Designing Effective RFPs for Live Entertainment Events and Venues

February 6, 2018, Feature, by Adam Friedman

2018 February Feature Designing Effective RFPs 410

Requests for Proposals (RFPs) are a common way to seek out qualified developers, operators, promoters and programmers with respect to publicly owned or presented concerts, music festivals and entertainment venues. No matter the size of the event, budget, park, agency or municipality, the goals in designing the RFP and the process around it should be the same. Attention to detail is essential no matter the scale.

In addition, it’s not only about low-bid or highest-financial guarantees, but also about selecting a contractor who understands your mission, can execute in compliance with all the applicable requirements and guidelines, and remains focused, from start to finish, on the production of this important part of your annual schedule and budget. In the end, the process and the ensuing arrangement must be defensible against claims and potential litigation emanating from various naysayers, including those who are simply sore losers. Yes, I know it’s hard to believe that entertainment folks may act immaturely.

Designing a Clear and Concise RFP Document
Depending on the nature of the project, there may be a sizable number of potential bidders, so it’s important to have an RFP that is carefully drafted to elicit clear and concise responses and, in turn, allows you to select the best candidate for the job.

The idea of using a general RFP form that is used for other supply or development projects is misguided, since concert promotion and venue development/operation is a unique business. General criteria may get at some of the obvious points that apply to any project, but miss the nuances associated with concert promotion and venues. This may result in your inability to assess the true expertise of the respondents. Likewise, simply taking pieces of actual concert venue RFPs or forms off the internet and cobbling them together may save time and money in the short term, but there is potentially a bigger price to pay when you have selected the wrong operator. There is value in reading up on the topic and reviewing such agreements, but at the same time, it may be helpful to seek assistance from local experts (especially if they do not intend to bid) or from other NRPA members who have held similar events or developed similar facilities.

As with any RFP process, the goal is to elicit multiple bids providing for the option to choose from the best offers and operators. To achieve this, avoid requirements that only few players can satisfy and result in fewer potential responses. It is certainly understandable that you want folks who are financially and organizationally capable of executing.

Tightening some qualifications too much may result in your process yielding only one or two responses. Not only will you have reduced your choices, but you also will have missed the opportunity to learn from experienced players who may not have satisfied all your criteria, but offer concepts that you may want to deploy even if they are not selected. In addition, you may find yourself in the position of aligning two bidders who are super strong in different areas and, if partnered on the project, may yield a better result than choosing a single respondent who checked all the boxes, but was mediocre overall.

A key goal should be to draft an RFP and conduct a process that yields great bids and are rock solid in form and substance to avoid disputes and successfully defend against claims. It is not unusual to hear that the process was not open, was skewed in favor of certain types of bidders, didn’t take all stakeholders into consideration, or will lead to results that are unfavorable for the community and city.

Hosting a single show is certainly different than a permanent structure that hosts a season’s worth of events, but the issues may be the same. Unfortunately, the concert promotion world can be highly litigious. Although these processes have always been competitive, it has been heightened due to a shrinking supply of available venues along with an insatiable demand by promoters and venue operators to expand or protect their footprints at all costs.

There are plenty of folks who may not be happy with your selection or, for that matter, with you producing the event or building the venue in the first place. Community members may not be happy with the traffic or the noise that the event or venue can create. City officials may have had other plans for the property or may have been tied to one of the losing bidders. Losing bidders don’t like losing market share or losing, period. Potential claims should be considered in advance. To the extent possible, meet with these constituencies during the process so they can be heard and so you can incorporate some of their goals and requirements into the RFP.

Understanding the issues at this juncture will allow you to craft an RFP that satisfies the ultimate arbiters, who decide if you and your winner adequately addressed the issues in the RFP and during the process. It also takes away the most common complaint that the opponents simply weren’t provided an opportunity to be heard and allows you to invoke the adage, “speak now or forever hold your peace.” Doing this in advance is much more efficient. It reduces the risk of having the bids thrown out for a rebid (yes, it happens on small and big projects alike) or dealing with the hurdles of executing the approved plan in the face of major opposition. Avoid the additional expense from defending your process or of your project becoming a political football.

How to Make Money in a High-Risk, Low-Margin Business
Although there are times when the goal is simply to cover your costs, there are opportunities to produce an event or develop an on-going operation that not only yields great benefits for the community, in terms of entertainment value, but also infuses significant cash into the agency. In these cases, you must be cautious. The concert business is fraught with peril. In a world where folks can make tons of money, there are a lot of mouths to feed and a clear pecking order in terms of who takes home the cash. Headline artists and their representation, as you would expect, command the greatest share of the pie, with venue owners coming in next and the lonely promoter at the end of the chain.

The paradox is that the concert promoter has the greatest level of risk. The promoter often guarantees the artists’ compensation and has to pay for all other related event costs, including venue rent, show production and operational costs, such as security, ushers and ticket-takers, to name a few. Promoters typically only have ticket revenue from which to pay these expenses, while not sharing in the higher-margin streams, such as concessions, parking and sponsorship, which are reserved for venue owners and operators.

And, when ticket revenue is insufficient to cover expenses, the promoter takes a loss, while the artists walk away with a check and the venue keeps the ancillary revenue. Of course, this changes a bit when the promoter is also the venue operator, but venue operators also have elevated risk since those ancillary revenue streams may be insufficient to cover their overhead and debt service and/or recoup their capital investment on the site. In any event, it is critical to understand this basic paradigm when going out to RFP for a concert event or venue.

Municipal agencies often do not have in-house expertise to take on the above-mentioned risks, which is reflected in their decision to bid from the beginning. Yet, in these processes the agencies are asked to consider bids that offer up some type of partnership arrangement with the promoter, who entices the agency with the right to participate in the promoter revenue streams from the event (ticketing) and tout the role of producer or promoter.

This sounds great, but it’s simply a way to get you to take on more risk than you should. Whether it’s a one-off event, an annual event, a summer concert series or permanent venue arrangement, you can express that bids that present the highest yield to the agency with the lowest risk will be awarded more points. In fact, the RFP can provide for, and define, financial guarantees or, at the very least, request the bidders to include them.

At the end of the day, your contribution is bringing a great location and amenities to a community hungry for entertainment. Promoters need to bring the talent, the marketing, the expertise and the willingness to take on the risk. Even if you are paying a fee for services as compared to charging rent, the promoters still need to take on the risk that the amount you pay is sufficient to cover all their costs. Remember that partnership sounds great until you are sharing in the loss.

More than Just the Money
While aggressive financial guarantees may be a predicate to a winning bid, especially for high-demand locations, it shouldn’t be the only factor. A big bag of cash doesn’t tell the entire story. Big, which usually comes from the big player, doesn’t mean they will spend the requisite time to build the event, the market or put the site on the map. Conversely, a more nimble, smaller player, who may be willing to spend the time, simply may not have the muscle. Performance is equally important, and it is critical to assess respondents’ level of commitment.

Well-crafted RFPs in the concert space ask respondents to describe their business history and current business, such as the number of venues they control, number of annual events produced, tickets sold and financial wherewithal. Certainly, these are important questions and will shed light on the operator’s ability to perform under the contract. However, the ability to perform is only half the question. It is equally important to assess the level of focus and dedication the respondent will commit to the new project. Questions that require the respondents to address how the new venue will fit within their current operations in the market or how they will succeed as a new market entry are essential.

How will the respondents maximize the new project by leveraging, or how will they address obvious conflicts arising from, these other operations? You can require that the bidder not only provide for financial guarantees, but also include performance guarantees, such as a certain level of admissions or number of shows per season that are tied to financial penalties. This is certainly helpful, but these will be too late and act as poor substitutes if the event or venue doesn’t yield all the benefits you intended for your various constituencies.

You are most likely looking beyond revenue for a viable operation that results in a host of benefits beyond just the money. Financial and performance guarantees don’t always ensure great performances, but they are potential remedies if the operator fails. What happens when it is simply more lucrative for the operator to put the better shows in one of its other competing venues where it makes more money even after paying financial penalties to you? A right to terminate isn’t a great remedy when it leaves your site tarnished and you in a weakened position at the bargaining table the next time around.

Don’t rely on the remedies, buy into the plan. It’s not simply about your strategy and objectives, but also about the bidders’. And, of course, once you feel comfortable about their commitment and plan for the project, ask for solid financial and performance guarantees, just in case.

Adam Friedman is a Live Entertainment Consultant and Owner of Friedman Entertainment Advisors.