LVCVA votes to continue R&R pact

15 July 2009

LAS VEGAS, Nevada –- Las Vegas boosters approved a new deal Tuesday with the makers of the "What happens here, stays here" ads that have become ubiquitous in the last seven years -- but at a lower cost than previous pacts.

The Las Vegas Convention and Visitors Authority Board voted 12 to 0 in favor of a three-year agreement with R&R Partners of Las Vegas.

The deal came without competitive bidding for the contract, which has been the exclusive province of R&R for nearly 30 years, the last 10 without open bids.

Still, R&R agreed to maintain the level of services it delivered in the past along with some new ones but at a lower price to the authority, which gets most of its funding from hotel room taxes and is enduring declining revenue due to lower demand for Las Vegas vacations and business trips.

"We are all members of this community. We understand the tough times we are all in," R&R Chief Financial Officer James King told authority board Chairman Oscar Goodman.

Under the agreement approved Tuesday, R&R will cut its commissions on media and production purchases from 15 to 12.5 percent.

The commission cut on media -- which applies to buying time for the famous ads -- alone will save the authority as much as $2 million annually, depending on how much advertising time it buys.

Also, R&R will charge a monthly agency fee of $400,000.

"The lower commission structure allows the LVCVA to dedicate more money to actual media purchases instead of commissions," said Cathy Tull, senior vice president of marketing for the authority.

Hard times have hit the authority in recent months. The latest budget approved in May was based on room tax revenue of $178 million, a 26.7 percent decrease from the budget projection at the beginning of the previous fiscal year.

Of that, $86.5 million is budgeted for marketing and advertising, with 70 to 80 percent of that expected to go to buying airtime. That would translate to about $8.1 million to R&R for commissions at the new, lower rate. Under the old rate of 15 percent it would be $9.7 million, a difference of $1.6 million.

Austerity wasn't the only watchword of the day Tuesday. Transparency was another theme.

In a letter to the authority, R&R Chief Executive Officer Billy Vassiliadis cited "an extreme awareness and sensitivity to open transparency in this public contract."

Since late last year, the authority and R&R have been the target of criticism by the conservative nonprofit Nevada Policy Research Institute, which made the relationship between the two entities the subject of its "Transparent Nevada" project.

The agency fee is a new concept for the authority contract. The idea is to roll myriad retainers and hourly charges into one price, so the authority can better plan costs.

Also new to the contract was a provision that would allow the authority to reopen negotiations on fees at any time if its revenues fall and also to terminate the deal outright on 90 days' notice.

"That should give us quite a bit of comfort in terms of approving this contract," said Keith Smith, authority board member and CEO of Boyd Gaming Corp. "In some respect we're not signing a three-year renewal, we are signing a 90-day contract."

While the agency fee to R&R is important, the real negotiations were over the commission rate and scope of work.

R&R will only receive money based on what the authority decides to spend on marketing and advertising. The unknown element was how much work it would get from R&R for that amount.

On the surface it appears the authority will get more work for less money in the upcoming fiscal year. The marketing budget of $86.5 million is $5.5 million less than the previous fiscal year yet R&R's scope of work will be greater in the upcoming contract.

In addition to media and production services R&R agreed to in 1999, the new deal includes digital marketing, expanded service for outlying Clark County destinations, social media and international public relations.

In the last contract R&R estimated it worked about 100,000 billable hours annually on behalf of the authority. The upcoming contract estimates that figure will be 115,000.

The billing works out to a "blended rate" estimated between $125 and $135 per hour of work, which is below the national average for big agency accounts.

David Quinnert, president of Ad Compensation Inc. of Chicago, said most big advertisers can expect to pay an agency a blended rate between $145 and $195.

"For whatever reason they compromised on a lower level of profit than I would have, than I suggested," Quinnert said of R&R. "They are dealing in a very political environment."

In addition to approving the marketing deal, the board voted 8-4 to approve a new labor contract with about 350 members of the Service Employers International Union.

Dissenters, which included board members Kara Kelley of the Las Vegas Chamber of Commerce, Charles Bowling of MGM Mirage, Tom Jenkin of Harrah's Entertainment and Scott Nielson of Station Casinos, objected to 1 and 1.5 percent annual raises for the workers during a time when managers and nonunion workers are having their pay frozen and positions are being held open.

The majority voters praised the workers for working during a year of laborious negotiations and said approving raises well below what the union initially sought would be better than settling the matter in binding arbitration.

The raises will cost the authority an estimated $278,500.


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