Monday, October 20, 2014

Payment Forward With a Far Better Way to Outperform

Rarely do I run into people in my former profession but recently at an awards dinner in Winston-Salem recently, a young exec asked a question that gave me pause for reflection:

“How are some communities able to outperform others without succumbing to the slippery practice of - “buying business?”

This is a euphemism for paying out-of-town group meeting planners to select your community as the host for events such as conventions, now just 10% of overall visitation.

It’s funny how in later years it is easier to trace the origins of ideas, concepts and influences of wisdom you had forgotten weren’t always your own.

For me, the answer goes back to when I was “greener” than anyone at dinner that night and a chance 1975 meeting with Marty Splain, a legendary national meeting planner who was by then already in his early 60s.

As World War II ended, Splain, then in his 30s had served as executive assistant to U.S. Senator Francis J. Meyers who was majority whip.  He then helped Marty at a very young age rise to the chairmanship of the Pennsylvania Democratic Party.

During the 1950s, Splain had also worked himself up to a stint as Grand Worthy President of the International Fraternal Order of Eagles (F.O.E) followed by a long career as the group’s membership director and national meeting planner.

The F.O.E. had originally been founded in 1898 by a half dozen managers of performing arts theaters in Seattle, then spread via inclusion of troupes of touring performers before also accepting patrons and finally, I guess, anyone who could be a patron.

There was one condition, to join:  Members had to be Caucasian, something Splain had worked internally to change.

The huge organization peaked in the early 1970s at around 900,000 members, but it wasn’t until 1979, the year after the national convention was held in Spokane, that the requirement to be “white” was finally dropped in response to a lawsuit.

This group, which had pushed for the creation of Mothers Day, finally surrendered its Jim Crow past a quarter of century after the U.S Supreme Court had struck it down as unconstitutional.

Spokane was a tight fit for this big convention but Marty was intrigued because that is where the second ever “aerie” or club had been created.  By the time of our introduction it had grown to about 1600.

On a first name basis with Presidents Roosevelt, Truman, Kennedy and Johnson, Marty had great stories and could have easily been one of those Borscht-belt comedians the Catskill resorts made famous, one of whom, Joan Rivers, just passed away.

He also wasn’t afraid to dial down and answer questions from a kid from Idaho who was in over his head but eager to ask as well as soak up every answer.  This included some I didn’t even know I should ask.

Several pieces of advice that were graciously passed to me by this sage would help me help the three communities I served during a now-concluded four decade career in community marketing including leapfrogging those so desperate they began handing out of town groups cash to hold events there.

Two years before my DMO career launched in 1973, the counterpart representing Portland, Oregon along with two major hotel chains had entered into consent decrees as a result of anti-trust litigation, which were not lifted until two years before I retired.

Backed by legal counsel, Marty carefully explained to me what I could and could not do under the ruling as well as what Portland had been doing with the practice which was to raise essentially a slush fund to help lure conventions.

The Eagles had been one of those groups that required upfront subsides from cities but Marty shared not only how it could be handled but that he feared that as an unintended result of the ruling, two things would begin to happen.

Prophetically, he predicted that instead of building the financing required into participating hotel rates as was then and is still now legal, over-reaction to the Portland ruling would mean that:

1) cities would be pressured into distributing tax dollars directly to groups such as his and,

2) the smell of money would bring a torrent of “snake oil salesmen” out of the woodwork, making it hard to ferret out good folks who just didn’t know the way this should work.

He explained to this then-na├»ve rookie the dangers of cash subsidies as well as how these “snake oil salesmen” would use them to line their own pockets.

Marty warned me never to fall into that trap because there were far more transparent ways for a host city to fold these costs into the prices charged by private sector businesses that would ultimately benefit.

I remember asking him why city officials would tolerate - let alone enable - distributing cash from tax funds to out of town groups.  To paraphrase his reply 40 years ago:

“Easy – Remember, at one time I worked for politicians.  Many, who were otherwise honorable and deeply concerned about fraud, would fall for border-line extortion such as this simply because they fear blame more than they do failure.”

Blame for what I remember asking? 

“Blame for letting it seem they had been outfoxed by another community.  Blame for building facilities that didn’t make sense.”  “Even blame from peers pandering to small groups of constituents eager to cash in,” he patiently responded.

He taught me instead how to set up local organizing committees and special accounts to show how the costs to a host city were assessed and then used including all “in-kind” requirements which were especially vulnerable to corruption (as we’ve since learned with the Olympics.)

He taught me how to build any assessment required into hotel rates and that groups using a low ratio of hotel rooms weren’t going to be worth the trouble anyway.

He also taught me how to spot that a planner might be shady because they would have already sealed in rates with kickbacks for themselves before explaining the need for fees from the host city.

I think he was using the Pareto principle when he told me that in his experience only 20% of the events in which a community might be interested will make sense for that community and only 20% of those will require subsidies of some kind such as free facilities or extra municipal services such as police and solid waste removal.

And that only 20% of the 20% of those 20% will be legitimate and worth the risk.

I was never very good at math until taking business statistics but even to a rookie community marketing exec back then, given that 92% of these groups refrain from the subsidy model, it made obvious sense to go after those groups and leave the 8% for communities desperate enough to get involved with groups that do.

Ironically, the hardest part throughout the years was explaining to local officials that a group only made sense if tax coffers would be held harmless for any subsidy required through local tax revenue that would be generated.

In other words, groups need to generate more tax revenue than they are asking for in public subsidies and services.

This can’t be just wishful thinking either, but using economic impact models calibrated to local variables and after netting out the costs of in-kind services such as police and solid waste pick up.

For instance, in Durham where I retired from DMO work, a typical out-of-town group with 1000 attendees, should have a ratio of overnight to daytrip attendance of 550 to 450 (lower than communities are led to expect but typical.)

Given average duration, hosting it would return about $9,000 to local governments in general sales tax revenue and another $10,836 in special sales occupancy tax revenues.  This doesn’t include any taxes that are returned to the state, just those gained locally.

This includes tax revenues from induced and indirect spending calibrated to Durham County but hasn’t yet netted out leakage.

This return, meant to broaden the tax burden on residents and local businesses, is one of the primary reasons that fueling community visitor-centric economic development will come close to just covering the local services required.

Ironically, I know state associations for local officials in both the public and private sectors that now demand far more than this amount to be considered as a host city, reinforcing that they don’t have a clue about economic development.

But often in communities chasing after “worst practices,” officials will shell out subsidies far greater than any return just to avoid being blamed for a facility’s poor performance that didn’t make sense in the first place.

Even those officials with good business sense often seem to leave that hat hanging outside the room when they make decisions on elected or appointed governing boards.

Scary but true.  We, their constituents, far too often hold them accountable only for making us happy and for far too many that means a doling out a different kind of welfare to non-residents.

Marty was tight with a nickel, even someone else’s nickel.  But he wasn’t one of those “screw them before they screw you” folks.  He was an Oil City native in that no nonsense stretch of Allegheny between Buffalo and Youngstown.

He loved sports including boxing and baseball,  and even, I think, promoting a few events when he was younger.  We talked about the recent Thrilla in Manila match that first day we met in my office.

Marty had been a delegate to more than a decade of national party conventions leading up to the buildup in Vietnam.  He didn’t seem as accepting of Muhammad Ali’s (aka Cassius Clay) stand on the war as my generation was.

I continued to get reality checks from him on a few long distance calls after I transitioned to Anchorage, but then heard he had retired when I called one year to get him to emcee an annual event there.

The month I was selected in 1989 to start the DMO in Durham, I learned he had passed away.

Maybe I would have figured all on my own not to “step in the bucket” of worms that subsidizing groups represents.  It was so easy to avoid them and still outperform cities that slid down that slippery slope that it was always puzzling to me when so many did.

Almost monthly throughout my career, those “snake oil salesmen” Marty warned me about would darken my door.  I would treat them with respect, hoping they just didn’t understand how we could help them while shielding taxpayers.

Many would storm out and then get officials to pressure us into giving them cash.  Fortunately, enabling legislation prohibited that.

But that never seemed to stop counterparts in other communities who became enablers, often using state of national figures to inflate projected local impact or applying overnight expenditure levels to residents and daytrippers.

As one former colleague quipped when I noted that cash subsidies to groups violates legislative guidelines defining community marketing, “the legislature and local government commission are never going to check.”

Not a part of the job I should ever miss but I write this memoir to help communities that want to outperform these guys and avoid chasing after “worst practices” while protecting local taxpayers.

Consider it just a payment forward for Marty.

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