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Monday, March 15, 1999
Copyright © Las Vegas Review-Journal
THE NEXT PHASE
After winning the LVCVA ad contract, R&R talks terms
By Monica Caruso
Review-Journal
The Las Vegas Convention and Visitors Authority's directors surprised no one last week when they voted unanimously to retain their longtime marketing agency, R&R Advertising, instead of turning over tourism promotion to someone else.
Now, R&R and convention authority executives have turned their attention to negotiating the terms of a new contract that will be presented to the authority's board at the April 13 meeting.
It's likely that compensation will be at or near the top of the list of considerations for the new contract, based on questions and comments during advertising agencies' presentations to the board on Tuesday at Cashman Center.
Funded with resort room taxes, the contract value varies from year to year depending on the economic health of the resort industry. The fiscal 1998-99 contract is valued at about $27 million, which ranks as large and lucrative among adverting industry accounts. The value includes purchases of media time and space, a 15 percent agency commission on purchases of media time and space, and some expenses. R&R principal Billy Vassiliadis said the agency gets a pretax profit of 4 percent.
The issue on the table: Whether the convention authority should continue paying R&R commissions or switch to performance fees.
The issue arose early in Tuesday's presentations when convention authority director Michael Montandon asked the first presenters -- Colby, Effler & Partners of Santa Monica, Calif. -- if they could give the authority a better deal than the compensation arrangement with R&R.
"We could definitely do better. We could cut you a better deal then you have now," responded Rick Colby.
"The 15 percent commission went out years ago. That's not the norm anymore," said Colby, principal of Colby, Effler & Partners, which is part of the giant Dentsu advertising agency of Japan.
Montandon, the mayor of North Las Vegas, brought up compensation again during the second presentation, which was by The Merica Agency of Las Vegas in partnership with the San Francisco office of the giant Young & Rubicam Inc.
Y&R avoids commissions, said Austin McGhie, president and chief executive officer of the company's San Francisco office.
"Commission is not the way for an agency to work for its client. It's a conflict of interest," McGhie said.
Critics of commissions complain that an agency has an unethical incentive to make media purchases so it can charge the client commissions on those purchases.
Financial compensation should be based on setting a fee for defined expectations, McGhie told convention authority board members during the Merica/Y&R presentation.
A defined expectation might be hotel/motel room occupancy rates, McGhie said in response to a question from board member Don Snyder, president of Boyd Gaming Corp.
But in the end, the debate over commissions vs. fees may be moot. McGhie and R&R's Vassiliadis indicated both forms of compensation may result in the same level of spending.
"When it's all said and done, agencies make about the same thing," Vassiliadis said of compensation.
R&R's financial relationship with the convention authority has declined, he said.
"The profitability of this account has lessened over the years because we've put more resources into it."
For example, the agency has not charged the convention authority for executives' time traveling and meeting with airline representatives to bring more service to McCarran International Airport and with Wall Street financial analysts to explain tourism marketing strategies, Vassiliadis said.
R&R charges the convention authority about half of what it charges other clients, he said.
Montandon dismissed the notion of free services from R&R.
"There is no free lunch. They're going to get the money out of the contract. We get what we pay for."
Vassiliadis may recognize that compensation discussions are coming. "This is an old contract. We'll go and discuss terms of the contract in negotiations," he said.
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Printable version of this story
R&R Advertising principal Billy Vassiliadis holds his head in relief as the Las Vegas Convention and Visitors Authority board of directors voted Tuesday to retain the agency for another five years.
Photo by Jeff Scheid.
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