Revenue Management Strategies

Revenue Management of Special Events - By Chris Snyder

In the past month or so, there have been several major sports tournaments around the globe which have seen bad publicity. I thought this week's blog would be a good time to discuss relevant points about pricing your rooms during these types of large-scale special events.
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Revenue Science Corporation Let's face it - special event pricing is kind of like walking a tightrope over the Grand Canyon while carrying an Elephant. It's not easy. While on the surface you can see guaranteed higher demand and may think the sky's the limit in terms of pricing, you really are walking a fine line, and can easily make a misstep if you misread the market and make a strategic error.

The first event worth talking about happened in early February in the Meadowlands, New Jersey - the one and only, Superbowl! The second event we'll talk about is the Sochi Olympics in Russia, but we'll save it for next week. Both are great case studies in what to avoid when pricing during a special event.

As soon as the location for the XLVIII Superbowl was announced three and a half years ago, hoteliers in the NJ/NY region began salivating. To those unfamiliar with American Football, the Superbowl is the most important event of the season, where the highest ranked team in each half of the league face off against each other for the chance to be crowned league champions. Everything is decided in one game. As with the Olympics, the World Cup, and other major sporting events, many cities vie for the chance to host the Superbowl, and the financial windfall from being selected, is massive. When all is said and done, most host cities see hundreds of millions of dollars injected into the local economy, a large percentage of which is seen by hotels.

In the case of the 2014 Superbowl, it's important to note that the majority of hotels in close proximity to the stadium were budget accommodations. According to a google search, these hotels and motels thought it would be a good idea to begin charging between $1,000 and $1,500 USD per night, over a year in advance of the game. YIKES. Granted, demand over the Superbowl is always extremely high, but these hotels totally lost sight of who they were, and what their market dynamics were like. In the end, as time drew closer to the event and their hotels were showing empty, they had no choice but to drop their prices at the last minute to as low as $139 USD. What in the world happened here? How could they have made such a huge error in judgement? I can just imagine what a disaster this event was for some hoteliers, but really, where in the world did a 2 or 3 star hotel in East Rutherford, New Jersey, get the idea they could sell out all their rooms at 1,000 USD per night? If I were Alan Greenspan I would label this “irrational exuberance” on the part of hotel operators, but alas, I can understand how it happened.

Sitting in my hotel strategy meeting, the first thing I would have done is get the most recent history from the last 3 Superbowls and I would have based my pricing on that. But let's wait a second. You just can't say Indianapolis, the previous host city, was able to get an ADR of 1,300 so that's where I'll price my hotel. Indianapolis, Indiana, and Rutherford, New Jersey, are very different locations and have very different offerings. One large factor most likely not taken into consideration was that New York City is right next door. Sure, these little hotels were much closer to the event, but why would someone pay 1,000 USD to stay at a 2 or 3 star hotel when they could spend 1,100 and stay at some of the finest hotels in the world? Massive miscalculation!

Second miscalculation - Indianapolis had around 40,000 hotel rooms last year. The area within driving distance of this year's Superbowl has almost four times as many hotel rooms as Indianapolis. I recently taught at HKPU Winter School in Hong Kong and we discussed that demand is intrinsically linked to the amount of supply in your market. It seems that many people forgot this. Another important item it seems the hoteliers did not take into account was Social Media. Any search will find an extremely large amount of negative reviews on these hotel accommodations and prices. Another miscalculation - the proliferation of sites like AirBnB® which offer great nontraditional accommodations which can substantially increase the amount of supply in your market without you knowing. Lastly, it was important to consider that this is the first time in NFL history that the game had been played in a "winter weather" location.

In the end, these smaller hotels most likely made more money than they had ever made, and even if they did reduce prices close to the arrival date, the operators may consider their strategies successful. But really, what was the cost? If someone stayed and paid rates close to $1,000 USD per night, they probably felt ripped off. It seems like many people took to social media and news outlets to complain about the pricing.

These are my thoughts based on what I've seen and heard from half a world away. It may not apply to every hotel in that area, and indeed some hotels most likely priced well, but the overall reviews seemed to be that this event was not priced optimally and gave the industry a black eye. The NFL along with the US Travel Association or other industry associations should create guidelines for hoteliers, so that they better understand the supply and demand dynamics of this annual event. This was the first time the event was held in this area, and there was much knowledge to be gained. I would enjoy hearing back from some of the hoteliers that were effected by this event. How did you price? Did you drop your price at the last minute? What did you learn that you would apply to the next event and how did you document your learnings?

Chris Snyder is the Director, Professional Services for Revenue Science Corporation's Bangkok Thailand office.  Chris leverages more than 27 years of experience in the development and implementation of sales and revenue growth strategies for hotels & resorts.  Chris's strategies have grown market share in hotels & resorts around the globe. 

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