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VIDEOWhy Big Sports Events Don't Equal Big Paydays for Hotels
By
John F Kelly Nov 02, 2009 10:10 am
The money pours in, but heads upstream.
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If you were to book a room for two for February 5 through 8, 2010 -- the weekend of next year's Super Bowl -- at Miami’s Marriott’s (MAR) Villas at Doral, which is 11.3 miles away from the city’s Dolphin Stadium, you're looking at tab of $409 a day, before taxes and other surcharges.A week later, when the big game is out of town, the daily rate drops to $249.
City tourism centers point to these numbers, as well as room occupancy rates, as one of the biggest ways mega-events push additional dollars in to host cities. But, of course, academics disagree.
Their contention is that when hotels hike rates for their standard rooms during these events, the cost benefit are directed back at the corporate Marriott or Hyatt headquarters, rather than the local franchises or the actual host cities.
Here's how it works: Hotel franchises pay a good chunk of their revenue back to their corporate centers in several different ways.
First, they pay a percentage of the income generated by each room. For higher-end hotels, which is where 75% of all Super Bowl attendees stay, the median payback rate is 10%.
There are also annual royalty fees that a franchise has to dish out to be associated with the brand’s trade name, service mark, and logos. These fees make up the major source of revenue for higher-end franchisors like Hilton and Marriott.
But the local franchises are also hit with a myriad of other charges that go back to the corporate offices, including reservation booking fees associated with the mega-event, advertising, and marketing costs of promoting the hotel’s availability. None of these fees make their way back into the local host city’s economy.
While room rates rise, the pay for the hotel’s workers remains unchanged and they're often expected to work harder during these periods of high demand, without any additional financial compensation. So while the hotel’s revenues increase, the return to labor falls, meaning the impact of staying at, say, a Starwood Hotel (HOT), is a non-factor in terms padding the local residents’ spending options.
In fact, the economists say that the methods corporate offices use to meet the demand for rooms for these events actually ends up further padding their investors’ pockets at the expense of the host city’s local merchants.
“Increased hotel revenue is not doubling the pay checks for the desk clerks, waitresses, and what the room cleaners are making for the weekend,” said Holy Cross economics professor Victor Matheson. “All that money is a big boom for stockholders back in New York City, but not a lot of that money is staying in town.”
Continue reading this story, below, or click on a category to see who wins and who loses when the big game comes to town.
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No positions in stocks mentioned.
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