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Funding Your Future: CVB Outline

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This presentation delves into the trends, threats, and goals behind funding and developing your destination marketplace. John Lambeth guides the viewer through the future of tourism and CVB's.

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Funding Your Future: CVB Outline

  1. 1. Funding Your Future Minnesota Association of CVBs October 2, 2019 10:30 am
  2. 2. Presentation Outline 1. Destination Marketing Funding 2. Tourism Improvement District Revolution 3. Trends & Threats 4. Case Studies 5. Creating TIDs in Minnesota 6. Q & A
  3. 3. Three E’s of Travel Impact
  4. 4. Three E’s of Travel Impact - Economic - SOURCE: US Travel $2.5 Trillion Economy $171 billion in total tax revenue. Without this impact, each U.S. household would pay $1,300 more in taxes every year.
  5. 5. Three E’s of Travel Impact - Employment - SOURCE: US Travel Putting 1 in every 10 people to work in the U.S.
  6. 6. Three E’s of Travel - Experience - Breaks down barriers Draws new investments Provides infrastructure, transportation and attractions for locals Family vacations leads to happier kids Gift of an experience more meaningful than things
  7. 7. In 2017, visitors to Minnesota spent $15.3 billion, which supported 270,000+ jobs. Travel to Minnesota generated $996 million in state sales tax and saw 73 million visitors in overnight/day trips. SOURCE: Explore Minnesota
  8. 8. The Future is Built with Travel Promotion Source: US Travel
  9. 9. CHALLENGE SOLUTION: DESTINATION PROMOTION The primary motivator of a trip is usually the experience of a destination Articulates the destination brand message that is consistent with consumer motivations Effective marketing requires scale to reach potential visitors Pools sustained resources to achieve scale 2 1 The Vital Role of Destination Promotion Source: Tourism Economics
  10. 10. Do you have enough to adequately market your destination? How reliable are your funding streams? Can they be diverted? Funding Sufficiency vs. Funding Stability Sufficiency Stability
  11. 11. $0.0b $0.5b $1.0b $1.5b $2.0b $2.5b $3.0b $3.5b $4.0b $4.5b $5.0b State Travel Prom otion CompaniesSpendingBillionsPromotingTheir Brands Source: Advertising Age & US Travel Association 2015 Billions in Marketing Spending
  12. 12. Three Levels of Sufficiency What the industry is given Comparing budgets to other organizations (Compare MPAR) Funding based on economic activity Level 1 Level 2 Level 3
  13. 13. Can a vote of the local or state government re-direct tourism promotion funds? Tourism Funding Stability
  14. 14. Tourism Funding • Membership • Sponsorships • Event revenue • Contract services • Licensing • Untethered tax allocations • Tethered tax allocations • Sales tax increment financing • Assessment (TID)
  15. 15. How Tourism Improvement Districts Work Tourism businesses pay an assessment Collected by the local government Managed by the DMO Characteristics • Level playing field—no free riders • Transparency • Reliability • Pass-through to customer
  16. 16. “I remember when I was governor last time, the tourism industry was always asking me for more money from the state budget…You know I don’t like to spend money very much, so I’m glad you figured out how to spend your own money. That’s a lot better, because if you had to deal with me, your life would be more difficult.” Former California Governor Jerry Brown -- May 3, 2017
  17. 17. National District Statistics 177 TIDs Most Recent: San Gabriel, CA (March 2019) 15 STATES AMOUNT RAISED Low $10,000 Median $785,000 High $41,000,000 Total $405,242,806 44% Fixed $ Amount 56% Gross Revenue %
  18. 18. Active TMDs
  19. 19. Considering TMDs Active TMDs
  20. 20. Jurisdictions that have desired to retain baseline funding has done so. Some DMO’s have chosen to return funds for other purposes to free themselves from government allocations. TIDs have led to widespread significant budget increases. Preventing Funding Loss
  21. 21. DMOs lose their existing funding when they form a TID.
  22. 22. Preventing Existing Funding Loss Beg-A-Thon Partnership Annual or Multi-Year request Competition with other priorities Funding = variable & unreliable Funding may be withheld entirely Multi-Year agreement No Competition Funding = multi-year & reliable Local government required to provide baseline funding Loss of partnership = TID termination **
  23. 23. In 2017, Civitas and SMG conducted a survey of TIDs throughout the United States.  On average destinations increased their tourism funding by 192% after the formation of a tourism district.  The chart on the left illustrates the primary reasons destinations formed TIDs. National TID Survey Results
  24. 24. What will your organization’s primary expected measure of success be five years from now? The top 5 (out of 18) responses: Destination Next Futures Study 2019 Source: Destinations International & MMGY NextFactor
  25. 25. How would you see the revenue sources in your organization’s annual budget change five years from now? The top 3 responses (out of 12) for U.S. DMOs: 1) Tourism Improvement District 2) Sponsorship / Partnership 3) Room Tax Destination Next Futures Study 2019 Source: Destinations International & MMGY NextFactor
  26. 26. Civitas Report on Lodging Charges We studied taxes and lodging charges in 100 cities throughout the country. Average tax rate on destinations: 14.6%. 49.9% of lodging tax revenue dedicated to general funds. Less than 20% dedicated to tourism promotion.
  27. 27. U.S. Tourism District Law Study I. Studied legal framework for TIDs in 50 states and Washington D.C. II. Analyzed BID statutes and home rule authority. III. Ranked each state “green”, “yellow”, or “red” based on the likelihood of forming a TID with the existing legal framework.
  28. 28. Philadelphia Memphis Newport Beach Wichita San Diego Case Studies Visit California
  29. 29.  TID began in 2008.  Includes all lodging businesses with 70+ rooms in the City of San Diego.  Assessment rate is 2% of room revenue.  Raises $41 million annually.  Average ROI on TID expenditures is 23.1:1 (comparing lodging business revenue to TID expenditures).  MPAR: $673.67, Room Count: 62,590
  30. 30. What Happens Without Promotion: San Diego Established in 2008, San Diego Tourism Marketing District allocated $25 million in marketing and promotion. However, litigation over the SDTMD held up 84% of funds in 2013. The lack of marketing during this short term had a clear, negative impact on San Diego overall. $216 million in lost room revenue Lost ADR of $7.94/per night $24.3 million in lost tax revenue $1.3 billion in lost business sales
  31. 31. 31 TMD funds held in limbo during much of 2013 3.8 3.9 4.0 4.1 15.0 15.5 16.0 16.5 11 12 13 14 15 Comp set (L) Top 25 (R) San Diego room demand market share San Diego's % of total room nights, relative to... Sources: STR, Tourism Economics Defunding of SDTA 13.6 14.1 14.6 15.1 15.6 16.1 16.6 17.1 Jan -11 Jan -12 Jan -13 Jan-14 Jan-15 San Diego Room Demand Room nights, millions, 12-month rolling sum Sources: STR, Tourism Economics Immediate and significant slowdown in demand and a loss of pricing power
  32. 32.  MPAR: $617.67, Room Count: 23,961
  33. 33.  Civitas lead an effort to raise the hotel tax by 1.8% for improvements to the convention center, and to levy a $2 TID room charge dedicated to marketing.  The Memphis TID began in January 2016 and since then, they have experienced 3.5% visitation growth per year and a 4.8% visitor spending growth per year.  In December 2018, renovation began on the Memphis Convention Center. Expected completion date is Fall of 2020.
  34. 34. “Whenever you add a fee or another charge to a hotel room night your hotel operators and general managers get very concerned. But if you can demonstrate to them that the return on investment is going to be such that it will be negligible as it relates to rate and will actually allow them to grow rate in the future, you will get their support and their trust. I think we’ve been able to do that in Memphis and I think most TIDs around the country have been successful at doing that as well.” – Kevin Kane President & CEO, Memphis TID
  35. 35.  TBID formed in 2009.  Includes 9 lodging businesses in the City of Newport Beach.  Assessment rate is 3.0% of room revenue.  Raises $4.1 million annually  MPAR: $2,834.97, Room Count: 3,351
  36. 36. Year TID Revenue Booked Room Nights Estimated Hotel Revenue Approx. ROI 2009-2010 $1,198,000 11,823 $2,866,000 2.4:1 2010-2011 $1,306,000 13,031 $3,240,000 2.5:1 2011-2012 $1,568,000 28,901 $6,770,000 4.3:1 2012-2013 $1,703,000 30,418 $6,530,000 3.8:1 2013-2014 $2,226,000 57,789 $12,808,000 5.8:1 2014-2015 $3,728,000 78,105 $17,958,000 4.8:1 2015-2016 $3,947,000 87,436 $22,260,000 5.6:1 2016-2017 $4,049,000 88,590 $21,202,000 5.2:1 2017-2018 $3,961,000 90,318 $25,745,000 6.5:1 2018-2019 $4,421,000 111,305 $29,179,000 6.6:1 TOTAL $28,107,000 597,716 $148,558,000 Recent Avg: 6:1 10 Years of TBID Success Source: Visit Newport Beach
  37. 37. Philadelphia Hospitality Investment Levy (PHiL)  After hosting the 2015 Papal Visit, 2016 Democratic National Convention, and 2017 NFL Draft, Philly experienced “donor-fatigue” and funding from public and private sector was reduced.  Attracting conventions and events became more competitive and had increased costs, and they didn’t have any kind of “Event Attraction Fund”.  In 2017 PHiL was formed primarily a funding mechanism to attract large conventions and events, but a portion of the funds raised could also be used for other programs and initiatives as decided by the BOD.
  38. 38. Philadelphia Hospitality Investment Levy (PHiL)  Funded by a 0.75% assessment fee on the daily rate paid by hotel guests.  Recommends an ROI of 8:1 for funds allocated.  $5.6 Million collected in their first year  92 Large conventions & events funded  Resulted in $1.6 Billion in economic impact  PHiL is already looking at getting re-authorized beyond the initial five-year period it was approved for (through 2022).  MPAR: $878.21, Room Count: 37,000
  39. 39.  Prior to TID formation, Visit Wichita was primarily funded by bed taxes.  The State’s BID Law was used to establish the first TID in Kansas in 2015.  Budget doubled from $2.8m to $5.4m.  $53 Million in economic impact  In 2015, they bumped their ROI to 42:1. In 2018 their reported ROI was 52:1.
  40. 40. How is Visit California Funded? The California Tourism Marketing Act was enacted to increase California’s share of the travel and tourism market. The legislation authorized self- imposition of an assessment by businesses that benefit from travel and tourism. The statute became operative upon industry wide approval in 1997 and the assessment program was initiated in 1998. Since initial industry approval, the assessment program has been renewed three times with overwhelming industry approval. 40 YEAR RENEWED INDUSTRY APPROVAL 2001 84% 2007 91% 2013 93%
  41. 41. Visit California Category Amount Percent Change Travel-Related Spending $140.6 Billion +5.4% over 2017 State and Local Tax Revenue $11.8 Billion +7.3% over 2017 Employment $1.2 Million +3.5% per year since 2010 “Tourism continues to play an indispensable role in the California economy. In local communities, the tourism industry lifts up businesses and supports job opportunities vital to regional success.” - Caroline Beteta, Visit California, President & CEO 2018 was the ninth record breaking year in a row for the California tourism industry.
  42. 42. BID Law • In Minnesota = TID Legal Authority 1 2 Home Rule • In Minnesota = Yellow Yellow
  43. 43. Business Improvement Districts in Minnesota Special Services District Statute Property or business based Petition to form signed by 25% of land area and amount raised District managed by non-profit corporation Annual report to Council on budget and services Prohibits assessment based on % of room revenue, but may allow fixed rate per room per night
  44. 44. Home Rule in Minnesota Minnesota has home rule and statutory cities. Statutory cities derive their powers from Chapter 412 of Minnesota Statues, or the Statutory city code. Home rule cities obtain their powers from a home rule charter. Home rule charter cities are authorized to adopt local ordinances to finance local improvements by special assessments against benefitted property. They are, in effect, local constitutions that allow for the specific needs of the community. This authority may be suitable for establishing a TID. Source: League of Minnesota Cities Handbook
  45. 45. Home Rule in Minnesota General Powers Minnesota Supreme Court decisions generally have given a liberal construction to all-powers grants in city charters. A home rule charter may provide any municipal powers the Legislature could have delegated to the city, as long as the powers are consistent with state statutes. Presumably, a charter may grant a home rule city power to tax although the state has largely pre-empted the authority to impose a tax.
  46. 46. Steps to TID Formation 1. Identify SSD Law or home rule authorization 2. Hotel & local government outreach 3. Stakeholders determine parameters and service plan 4. Service plan prepared 5. Hotel approval process – Gain 25% petition from Hotels 6. City Council hearing and approval
  47. 47. Next Steps for Minnesota 1. Continue dialogue about TIDs in Minnesota 2. Form a TID under existing home rule or statutory authority 3. Consider drafting legislation to specifically authorize TIDs
  48. 48. Possible Draft Language New 428A.02, Subd. 6 The governing body of a city may choose to establish a special serve district for the promotion of tourism and levy a service charge on only lodging properties or lodging businesses within the district, even if the district includes the entire city. The service charges for such a district may be calculated based on a percentage of gross room revenue or on a fixed rate per occupied room per night, and may be limited to certain hotels meeting a minimum room count threshold.
  49. 49.  Generated $1.7 Billion for clients globally.  Completed over 125 BID & TMD formation projects throughout the world.  Drafted BID/TMD legislation in 15 states.  Passionate about raising stable, dependable funding for DMOs.
  50. 50. Thank You! John Lambeth | President & CEO jlambeth@civitasadvisors.com | (800) 999-7781

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