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Phone: 760-994-9266

Will IRS Scandal Spark Repeat of AIG Effect?

David Brudney & Associates- Hospitality Marketing Consultants
David M. Brudney, ISHC, a nationally recognized spokesman for hotels and a veteran with four decades of experience, is the principal of David Brudney & Assoc. of Carlsbad, CA

Will it be déjà vu for the hospitality industry? A newsworthy scandal exposed leading to thousands of roomnights canceled and millions of dollars lost?

Let's hope this newly released report by the U.S. Treasury Inspector General does not trigger the same corporate event cancellation and travel expense cutting that caused so much of the financial damage after American International Group's lavish corporate retreat.

The report scrutinizes the already embattled Internal Revenue Service for holding a $4.1-million training conference at the 1,572-room Hilton Anaheim in California in 2010 that featured luxury rooms, free drinks and room upgrades for a total of 132 IRS officials, according to the Associated Press.http://www.denverpost.com/breakingnews/ci_23382912/irs-victims-testify-new-agency-scandal-emerges

The report claims one official stayed five nights in a suite that carries a rack rate of $3,500 a night; another official stayed four nights in a room with a rack rate of $1,499 a night.

$5,000 suites often sit empty or heavily discounted

I wonder if Congress and/or the media understand it's standard practice for large groups representing significantly large amounts of room revenue and total spend (food-and-beverage events, room service, retail outlets, etc.) to receive an allotted number of complimentary rooms and upgrades? Do Congress and/or the media have any idea how often that $5,000 suite sits empty or how often that suite is rented at heavily discounted rates?

The AP article continues with an interpretation on how the IRS could have negotiated a better room rate overall had they eliminated the room upgrades and free drinks.

"The agency paid a flat daily fee of $135 per hotel room, it said, but the upgrades were part of a package deal that added to the overall cost of the conference," adding in earlier reports that without the upgrades the IRS could have negotiated a lower room rate, as required by agency procedures.

I wonder if the report's author checked with the Hilton Anaheim to verify the facts? I wonder if the IRS could have paid less than $135 per room and been accommodated as well and the event serviced as well as the Hilton did?

I wonder if Congress or the media will ask if that conference was a success? Were the attendees re-energized and motivated from the event? Did senior management realize a measurable return on investment from the $4.1-million expenditure?

The IRS held 225 employee conferences from 2010 through 2012, at a total cost of $49 million, according to the report. The Anaheim conference was the most expensive, but similar conferences were held in Philadelphia ($2.9 million), San Diego ($1.2 million) and Atlanta ($1.2 million).

The CBS Evening News made the IRS and the report its featured story during a 3 June broadcast. They ran an agency-produced "elaborate" video showing IRS employees line dancing and spoofing Star Trek at a cost of $50,000.

CBS also cited an $11,000 cost for a "Happiness Expert" to lead four workshops and a $17,000 expense paid to another speaker for a presentation on leadership through art.

Paid presenters add value to events

This notoriety is the type of grist for the mill that can lead to outcry from the public-and corporate shareholders and boards-over organization spending practices on meetings, incentives, conferences and exhibition travel.

Such expenses are not only commonplace in the M.I.C.E. industry, they often enhance the quality of conference programs, building positive memories. They help employee/management bonding, attendee motivation leading to a higher R.O.I. for the organizing body.

Remember the AIG effect and the fallout from President Obama criticism of corporate incentive trips to Las Vegas? I do. To jog your memory, here's an excerpt from an article I wrote in 2009: http://www.hotel-online.com/News/PR2009_2nd/May09_DBrudney.html

Here's some of the collateral damage so far this year:

$1 billion in U.S. company cancelled bookings in the first quarter is blamed on outrage over AIG, L.A. Times reporter Roger Vincent's "Junkets Are Being Junked," April 7, 2009.

56 percent of corporate planners reported cancelling one or more meetings or incentive trips this year, according to a Meetings & Conventions survey.

$220 million in room revenue was lost in January and February, according to (Roger) Dow (CEO, U.S. Travel Association) and his USTA's survey of companies representing one-fifth of the group meetings market.

40 percent less group revenue has been booked at Starwood Hotels & Resorts Worldwide during the first quarter of 2009 - - resulting in an elimination of 6,000 employees (a ten percent cut in staff).

95,000 room nights were lost by local hotels in February 2009 based on scheduled events, according to the Las Vegas Convention & Visitors Bureau.

$131 million worth of business events have been canceled in just the first quarter, according to Chuck Bowling, Executive V.P., Mandalay Bay Resort & Casino.

$50 million estimated loss for statewide Hawaii. Two of Hawaii's largest meeting venues - - the Hilton Hawaiian Village Beach Resort & Spa and the Hilton Waikoloa - - lost $12.4 million due to cancelled corporate incentive meetings.

Planners booking more responsible events since 2009

Our industry can't afford a repeat of the AIG effect fallout of 2009. We're still recovering from that backlash. Corporations have taken the steps to eliminate even the suggestion of excess in scheduled meetings and events. This was done after corporations realized the losses in productivity and employee retention from the cutbacks and elimination of incentive events and travel.

And as far as the public sector, the IRS ordered an 80% cut in travel and conferences after 2012 following an edict from President Obama, according to CBS. That decision might satisfy some, but to me it's more like throwing out the baby with the bath water.

Hoteliers will no doubt suffer from cutbacks in government meetings and travel.


About David Brudney & Associates

David M. Brudney has become a charter member of Laguna Strategic Advisors and was a founding member of the International Society of Hospitality Consultants. Brudney is a veteran sales-and-marketing professional concluding his fifth decade of service to the hospitality industry. Brudney advises lodging owners, lenders, asset managers and operators about hotel sales and marketing best practices and standards of care, and conducts reviews of sales-and-marketing operations throughout the world. Brudney is a professional speaker, teacher, mentor and sales trainer. Previously, Brudney held sales and marketing positions with Hyatt, Westin and Marriott.

Contact:  David M. Brudney, Principal
David Brudney & Associates
Carlsbad, CA 92009
Phone:  760-994-9266
Email David Brudney
Web Site:   www.DavidBrudney.com

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