By: the Advocacy and Research Team, Destinations International
We are in what we call the Great Interruption. A pandemic, civil unrest, massive unemployment, a recession, and a giant cloud of sand from the Sahara – and then the normal stuff like hurricanes, typhons, monsoons, earthquakes – and then add the current trend to politicize everything. Normalcy has been upended. Patterns of behavior and supply chains that we relied on have been disrupted. Many people are afraid. Government budgets are wrecked. Deficits are at an all-time high. Serious rebuilding will need to take place – rebuilding of confidence and of structure.
These realities can draw all our focus if we allow it. However, we cannot stop thinking about the future that will come. We need to start thinking - not about a return to normal - but about the next normal. And we should use this time to not only think about what things may look like, what changes will have occurred that are not going away. We need to think about how we would like them to look so that we can begin that work as we navigate this Great Interruption, we are in.
Where better to start than with funding. It is core to what we do, it is our biggest concern and frankly – it is overdue to kick some ideas around. Maybe not solve the problem today – but it is time to start the conversation.
Our Current Biology
Before we begin to discuss our funding model evolution, it’s important for us to take stock of our current biology. How are we all currently funded? Below you will see a fairly jarring breakdown, from our own Destination Organization Performance Reporting platform, where destination organizations globally have participated and supplied on where their primary sources of funding are coming from.
You can see where the imbalance starts. Even before this pandemic, this risk on our ‘supply chain’ was already in jeopardy and COVID-19 merely struck the hardest.
Let’s breakdown this further. The mainstay of every destination organization is the hotel, transient occupancy, room night tax. Also known as heads in beds. Levied by a government entity and remitted to the government by the hotel for it to hand over in its entirety or some percentage of the total. This ‘transaction’ through government, no matter the level, makes the destination organization the recipient of public money.
Many have worked to expand beyond the hotels, with money levied from the traditional sales tax or simply institute many other supplemental taxes or transactions on food & beverage, short term auto leasing, airport livery fees, or convention center levied taxes. Many have flipped the model on its head to setup a tourism improvement district with assessments that stand outside the government treasury.
Below are all the various tax or transaction implementations within the visitor economy, using some connection back to the visitor to fund a destination organization.
If the visitor is the only one who would benefit from our efforts this might make sense. Yet we know this not to be true. If we stop and examine only the heads in bed tax model, you can see the ‘benefit’ goes to more than just the destination organization.
A pie chart below, from data provided by the Civitas Lodging and Assessments Study – 2018, demonstrates that when a destination organization does well, its growing the pie across many facets of a community. These are the common goods we deem for a greater good in our society. The roads and bridges; teachers and schools; firetrucks and firefighters. These are many of the common goods we have talked at length about through our tourism lexicon that are being funded through a community’s general fund. These necessities are in of themselves answering the need for destination promotion.
But let’s go beyond that. We argue that through destination stewardship and brand importance, destination organizations strengthen the community’s economic position and vitality which provides opportunity for all the people in the destination. Now we have talked and acted on a heads and bed funding model for over a century, it is time to talk about the next century. Let’s explore a community-benefit funding model.
When we ask ourselves to re-imagine a funding model for destination organizations, we should start with the same principle. That is to say, we should ask ourselves, who benefits?
We’ll start with the usual suspects. These are the guys that we’ve always known will benefit from your organizations.
First there are hotels. An effective destination organization puts heads in beds. That’s so obvious that hotel room-nights has been the metric of success of for destination organizations for a century. We are such a valuable partner to the hospitality industry that they are happy to fund our work with their occupancy taxes. When occupancy taxes don’t generate enough revenue, they create TIDs or join membership programs to kick more funding our way.
Then we’ve got venues. Sports arenas, theaters, cultural centers, conventions centers—all rely on destination organizations to sell tickets and fill their seats. In many of your destinations, venues charge a levy on ticket sales that to help fund your destination organization.
Likewise, there’s events. Again, dependent to a large extent on destination organizations, and often contribute to their funding.
We’ve got car rentals. Restaurants. Attractions. Taxis. Tour operators.
We can think about this as the whole tourism vertical. All obviously benefitting from the destination organization. And we as an industry have gotten good at developing models to fund our organizations based on the benefit they deliver to these stakeholders.
But by focusing exclusively on the tourism vertical, we ignore any number of industries, organizations, businesses and other stakeholders in your community who benefit from your work. What we could call the unusual suspects.
Let’s start with an obvious one: Airports. Clearly these benefit from the destination organization. It’s no leap to say that more destination marketing means more business for airports. But our research shows that very few airport authorities kick anything into destination marketing budgets through departure fees or any other kind of assessments.
But let’s think even more outside the box. Start with the truism that a great place to visit is a great place to live—and a great place to live is a great place to work. Then we need to look at companies putting people to work in your community. Employers in your community rely right now on the strength of your brand to attract and retain the best employees. When they go out recruiting, they talk about what a great place to live your community is. They depend on your effectiveness and have a vested interest in your success. And yet, the vast majority of you have no mechanism that commits major, bedrock employers in your community to the success of your organization.
Let’s look at one example.
In countless communities—especially small communities—hospitals and healthcare networks are the largest employer in town. When they go out to recruit doctors and other staff, they talk about the high quality of life in your community. Not only that, in some cases, they fall back on the strength of your brand to attract patients. But we’re not aware of any destination organization that collects funding from hospitals.
The same can be said for colleges and universities in your destination. Think about every piece of marketing material that universities in your destination put out that talk about what a great place your destination is to go to school. A destination organization with a brand that resonates to young people is an invaluable asset to universities. And don’t forget that they are also in competition with every other school to attract the best faculty—and one of the strategies that they use is to talk about what a great place to live your community is. You are their competitive advantage, but you have no mechanism for them to support your great work.
So you’re out there demonstrating what a great place to live your destination is. And when you’ve got all these partners attracting investment, attracting business, and attracting workers, what is the effect on real estate in your destinations?
More demand for real estate naturally means higher property values. That means homeowners—even if they’ve never heard of you—suddenly benefit from your great work. Commercial real estate prices rise, which means commercial real estate investors, developers, building managers all have a stake in your organization. Realtors benefit from more demand for property and higher sales prices.
We could go on and on picking out industries that benefit from your work. The fact of the matter is that when you define a stakeholder by whether they derive benefit from your organization, then your network of stakeholders is much wider than your funding models suggest.
This means there are many, many stakeholders in your destination benefitting from your work, but who have no skin in the game.
So how do we get them to value the benefit you deliver and to fund the work that you do?
The Community-Benefit Model
Let’s start putting some of the pieces together.
We argue that a destination organization is a community asset responsible for programs promoting a community as an attractive travel destination and enhancing its public image as a dynamic place to live and work. Everyone benefits. Some more directly than others. Some much more directly than others. If that is the case, then our funding should represent that.
One of my favorite quotes is from James W. Frick, a former vice president for public relations, alumni affairs and development at the University of Notre Dame and before that ran the development effort at the Notre Dame Foundation. He was the first administrator in Notre Dame’s history to engage exclusively in development or fundraising work. He was also famous for saying “Don't tell me where your priorities are. Show me where you spend your money and I'll tell you what they are.”
If we are the priority, we say we are, it is time to reflect that in our funding.
First things first, let me make it clear that I am not advocating at this point any specific percentage of these 4 groups should represent of your funding. Conditions on the ground would influence that. The point here is that there are more sectors who should be contributing to your efforts than just hotels and a general membership.
Let’s start in the largest circle – the usual suspects. This is a group that I would think should make up the biggest chunk of your budget. These entities are impacted in a greater amount and are frankly, are first in line in terms of receiving an impact of what you do.
Lodging – hotels, bed & breakfasts, shared housing and campgrounds. There should be no argument there. Restaurants – perhaps only in a section of the destination or those of a certain size – but while these restaurants serve residents, many cannot operate at a profit without the visitor and therefore, would not exist without visitors. The same is true of Livery, Auto Leasing, Attractions, and Venues. All of these can be structured to limit their impact on residents, but all should be at the table. Many of these are already at the table with membership dues, many at higher rates than the average member. But they should be there, along with the hotels, at higher numbers.
There are three way to collect this money – voluntary assessment, often problematic: a sales tax on transactions, a very effective means but subject to diversion by the taxing authority; or a Tourism Improvement District where the money is outside of government and you contract with the government to collect and enforce. The final one is my preferred approach and has been successfully be enacted, primarily with hotels in many places. But if the industry will not step up, government action may be your only resort.
The second circle is government. Beyond the sales based tax collected on from the usual suspects, government should chip in an additional amount for they in the end benefit the most. A vibrant and growing economy means a vibrant and growing tax revenues and low unemployment means saving in many other places in the budget. Whether from the general fund, a special (and probably new) grant program or portions of departments and sub divisions budgets (perhaps from the public relations or communications budget lines), the key here is that there is a benefit to every level of government and therefore, every level should be throwing in resources.
The third circle is the Unusual Suspects. These folks have a vested interest in your success. But they are not throwing in resources. The reason will need to be explained to them, the benefit quantified, and a relationship between you and them developed. But it is time they have skin in the game. This can be done through fees on transactions or some other kind of sales tax on services or it can be a direct contribution from their budgets – but it needs to be done.
Finally, the smallest circle is the destination organization itself. Through Events, Royalties, Co-Ops, Services, Sponsorship, Membership – and creative monetizing of non-revenue generating assets – the destination organization shows that it is willing to carry part of the burden themselves.
Earlier we said that we do not have a solution to the problem – but we believe that the more diverse and the more broad based your funding sources are and the more your funding truly represents a community investment in your efforts, the safer and more robust your revenues will be.
The Great Interruption that we are in will not end soon, but it will end. That is why now is the time to start the conversation. The time to evaluate our options. The time to develop a plan. And the time to start working on changes.
We look forward to working with you.