure as a matter of integrity must serve some place in business ethics. The short sighted side of this is that most of the independents would be willing to pay properties a commission to level the playing field and could include all “services” coming in.

Just a thought.

Back in the 1990’s, corkage fees (charges for bringing in outside suppliers) came into vogue as a means to recover revenue lost by the venue when their third-party provider could not win the business. As a national stager, I ran into this from time to time. The mistake the venues made back then was to expect the outside suppliers to open up their books to be audited for the assessment of the corkage fee. Hah! In the end, the customer always became involved and the problem went away. To the point of the letter above, I think that if venues had one price for a meeting room if you used in-house providers (or none at all) and another price if you selected the waiver to bring in your provider, then the corkage fee would make more sense (and be the responsibility of the customer).

 More to the point of the writer above, I wonder what would happen in competitive standoff between an in-house provider and outside supplier, if the outsider offered a flat fee to the venue for the privilege of being uncontested? Do third-party agreements have clauses that prevent the venue from doing this?  -Tom

The Issue of Liability

Love the newsletter, but I have to disagree on one important point in your response to the person who sent you their frustration on rigging charges. I too have to agree with them that it is getting way out of control and creates some serious issues for the overall event as all of this has to be taken into consideration when putting budgets together and usually impacts either the production or the scenic, sometimes to the detriment of the overall look and feel we, the producer, want to pull off.

In regard to your statement that the “venue assumes the risk” that is really not true. If the hotel has an “official or exclusive” rigger then that vendor assumes the risk and as I am sure you know the producer does as well. In many discussions with the hotel and their in house provider regarding this clause I immediately state that my company needs to see their certificate of insurance and we want to make sure we get a rider naming us as additional insured. Many of the reactions I get are either total befuddlement or some sort of push back saying that they can’t do that. I then explain what “exclusive” means and then the discussion usually moves to a more accepting tone.

The bottom line is that if a hotel has any exclusivity then they have to understand and accept that both they and their vendor has to accept responsibility… not always the case.

Thanks for the comments. I will concede that as an event producer you share liability in any venue. However, the building owner is the prime contractor in the liability chain and ultimately that is whom the injured will go after if they do not receive satisfaction elsewhere. The reason that the venue wants YOUR liability certificate is to increase the odds that your insurance carrier will pay out before theirs does. 

But you get BONUS points for recognizing that by contracting with a third party rigging services provider, the venue has increased your exposure and assumed responsibility for your safety while foisting theirs off on to the house rigging company. I am not sure if the competing outside AV, lighting, and rigging companies can achieve the same results by asking to be a named insured, but I like your chutzpah! (of course if the house rigger defaults on a claim, the venue operator and then building owner are next in line). -Tom

Desperate In-house AV Companies

I agree with you, both that this is a topic too often discussed and that the best solution is educating the individuals purchasing the meeting space about the valuable and irrelevant clauses within a venue production rules. Some of what you said however does not align with my experience, (I spent over a decade as the Director of AV Services in some excellent convention facilities in Orlando FL), and it seemed important to share some ideas that apply some balance to your obvious empathy for the in-house vendors.

No one would argue with you that the venues have legitimate interests in managing risk within their facilities. So for them to insist that all rigging and electrical services be purchased through their vetted and properly insured vendor is wholly appropriate. My clients have no issues complying with these requirements. Regarding these activities as a source of important revenue for a convention hotel, my experience is these revenues have no impact on the overall profitability of the venue. In fact, from the many facility P & Ls I have seen, these items, (in many cases even revenues from their AV contracts), do not merit a line in the financial reporting and fall under other revenues, (less than 2% of gross revenues). Simply, a convention hotel is in the heads and beds business. They have convention space to put heads in beds, and when given the choice between preserving AV revenues, and getting the room rate they want, the AV clauses go poof, fast. This would not be the case if the revenue from these sources is as important as you suggest.

What my clients do object to are blatant attempts by the in-house companies to use these clauses to minimize or eliminate the cost advantages offered by an outside staging company by adding costs that provide no value to end client. An example is the requirement of hiring a “shadow manager” to enforce an imaginary “hospitality standard”.  If these individuals would fill a working role on our shows, our clients would happily pay this fee, and enjoy the benefit of this technician’s enlightened oversight.  But in most cases, the in-house vendors insist that these expensive individuals do nothing. There are other tactics, but the point is made.

FS should be encouraged though as many corporations are engaged in strategic meeting management initiatives. An important part of these initiatives is eliminating contract clauses that do not benefit the corporate buyer. From the industry meetings I have attended, most strategic buyers place punitive and vague production rules in that category. So FS, there is light at the end of the tunnel for staging companies.

The national companies that provide in-house AV services created the financial environment that they live in. They voluntarily offer signing bonuses, guaranteed commission payments, and 50% plus commission rates. With these types of contractual costs, it is not surprising they must use every tactic possible to preserve the premium they want to charge my clients for the convenience of using an in-house service. Perhaps they should read your article on the “Value Proposition”. They may find enforcing transparently silly contract clauses would become unnecessary.

One cannot blame the venues, as they are simply the beneficiaries of these AV companies pursuit of easy AV dollars. This does not have to be the case, as many smaller, regional companies can negotiate better terms. For this reason, it is difficult to have any sympathy for the plight of the larger in-house AV vendors.

Thanks for your thoughts and perspective. I agree with you on all points including the “other revenues” of hotel P&L’s. I have always been a big fan of in-house rigging and electrical contracts when they improved safety and service. However, I have seen the gross profit analysis of many hotels and note that many times the most profitable items as a percentage of revenue are things listed under “other revenues”. In some cases, the gross profit from third-party provider AV commissions was equal to 10% of the hotel’s net profit. Room nights offset overhead costs – there is very little variable expense. So clearly room nights are critical to success. But AV and Convention Services are gravy income. They have low cost of delivery and scalable expenses. Housekeeping and restaurants have to maintain reasonable staffing levels regardless of how many rooms are booked.

As I said, I too am a fan of in-house rigging and electrical – except when they are used as a bludgeon to keep independent providers out of the hotel. When there are published prices and guidelines that are consistent, these are good programs for protecting the building, guests, and workers.

Finally, I want to put an exclamation point on your comment that in-house AV companies have created this mess by commoditizing (my word) their service contracts into impracticality! However, I do still blame the venue for their shortsightedness in regard to these third party arrangements. A good business agreement is one where the needs of both parties are aligned: a win-win. The third-party agreements I am seeing today are designed to deliver revenue to the venue now and have little consideration for the future and no upside to the AV provider for growing the business. The AV providers I speak to feel trapped – they need the market share and losing a contract means waiting 2-3 years for another opportunity. If I were in this spot, I would work on my value proposition… – Tom

Take Responsibility

Bravo on your balanced response to the frustrated stager. I have the unique perspective of dealing with this issue on both ends of the spectrum, both as an event stager and an in house audio visual provider.

Your reply was spot on. More than ever we are coaching clients on red-lining exclusivity language and negotiating terms before signing with [companies other than our own] serviced venues. On the flip side, our in house folks are educating customers and stagers to the realities of doing business at the venue.

Thanks, I was going for balanced! Not sure everyone got that though… -Tom

The Occupy-AV Movement

Tom,

Wake up and smell the coffee….it’s $300 per gallon!!!! ….Change is coming

I read with great interest your response to “Frustrated Stager” about in-house av suppliers and hotels gouging users (meeting planners or third party stagers) with expensive patch and rigging fees.

My company operates in [redacted] and plays both sides of the issue supporting both in house facility contracts and works hard to compete at many facilities our competitors support.

I do not agree with you that “it’s not going to change any time soon”. I believe we are at the start of a shift to a new model. The current revenue share model (you describe as:”50-70% of the revenue 40-60% of the service cost plus a hotel service charge on top of that)” is responsible for increasing costs to consumers with virtually no improvement in delivery and outcomes for customers.  With respect to the facilities responsibility to generate revenue on meeting space; they must begin to re-align their revenue models to the new customer expectation.  This new customer is demanding transparency and above all a perceived sense of value and competitiveness. $300 per gallon for coffee and $5300 rigging charges will become less and less tolerated by meeting and event planners.

The new economy is here and it is being driven by smart well informed consumers that have realized the power and influence of each dollar. These customers are, more and more, DEMANDING VALUE.  Value is measured against everyday consumer experiences.   As meeting planners are presented with the current type of inflated value proposition they will demand change….they are already demanding a new deal.

I am a free enterprise thinker that believes the consumer will judge the current model as out of date, fat and out of step with the new economy.  The best thing for consumers and our industry is good competition among suppliers.  Hotel commissions is an example of how a lazy and fat economic system can manipulate supply partnerships that rely on increased capital input from consumers with no improvement on the deliverables.  The idea that hotel ballrooms and convention centers can exempt themselves from the new economy is old thinking and soon to end.

I believe that progressive grass roots members of  our industry could accelerate this inevitable change by coming together to creatively and actively communicate to event and meeting planners.

Thanks for your viewpoint. I am thrilled to get your take on this.

I believe in free markets and this is why I don’t expect things to change as quickly as you do. The inequity in pricing we are seeing today is cyclical. I expect it will become worse before getting better, and then get worse again. When the commercial real estate market breaks down and the hotel owners go bankrupt, the new owners will have better financial models to operate rationally priced and serviced businesses. Not that I wish anyone failure, but these companies owe more on property than the property is worth. That kind of change is hard to stem.

Having said that, we agree on the fact that the model is broken and consumers can and will demand changes. This is why I specifically mentioned MPI. They are the educating force for the meeting planning industry and a forum that companies like yours can deliver this message. I think you would also find some kindred spirits to form a non-profit group that focuses on getting this message out. 

Fair and Balanced

When I saw the topic of Exclusivity in Venues my interest peaked and I expected to see an attack on Venue Based Service Providers.  We always have to balance the topic of venue exclusivity due to the amount of revenue we manage within our venues and through our non-venue based operations.  As I read through the reader email there was so much I wanted to say to respond.  Your response was as if I was writing it myself, thank you for a great response and explanation to the readers concerns.

You are welcome. I have rental company clients in and out of the venue business, so I see both sides of the issue. Anytime someone cries “unfair” I tend to pull back and look at the bigger picture. Thanks for reading!

A Different Take on Public Venues

Rigging fees in hotels are between the hotel and the customer, but I think they may be wrong if they do not charge the same price to all customers and notify them in advance of the charge and that the hotel is getting a lot of the money from the rental.

With a building built with public money (convention centers) I think it is just wrong to try to charge the outrageous fees.

I have thought for many years that if a convention center or a hotel tells a client they “strongly recommend” they use xyz audio visual staging company for the audio visual work at the facility and they do not disclose to the client that they receive a rebate on the rental fees they (the client) is being overcharged and the hotel or convention center is guilty of payola.  This may be tested fairly soon by a client that was not aware of the 50% kickback on the rentals.

The person that sues will probably be eligible for treble damages under the Federal Antitrust laws.

Thanks for your observations. The antitrust comment is an interesting take. I am not sure how high it flies since contracts with public buildings should be public record, but I do concur that public spaces should have market pricing and be fair about how pricing is applied. I wonder if that applies to a third party building operator – many convention centers are run by private companies on behalf of the city? Now, if a conference manager is taking a kickback in a public building, are there different legal implications than when it occurs in a private venue? I don’t know…

All in all, an interesting thing to ponder. Thanks again for sharing.