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Improving the Association Show

by
Michael R. Hough

Recently a number of associations have seen a decrease in the return they are receiving from their franchise event (either convention, exhibition and/or trade show – referred heretofore as show). This has been caused by a fall-off in participation by both attendees and exhibitors, due to: the September 11 terrorist attacks; the decline in the b-to-b economy; and an increasing perception among both attendees and exhibitors that some shows may no longer have an appropriate return on investment.

This income shortfall has caused concern because the annual show typically provides 30-50% of the operating revenue for an association. Thus, associations are taking a strategic look at their show with the objective to return it to its former place as the key revenue stream that helps fund other association endeavors.

Associations are also looking at the intense competition that exists between the leading shows in each market segment. This competition is requiring all shows to invest in and improve themselves in order to stay competitive.

The first step in this process is to do a strategic review of the show. See Appendix A for a checklist of what is included in this review. This review should be done by a team consisting of:

• Association staff members, including some who are not directly involved in producing the show
• Board members
• Outsiders, such as consultants

Focus on whether there is still a viable show there. For example, has the industry ceased to exist (such as buggy whips) or is there no longer a need for the industry to get together (such as word processing).

If your review indicates there is still a need for the show, articulate its unique rationale. That is, what specific need does it provide that no other event does – and which attendees/exhibitors want. "Better" is not enough – everyone says that. You have to establish a tangible reason or reasons why your show is vital to the industry.

The next step is to decide: can you make the required changes internally; or do you need to retain outside help; or is it appropriate to sell the show.

Internal Improvements

Keeping the show in-house has several advantages:

• Any increase in profits will accrue directly to the association.
• You maintain direct control over the show and all its facets (such as brand/image).
• You are able to keep a finger on the pulse of the industry.
• You take maximum advantage of the affinity the association has with its members, suppliers and other supporters.

Here are the steps if you decide to fix the problems internally:

• See previous discussion about doing a strategic review of the show.
• Research attendees, exhibitors, press, gurus, etc. to see what the problem is.
• Establish exactly what has to be done. For example, the show may need to expand its target market, change its name, get new dates/new venue, etc.
• Commit what association resources (funds and staff) are necessary to take these steps.
• Decide if your existing show staff is up to the task. If not, hire experienced professionals who can do it (and pay them what they are worth).

Remember that running a high-quality show completely in-house takes a commitment that may tax the association’s resources and core beliefs. For example, producing a successful show demands a significant investment and may involve great financial risk. Also, the show staff (particularly the exhibit sales team) may be more highly compensated than other association staff.

Here are some tips on running a show completely in-house:

• Invest for the long term and do not take out all the show’s profits each year.
• Leverage the total resources of the entire association. For example, the research staff must be feeding new ideas to the show team.
• Carefully examine all show expenditures and consider what benefit each provides to the show.
• Keep a pulse on the market to be sure it does not turn left while the show keeps going straight ahead.

For more specifics on how to run a successful show, see The Profitable Trade Show by Michael Hough (www.profitabletradeshow.com).

Outsourcing

Another approach is to consider outsourcing, either the entire show or portions of it (such as sales or operations). Note: Here we are referring to strategic outsourcing and not tactical. Tactical would be functions that are typically outsourced by most shows, such as registration, housing, general service contractor, security, etc.

The need to outsource is indicated when:

• Your show staff is small and overburdened.
• The annual show consumes the entire staff for three months each year; while at other times, the show staff is under used.
• The Board has mandated staff reductions.
• Exhibitors tell you the show needs professional management.
• You are not maximizing the potential of the show in the market.
• You need to strategically reposition the show or launch a new one.

The primary advantage of this approach is you tap into the resources of specialists who spend full time producing shows, handling booth sales, etc. They can, for example:

• Utilize all the latest techniques to improve sales, promotion, operations, etc.
• Bring to bear their negotiating clout with venues, hotels, outside contractors, etc.

Also, an outside producer can expand the reach of the show by attracting attendees/exhibitors who might not be eligible to belong to the association. These, in turn, become excellent prospects for joining the association. But the most important advantage is that, unlike the option of selling the show, outsourcing allows the association to retain full ownership and at least most of the increased profits.

Bottomline: Outsourcing can allow an association the benefits of a full-scale, full-service, high-quality show department without the permanent staff/overhead.

However, don't outsource if your existing staff is handling the show well, including appropriate growth. Note that the disadvantages of outsourcing include:

• You could lose the direct relationship with your attendees (members) and exhibitors (associate members).
• You may become out of touch with the trends in your industry.

The Process

The first step is to do a strategic assessment, asking such questions as:

• Should the entire show be outsourced?
• If not a full outsource, what core functions should the association retain? And which could/should be given out?
• Would an independent show management firm be able to add value to the show?
• How would the outsource be managed by the association (what staff would be needed)?
• What would be the actual costs/benefits of outsourcing?
• And finally, do you really want an outside firm to agressively maximize the show's profits?

If the assessment says to go ahead with the outsource, the next step is to assemble a list of potential outsource firms. Here is some advice:

• The firm will be your partner; and therefore, you should look for good chemistry with them.
• Be sure the firm understands associations and how they work.
• Are you comfortable with the firm’s business style and ethics? For example, do you want them to solicit rebates from suppliers and, if so, should these be credited to you?
• Talk to others who are using each firm you are considering. If they were do it now, would they use the same firm?

The next step is to prepare a Request for Proposal (RFP). Typical issues to cover include:

• What is being outsourced.
• Length of contract.
• Payment, including base cost and incentives.

Important: The outsource firm will act as your agent and will not take on any liability for your show. Thus, you will sign the venue contract and agreements with outside contractors.

The financial arrangement for a full outsource could call for paying the firm:

• Actual cost for the work including direct staff salaries for the time spent on your show; direct costs such as printing and postage for the direct mail pieces; venue rental; and outside contractors such as the general services contractor.
• An overhead factor to cover staff benefits, office facilities, etc., for the outsource firm.
• Commissions for sales – typically less for renewals and more for new sales.
• A performance bonus related to global goals such as attendance, total exhibit sales and bottomline profit. Note that this could become a penalty if these goals are not met.

An alternate arrangement could be to allow the outsource firm to take over all financial responsibility for the show. This is more appropriate when the show is losing money or at best breaking even. Here are the specifics:

• The association is guaranteed a return, either what they had been making or an imputed figure (if the show had been losing money).
• The outsource firm gets (say) 80% of all profits above what the show generated in the year before the outsource firm took over (and the association gets 20%).

If you only outsource sales, the fee arrangement could be fee plus commission or commission only. Typically, this would range from 15% to 35% depending on:

• Renewals or new sales.
• Base guarantee plus commission or straight commission.

Warning: Don’t expect the outsource sales firm to perform miracles. If the problem with the show is poor attendance, then the sales-only outsourcer will not be able to turn it around.

Implement the Relationship

An outsourcing relationship works best when:

• Staff on both sides respect the role each plays.
• Disagreements are discussed and resolved as they come up
• The association continues to use the show to further its other aims, such as serving the members, keeping in touch with the market, etc.
• The association aggressively helps with growing the show.
• The association does not micro manage.

Finally, allow enough time for the relationship to work. Have the outsource firm give you a scenerio of where they want the show to be in say three years. Focus on the big ticket items (size of exhibit, attendance, profitability) rather than the color of the carpet. But do set some interim benchmarks to measure the performance of the outsource firm. If they don’t measure up, terminate the contract.

Selling the Show

A third option is to sell the show to an independent show producer. The advantages of this step include:

• Off loading the risk of producing the show as well as guaranteeing a return to the association.
• Being able to focus more on the core purpose of the association (serving the total needs of its members) rather than running a very large event once a year.
• Potentially having the show grow into an industry-wide mega event, which would reflect well on the sponsoring association.

However, the disadvantages include:

• Loss of control over the show, with possible adverse effects on the association.
• Not being able to reap the financial benefits of a growing show.
• Losing some staff members who may have been valuable association employees for many years.

Note: This is not to say an association cannot buy another show, to help strengthen its own show or simply as an investment. In that case, much of what is said here is applicable.

What motivates an independent show producer to buy an association show is the anticipation that its (usually large) investment will pay off. Thus, it has the expectation it will:

• Grow the show via more attendees and a larger exhibit.
• Increase profits through: growth (see above), increase in booth/sponsorship fees and reduction in expenses such as:
  • more clout with venues and outside contractors
  • more effective promotion techniques
  • more efficient systems (sales, operations, etc)

The Process

The first step is to think through the strategic implications of this move:

• How will it affect the association and its position in the industry it serves?
• Will this enhance or detract from its primary mission of serving its members?
• How will this affect its staff?
• Are the association's elected officers in agreement?
• Are there any impediments to this move (such as the bylaws)?

Many times the conclusion is not to sell the show. In that case, see Internal Improvements which discusses what moves can be taken to rejuvenate a lagging show.

But if the strategic planning process indicates that selling the show would be a good move, here are the steps to take:

A. Get prepared

Bring everyone on board that selling the show is a good move. Then create a small group who will handle the day-to-day decisions about the acquisition for the association. The larger the group, the longer the process will take, and the more frustrated the buyer will become.

Retain outside advisors, accountants and a lawyer who know how to do a deal such as this. Don’t try to get by with your existing team, who may know associations but not how to get the maximum benefit from the sale.

Take steps to put yourself in position to maximize the value of your show to an outsider. For example, express your financial results so they are easily understood by a for-profit buyer. Here is what has to be done:

• lRecast the show's revenue/expenses in a commonly accepted format. See Appendix B for a typical Chart of Accounts.
  
• Express the show’s bottomline in terms of EBITDA (earnings before interest, taxes, debt and amortization). If the association does not have any debt, interest or taxes, then this becomes net profits.
  
• Either add back or deduct items that should/should not be revenues/expenses for the typical show. For example, if the Marketing Director spends half time on marketing the association, then half their salary would be removed from the show expenses. Naturally, favor moves that increase the show's profits.

This process usually takes a year or more so you should allow for this in laying out your proposed schedule for the sale.

B. Value the show

Next you should have an approximate figure for what your show is worth; look to your outside team for this information. The value is expressed as a multiple of EBITDA. Right now (Spring 2002) association shows are being valued at three to eight times EBITDA, slightly down from the peak values of two years ago. M&A activity has been hampered by a recent lack of liquidity in the market.

These factors tend to bring a higher value:

• there is a long-term “ownership” of the show’s market
• the industry is growing with excellent long-term potential
• larger show (greater than 75,000 NSF)
• the association is willing to aggressively help the new owner

This valuation figure is important because you need to have a “walk away” price in mind before putting your show on the market. If a particular suitor is much below this figure, then you know they are not a serious candidate and you should not waste time with them.

At this time you should also formulate your wish list of what else you want besides monetary considerations. For example:

• Do you want to retain any portion of the show, such as the educational program?
• Do you want to hold your annual convention during the show?
• Is there anything you want the new owner to do, such as continue to host the annual awards dinner? Or fund a scholarship program?
• Enumerate exactly what amenities you want at the show, such as a free suite for your Chairman.

C. Approach potential buyers

Potential buyers include:

• Strategic buyers such as a firm who owns/manages their own shows or a magazine serving a niche market (such as yours). Your show is valuable to them because it fits their long-term strategic plan.
• Financial buyers who invest in shows for their account or for their investors. Your show is valuable to them because shows in general are still a great investment (though no longer a fantastic investment).

There are several ways to go to market, including:

1. Find the best strategic match and have your team approach them directly. An example would be the media company that owns the dominant publication in your industry. This could result in maximizing the long-term value of the show because the synergy of print + event can be very beneficial if done well. However, this approach should not be used if you want the maximum initial payment and are not that concerned with backend payout
2. Retain an investment banker, financial consultant or transaction representative who will shop your show and get you the maximum value. The advantages include:
   • They will keep your name confidential until they turn up an interested and qualified buyer.
   • They will advise you along the way and help you get the maximum price for your show.
   • They will act as a buffer between you and the potential buyers.
   The disadvantage is you must pay a broker fee to the adviser. This fee can range from 2% to 5% depending on the size of the transaction. See Appendix C for a description of what the broker does and a list of those with experience in this field.
3. Send out a “black book” to all qualified parties and then accept the highest bid. This gets you top dollar, but you may not have much follow-on benefit. Here are the items typically included in the black book:
   • Overview of the show and its industry.
   • Profile of attendees and exhibitors.
   • Description of the conference.
   • Description of the promotion effort.
   • Description of the exhibit sales effort.
   • Size of the market (U.S. and international).
   • List of competitive events and a description of how each impacts your show.
   • Projection of revenue growth three years into future.
   • Description of ownership.
   • Reasons why the show is being sold and what are the future objectives of the association.
   • 5-year, non-financial history of the show including:
     • attendees
     • net square foot of exhibit space
     • space rental rate
     • where held
     • ¨ dates
   • · 5-year financial history (plus current year forecast) for:
     • gross revenue
     • net revenue
     • EBITDA

D. Negotiations

It is best to have your outside team handle the negotiations on your behalf. In the initial stages, do not let the staff nor the Board get involved directly except to provide required information (but through your team).

At some point association management (both staff and Board) will be brought into the process to resolve the remaining issues. Agree beforehand on your negotiating position and always present a united front.

Payout options could include one of the following:

• A full payment at closing and nothing thereafter.
• A large payment (80%) at closing and the rest paid as an earnout depending on the show meeting future profit goals.
• A smaller payment (20%) at closing plus a guaranteed payment over, say, 8 years. Plus, additional payments if the show meets future profit goals.

In each, case, the association would receive all revenue (and pay all expenses) for any facet of the show which they retain (such as the conference).

The buyer will typically want a very long term agreement (sometimes 20+ years) which spells out:

• The association will stay involved in the show as an active partner.
• The new owner will be able to use the association name (as appropriate).
• The association will not become involved in a competing event.

E. Post closing

If you are taking a one-time payment with no further involvement, then you can walk away completely once you get the check. However, there usually are reasons for you to want the show to succeed, such as:

• The show retains the association name as its sponsor.
• The association has some direct involvement such as putting on the education program.
• The association is receiving “earnout” payments which increase if the show grows.
• The industry continues to perceive that the show is your annual event.

Thus, you will usually remain involved, such as:

• Holding your annual convention as part of the show.
• Handling the educational content for the show.
• Aggressively promoting the show to your members and to the industry in general.

Conclusion

If your show is not performing up to your expectations, take steps now to improve its return. This can mean: keeping it in house and making internal improvements; partnering with an outside show management firm; or selling the show completely.

We hope this paper has been helpful to you in deciding on and then implementing a solution.

Copyright 2002, MRH Associates, Inc. All rights reserved.

Michael Hough is an industry consultant and author of The Profitable Trade Show (www.profitabletradeshow.com).

Appendix A

Strategic Review of a Show

by Michael Hough

Whether a show is 20 years old or just launching, it can be improved by undertaking a Strategic Review. A Strategic Review is a fresh look at everything long range – from its position in the market to the outside relationships it has. Typically, this review does not get into tactical matters, but this can be done in a follow-on study.

Here is what is included in a typical Strategic Review:

1. Establish/re-establish the unique rationale for the show. What is the state of the overall market in which the show exists? Consider the show’s position in this market; what is its competition; and how is it perceived by exhibitors and attendees? Does the show’s stated rationale compel participation by the target exhibitors and attendees?
2. Verify that this unique rationale is being applied to:
   1. exhibit sales
   2. attendee promotion
3. Is the show considered an Event in its industry? What can be done to make it more so?
4. Who are the key players in the industry (trade magazines, associations, gurus)? Do they support the show?
5. Is the show held at the right time of the year and in the right city?
6. Should the show co locate with another compatible event?
7. Should the show have one or more new sponsors?
8. Are the major show functions (sales, marketing, conference and operations) being managed properly to support the show (and its unique rationale)?
9. How do the show’s profit margins and various benchmarks (such as promotion cost per attendee) compare to similar shows?
10. What steps need to be taken to enhance the show’s unique position in the industry – and thus its profitability?

Appendix B

Sample Chart of Accounts

Source: The Profitable Trade Show by
Michael Hough (www.profitabletradeshow.com)

Revenue:

• Exhibit Space Sales: To include all domestic and international exhibit space sales, premium charges, cancellation forfeitures, etc. Note: specifically refers to primary exhibit area based on published rates; does not include rooms rented to exhibitors for other uses.
  
• Registration Income: To include both pre-show and at-show revenues for Exhibits-Only attendance.
  
• Conference Income: To include both pre-show and at-show revenues for Conference Program attendance, including Keynotes, if applicable. Does not include revenue generated by the sale of conference reference material, i.e., proceedings, tapes, CD’s, etc. - see All Other Revenue.
  
• Sponsorship / Promotional Products: To include all revenues generated by any sponsorships of Keynotes, special events, lounges, etc. and promotional opportunities including directory advertising, advertising on websites, banners, kiosks, meeting room rentals, list rentals, etc.
  
• All Other Revenue: To include rebate / commission income, special events attendance income, conference reference material, exhibitor registration fees, etc.

Operations/Tradeshow Production Expenses:

• Travel & Entertainment: To include staff travel to show, i.e., air, hotel, meals, transportation, entertainment, etc.
  
• Facility Rental.
  
• Standard Booth Equipment: To include items that are included in the nsf rate if any (carpet, drape, drayage, etc.).
  
• Decorating: To include contractor labor & drayage, general decorating, special events decorating, signage, carpeting, floral, etc.
  
• Food & Beverage: To include catering for staff, space draw/renewal meetings, in-hall special events catering (except conference), etc.
  
• All Other Operations Expenses: To include audiovisual/staging, electrical/telecommunications,
  transportation/shuttle and supplemental staff, etc.

Registration Expenses:

• All Registration Vendor Expense.
  
• All Other Registration Expense: To include temporary personnel expense at-show, etc.

Exhibitor Sales and Sponsorship Promotion Expenses:

• Travel & Entertainment: To include sales and sponsorship travel to competitive events, prospect companies, association meetings, etc.
• Exhibitor Promotion Direct Expense: To include stationery; creative/printing/postage & handling of prospectus and other collateral; advertising; list development.
• Sponsorship/Promotional Products Expense: To include stationery; creative/printing/postage & handling of collateral materials; advertising; list development for the purpose of selling such programs.
• Web Promotional Expense: To include an allocation of total Web expense based on the percentage of Web information/activity dedicated to exhibitor sales and sponsorship promotion.
• Exhibitor Research.
• Sponsorship/Promotional Products Fulfillment: To include all expenses generated by the production and fulfillment of such programs, including the Show Directory.
• All Other Exhibitor Sales and Sponsorship Promotional Expense: To include retainers & fees for contract salespeople; premiums, boothmanship/lead generation seminars, exhibiting in competitive events, exhibitor receptions, etc.

Attendee Promotion Expenses:

• Travel & Entertainment.
  
• Attendee Promotion Direct Expense: To include stationery; creative/printing/postage & handling of materials; advertising; list development. Does not include such costs for materials fully dedicated to conference promotion.
  
• Web Promotional Expense: To include an allocation of total Web expense based on the percentage of Web information/activity dedicated to attendee promotion, excluding conference.
  
• Attendee Research.
  
• All Other Attendee Promotion Expense: To include expenses for Keynoters (if there is no charge to attend), special projects, public relations, etc.

Conference/Conference Promotion Expenses:

• Travel & Entertainment.
• Meeting Room Rental.
• Audiovisual Expenses.
• Decorating: To include contractor labor & drayage, general decorating, special events decorating, signage, carpeting, floral, etc. (only for the conference).
• Food & Beverage: To include catering for conference attendees and/or speakers.
• Conference Promotion Direct Expense: To include stationery; creative/printing/postage & handling of materials; advertising; list development. Does not include such cost for materials fully dedicated to exhibits-only attendee promotion.
• Web Promotional Expense: To include an allocation of total Web expense based on the percentage of Web information/activity dedicated to conference promotion.
• Conference Research.
• Retainers and Fees: To include conference development consultant, Keynoters (if there is a charge to enter), speaker fees, etc.
• All Other Conference Expense: To include audiovisual, telephone, catering/F & B, security/ ticket takers, temporary at-show personnel, production of conference texts/tapes/CD’s, etc.

Direct Show Overhead:

• Direct Sales Personnel Expense: including salary, commissions, benefits. Note: All employee functions that are fully outsourced on contract (i.e. sales), go “above the line” under Exhibitor Sales Expenses.

Appendix C

The Broker

The broker (investment banker, financial advisor or transaction representative) plays a role in many deals. As mentioned, they can help by:

• Getting your show in shape to be presented to potential buyers.
  
• Approaching potential buyers who would not be known (or imagined) by you.
  
• Acting as your go-between to create the best deal for you.

Brokers will hold your hand throughout the entire process and many times their assistance is invaluable in keeping the deal on track. Plan on spending a lot of time with them.

Brokers receive a commission based on the sale price of the show. This fee varies and must be discussed and agreed to at the beginning. A typical agreement might be:

• 5% of the first $5 million, plus
• 4% of the next $5 million, plus
• 3% of the next $5 million, plus
• 2% of everything over $15 million

Thus, for a $30 million show you would pay the broker $900,000 or 3%.

Here are some tips on dealing with brokers:

• Use someone who has experience dealing with trade shows
• Agree on the fee before any work starts
• Listen to the broker - they usually know the best way to go.
• But don't listen to the broker if what they are saying makes you uncomfortable.

Brokers who have experience dealing with trade shows include:

Corporate Solutions, LLC Contact: Nick Curci 203 226 4040 nickcurci@aol.com

The Jordan Edmiston Group Contact: Richard Mead 212 754 0710 richardm@jegi.com

Veronis Suhler Stevenson Contact: Joel Novak 212 935 4990 novakj@veronissuhler.com

***

Michael Hough is an industry consultant and author of The Profitable Trade Show (www.profitabletradeshow.com). He also co produces the Exhibition and Convention Executives Forum (www.eceforum.com).

A version of this paper apeared as an article in the July, 2002 issue of Convene.

Copyright 2002 MRH Associates, Inc. All rights reserved.