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Hotel Commission Cuts Are Driving Decisions and Shifting Market Share

A year has passed since Marriott and other hotel companies began to reduce third-party commissions from 10 to 7 percent. But for the big third parties, the change only started to take effect this January. Already, the fallout has effectively shifted market share, driving meetings business to properties and destinations that still pay the higher rate.

A Meeting Escrow Partner, ConferenceDirect, and their CEO Brian Stevens shares some insights, opinions and expectations on the subject in an interview with Northstar Meetings Group.

ConferenceDirect is now booking more business in Las Vegas than Orlando. Are commission cuts responsible for that shift? Sure. Orlando was number one for about 10 years. But as long as the Marriotts and the Hiltons and the Hyatts, which dominate that market, are at 7 percent, some customers are going to favor Las Vegas. We've seen that. One-third of the business right now is only seeking the higher-commission brands.

How much business has shifted from Orlando to Las Vegas? In 2016, ConferenceDirect booked 297,495 room nights in Orlando and 239,201 in Vegas. Last year, 231,497 rooms went to Orlando, while business in Vegas skyrocketed to 353,440 guest rooms.

Do you think the move to 7 percent was a good business decision? Let me be very blunt here: The cost of sale is something that smart people tend to look at. When I was with Hilton, I tried to cut commissions. It was very hard because of the lost business in need times. So, no, it doesn't always make business sense. In the case of a gaming hotel, for example, how much does an average brain surgeon earn in a year? And what is their propensity to gamble in Las Vegas? Chances are, if you're a brain surgeon, you take risks every day and you make a lot of money. I don't want to pick on the brain surgeons, but when they go to Las Vegas, they're going to drop $200 to $300 a day, on the average, at the gaming tables. Let's say the room rate is $300, and the commission on that room at 10 percent is $30 a day. Those guests are going to spend $200 on food and drinks at the hotel, so now it's $800 in spend and $30 in commissions -- so the cost of sale is 3.75 percent. Let's take the $300 out for a meeting at a non-gaming hotel. We are now $500 in spend with a $30 commission, or 6 percent cost of sale. So, it's really not 10 percent. Take out a dollar, and take out a dime. Are you willing to give up the dollar over the dime? Of course not.

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