With the exhibition industry struggling and research estimating that recovery is still several years off, associations must find ways to maximize revenue from their tradeshows. One option may be to sell their expos to an outside partner or investor. (Titled "Priced to Sell" in the print edition.)
Some of the largest nondues-revenue generators for associations are their meetings and exhibitions, and many rely on them for their financial well-being. Of the some 10,000 business-to-business exhibitions held each year in the United States, two-thirds are owned by associations.
However, while these tradeshows bring in money, data from the last 10 years shows the amount has decreased and that exhibition organizing is a risk business. Following the events of 2001 and 2002, the industry declined for the first time ever, caught up in 2005, and continued to grow through 2007 until a dramatic decline came in 2008. By the third quarter of 2010, the industry experienced nine consecutive negative quarters, resulting in an overall decline of more than 15 percent. The good news is that six consecutive quarters of modest growth followed.
The CEIR Index Report, an annual report by the Center for Exhibition Industry Research that looks at the industry's performance, predicted that it will take five years for the industry to make a complete recovery—and that presumes no further economic setbacks during that time. However, a few good signs have emerged: While the report predicted 2.3 percent industry growth for 2011, actual growth was 2.7 percent.
Despite this, economists expressed continued concern at the CEIR Predict Conference last September. They say a fragile U.S. economy, combined with economic concerns in Europe and other parts of the world, could mean an even longer recovery period for the exhibition industry than originally forecast.
Recognizing that an association's exhibition is a major asset, these factors and predictions point out the need for associations to review the health of their exhibitions immediately as part of their overall risk management responsibility. One option some are considering is selling their exhibitions to outside investors or exhibition-organizing companies.
Where to Begin
While it is often considered heresy to suggest that an association sell its annual exhibition, the private sector has expanded its reach into the exhibition world. Events once thought to be the exclusive purview of associations are now being produced by private enterprise and entrepreneurs, signaling a new wave of competition that should not be ignored. Competing will require associations to invest more in IT and staff resources, which is a challenge given that exhibition organizing is often not a core business for them.
This is particularly true for professional societies where individual members are the buyers and the exhibiting companies are associate members or nonmembers, causing many to struggle with selling exhibit space. And since the annual meeting has many different purposes, including education and networking, the tradeshow is frequently not the centerpiece of the event.
On the other hand, trade association members are usually corporations that provide products and services to an industry, usually making them the exhibiting companies. Typically, the biggest challenge for these events is attracting attendees or buyers, but the exhibition is a primary business activity, providing a platform for industry messages and demonstrating the importance of the products and services they provide. In addition, the exhibition is a nondues-revenue source that can be used for legislative and political purposes. While the exhibitions may serve different purposes to the different owners, the overall goal of accelerating sales for the exhibiting companies is common between the two.
If you are in the early process of rethinking your exhibition model, ask yourself, "Would we organize an exhibition if it weren't for the money?" If the answer is "no," you may want to consider finding a partner. Doing so can preserve the important role of the association while producing a better event. It could also lead to expanding the reach of the association both domestically and abroad.
But before you begin to look for a partner, you must first analyze the financial contributions and implications of doing so, the potential future investment required to remain competitive, and various organizational goals such as international expansion and potential new events. With this data in hand, it is then possible to consider a partnership.
After initially considering a partnership, your next thought is likely the impact it will have on your organization. Two words come to mind: revenue loss.
As previously mentioned, the events of the last decade have revealed that the exhibition business is a risk business, there is no guarantee of future success, and the chance of a quick recovery followed by years of sustained growth is remote. Meanwhile, retaining market share is going to get more expensive as the business shifts from a real-estate transaction to relationship selling. This will require additional staff with different talents. Simultaneously, companies are investing in more online tools to help extend the three- or four-day face-to-face event to a 365/24/7 event. It will take significant investment to remain competitive.
The solution to the lost revenue concern is the cash received at the close of the partnership, plus an ongoing cash stream for supporting the event and providing educational content. Outside investors and strategic exhibition companies may not have the same ability to provide education or an interest in it, so they often look to associations to continue to provide these components. Working through various return scenarios will help you establish the price point required to generate the cash needed once the total exhibition revenue and expense is no longer reported in the association's financial statements.
Another concern about selling is loss of control. This is where the real partnership relationship can be cemented. In addition to keeping control over content and the social and administrative goals of the event, most associations will want to have a voice on matters such as dates, location, and pricing. A good partner wants that input since the association staff are the experts who know their community and can influence purchasing decisions. An annual fee or royalty payment for that support and input is perfectly reasonable. While setting such a fee will depend upon a variety of factors, a number around 5 percent of event gross revenue is not uncommon. This revenue should be factored into the earnings model to determine free cash flow to the association. (To learn how to establish a price point if you're considering selling your event, see "Maximizing Value When Selling Your Event.")
However, also remember that selling your exhibition can mean savings for your organization. While not an ideal situation, selling your exhibition is the equivalent of outsourcing a variety of staff functions. While some continuing staff oversight will be required depending on the agreement, the overall savings can be significant in both staff operations and management oversight.
In the end, it will be up to you to determine the best course of action for your association's exhibition. Associations that choose to begin the process sooner rather than later likely will fare the best in the long run. Start the process today to find the best answer to the question, "Should we sell?"
Douglas L. Ducate, CEM, CMP, is president and CEO of the Center for Exhibition Industry Research. Email: [email protected]
5 Associations That Sold Their Tradeshows:
American Gaming Association
Event: Global Gaming Expo
Year launched: 2001
Size: 120,000 net square feet in 2001; 250,000-plus in 2011
AGA was founded in 1995 but did not have an exhibition. It appealed to three exhibition organizers already in the gaming space seeking a partnership but was rebuffed by all three. When the AGA board announced plans to launch an event, a partner came forward and offered to absorb the risk and pay AGA a royalty to provide content and market to members.
After the four-year agreement expired, the AGA board was interested in an equity position with its former partner or in a new venture. The board approached two exhibition-organizing companies that did not have events in the gaming space. In 2000, Reed Exhibitions proposed a joint venture with a mutually exclusive agreement while also assuming the financial risk of the launch. The venture bought the assets of the major competitor in the space after one year of operation and then an additional small event in Macau. The agreement stipulates that the AGA provides content and markets the events to AGA members. Reed takes the lead on managing the exhibit floor.
"The AGA started with 10 staff members and no show. We still have 10 staff members, but now we also have a family of successful tradeshows ... Nondues revenue has gone from one-fifth of our total revenue to two-thirds of total revenue. The key to this success was picking the right partner," says AGA CEO Judy Patterson.
Marble Institute of America
Event: StonExpo Exhibition
Year sold: 2005
Size: 63,600 net square feet
MIA was part of a federation of eight industry associations that pooled a group of smaller exhibitions into a joint effort in the mid-1980s. When a competitive event was launched by an entrepreneurial firm in 2002, the associations soon realized they did not have the resources to compete and issued an RFP to outsource management. In November 2004, a potential strategic buyer, Hanley-Wood Exhibitions, expressed interest, and despite some opposition among federation member leaders, the transaction was completed in 120 days.
MIA still has a significant influence on content and complimentary space on the show floor to promote member services, as well as an ongoing royalty agreement in exchange for a 45-year noncompete agreement.
"My advice to colleagues is to shorten the negotiation period by setting a hard date for completion. Delay fosters dissent, and protracted negotiations can result in emotional differences of opinion among association leaders overpowering business considerations, and in the end may kill a good deal," says MIA Executive Director Garis F. Distelhorst, CAE.
World Floor Covering Association
Year sold: 2000
Size: 500,000 net square feet
Surfaces started in 1990, and by 1994, when former CEO Chris Davis came on board, the exhibition was already listed in the Tradeshow Week 200. In 1995, the association merged with the American Floor Covering Association and became the World Floor Covering Association (WFCA).
After the 1995 show, three major exhibitors pulled out, saying they would never return. The WFCA Executive Committee ordered the sale of the show while it still had value. They put out the word the show was for sale but had no takers. Focus then shifted to rebuilding the event with an emphasis on being exhibitor-friendly.
By 1999, all the defecting exhibitors had returned, and the event passed the 500,000-net-square-foot mark. However, the effort was taking its toll on current staff. Unable to hire additional staff, Surfaces was put on the market again and three firms showed interest.
"The final agreement met all the demands of WFCA, including a long-term sponsorship and consulting agreement, and it has been a great 10 years for both sides," says Davis. "In the end, our board decided they would rather manage a portfolio than a tradeshow."
A fragile U.S. economy, combined with economic concerns in Europe and other parts of the world, could mean an even longer recovery period for the exhibition industry.
National Roofing Contractors Association
Event: International Roofing Expo
Year sold: 2004
Size: 200,000 net square feet
One question asked at an NRCA executive committee meeting in 2003 started the process: How did we get into the tradeshow business, and does it align with our strategic plan?
NRCA added an exhibition component in the 1960s to serve as a new source of nondues revenue. Over time, the revenue became significant, second only to dues, but in 2003, the executive committee solicited offers in an attempt to determine what its expo was worth, while making it clear that a final decision to sell had not been made.
When Hanley-Wood Exhibitions expressed interest, the executive committee agreed to consider a sale, provided the current and past leadership of the association was canvassed and support for the idea was secured. Once that was achieved, a further requirement was imposed that said terms of the agreement must be completed within 120 days. While there was minor dissent, a large majority supported the idea.
"One of the unanticipated benefits of the sale has been the elimination of exhibitor leverage to get the association to change positions on things such as roofing technology," says NRCA CEO Bill Good, CAE. "One unanticipated negative consequence has been some longtime members have lost what they describe as the sense of community they had with the event."
American Booksellers Association
Event: ABA Annual Meeting
Year sold: ABA sold 49 percent in 1994 and the remaining 51 percent in 1998.
Size: 500,000 net square feet
The ABA Annual Meeting delivers educational content for retail booksellers, an exhibition for members and suppliers, and various administrative, social, and award features, but exhibition participation was an ongoing concern.
Reed Exhibitions expressed an interest in acquiring ABA's expo with the understanding that ABA would continue to support and promote attendance and exhibiting and that the traditional meeting activities and functions would take place under the ABA banner just as they had in the past. ABA receives an annual royalty for support and for entering into a long-term noncompete agreement.
"The 18-year relationship has been beneficial to both parties. Reed has made some good decisions, such as scheduling the event in New York each year," says ABA CEO Oren Teicher. "ABA has accomplished its objectives and preserved the identity of the event while enjoying professional management."