How tourism improvement districts can help hotels
 
How tourism improvement districts can help hotels
12 SEPTEMBER 2019 8:19 AM

Assessments collected through tourism improvement districts can give hoteliers a bigger voice in how destination marketing dollars are spent in their cities.

NASHVILLE, Tennessee—Hoteliers who want a greater say in how marketing dollars are spent on their destination have another option that requires them to work together.

A tourism improvement district gives hoteliers the ability to agree to an assessment on their properties and decide on how the money raised will market their location, said John Lambeth, president and CEO of Civitas during the Data Dive “Boon or bust? Analyzing tourism improvement districts’ impact on hotel performance” at the 2019 Hotel Data Conference.

While destination marketing organizations are used more often to handle the tourism marketing for cities, hoteliers don’t necessarily have as much say through them, he said. How much a DMO spends on marketing also depends on a number of factors, including how much funding the local city or state government provides. That funding, however, might not be guaranteed long term, he said.

“Can a vote of the local city council or state legislature redirect hospitality and tourism promotion funds?” he asked. “As long as that is the case, there’s always an elected official or a member of the community with different ideas of how to spend destination marketing dollars. In a battle against police, fire and parks, we end up not doing very well.”

Establishing a TID gives hoteliers a bigger voice both in how the money is spent, but also in how it’s raised, Lambeth said. Assessments, as opposed to taxes, are generally approved by the industry and have terms associated with them, such as a minimum room count and what revenue is being assessed. The funding raised belongs to those in the district, not the local council or state.

All 50 states have used this kind of financing for capital expenditure improvements, Lambeth said. About 60 years ago, someone figured out that if this kind of financing works for water and sewer line projects, it could also work for downtown improvement activities, giving birth to downtown improvement districts, he said. Later on, the tourism industry in California determined this could expand it for their own uses, creating tourism improvement districts.

Having a TID gives hoteliers a stronger voice in how destination marketing dollars are spent, Lambeth said. It was common to see only a few hoteliers on a convention and visitors bureau board of 25 to 30 members, and TIDs can be hotel-led and managed, he said.

“They primarily decide how this money is going to be spent,” he said.

Case studies
There are currently 177 tourism improvement districts across the U.S., Lambeth said. The smallest raises $10,000 a year, while the largest, in San Diego, raised $41 million for this coming year, he said. The assessments are levied based on a percentage of roomnight sales or a fixed rate per occupied room per night.

The San Diego TID began in 2008 and applies to all lodging in the city with 70-plus rooms, he said. The return on investment for TID expenditures there is 23.1 to 1. When looking at marketing dollars per available room, the TID invests $673.67 per room in San Diego.

However, in 2013, 84% of San Diego’s TID funds were lost in litigation, said Jennifer Foster, business development executive, destinations, at STR. The lack of marketing had a deep negative impact on the market while other markets maintained growth, she said. STR is the parent company of HNN.

“The impact is as clear as day as you look at roomnight demand taking that loss,” Foster said, adding that occupancy experienced a deep decline.

When the TID earned its funding back in 2014, demand returned, she said. Looking at the past two years, San Diego has led the way, surpassing the revenue percent change of both California and the total U.S.

The Los Angeles TID formed after San Diego’s but applied to hotels with 50-plus rooms with an assessment rate of 1.5%, Lambeth said. The LA TID raises about $26.6 million annually, and the city reached 50 million-plus visitors for the first time in 2018, beating its goal year of 2020.

It’s not only big cities creating TIDs, Lambeth said. Newport Beach, California, customized its TID in 2009 to be used exclusively for group business. There are only nine lodging businesses in the district representing 3,351 rooms, and the assessment is 3% of room revenue. The TID raises about $4.1 million annually, he said. Its marketing per available room is $2,834.97 and focuses on being a boutique, high-end destination.

Lessons learned
TIDs are successful in generating supplemental roomnights when members follow the best practices, Lambeth said. The key performance indices should be established early, and there need to be resources dedicated to continuous tracking, he said. General destination stats should be supplemented with roomnight generation and hotel revenue-generation tracking.

Serving on the TID board or committee ensures that hotelier voices are heard, Lambeth said. In fact, when hoteliers aren’t involved, the TIDs can fail. In one example, the hoteliers had little involvement once they set up their TID, and the DMO was run by the local chamber of commerce, he said.

“They spent a lot of money on other kinds of activities that were not generating roomnights,” he said. “When (hoteliers) saw that, they said, ‘That’s it.’ They tend to be self-correcting. If something is not working, then folks say, ‘Let’s get rid of it.’”

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