GAME OVER

WHEN COMPANIES STOP TAKING CLIENTS TO EVENTS

These companies couldn’t prove taking clients to events was necessary for business. Then the government stepped in.

EXECUTIVE SUMMARY

Everyone suspects client events are just a boondoggle for senior managers, done in the name of client development. If you can’t prove your tickets fill a real business need, you’re just one incident away from them being taken away. Just ask the US pharmaceutical industry and UK banks.

PHARMA UNDER FIRE

In 2001, pharmaceutical giant Merck began selling Vioxx, a drug developed to fight arthritis. Shortly after release, studies began to show the drug significantly increased the risk of heart attack. Merck was accused of covering up this risk in clinical trials, and of targeting physicians who spoke out against the drug. In the ensuing crackdown, a series of disclosures emerged about how much Merck and other big pharma companies sought to influence physicians to prescribe their drugs with lavish dinners, luxurious trips, and tickets to exclusive live events.

“I was running the premium business side for the Philadelphia Eagles back in the early 2000s,” recalls Jason Gonella, Vice President of Premium Partnerships for the Prudential Center and New Jersey Devils. “On any given game, we would have numerous pharma companies hosting between 50 and 300 people before a game. A doctor would get up and speak before his or her peers before they all walked over to the game. They had private areas where they would have a full complement of food and beverage and tickets to the game.”

“Remember, this was back when a lot of very successful pharmaceuticals were coming out— Claratin, Biaxin, and others. Our pharma business became so popular that physicians would call us to ask what groups were entertaining that evening.”

…The effect was immediate. It probably impacted a few hundred tickets per game. Some pharma business eventually started to come back, but never at the same levels we had seen before.”

Jason Gonella

Vice President Premium Partnerships, Prudential Center

Government regulators were growing concerned at the cozy relationship between pharmaceutical companies and health care providers. In 2001, Janet Rehnquist, inspector general of the Department of Health and Human Services, issued a series of recommendations to pharma companies which included a ban on offering doctors entertainment, recreation, travel, meals or other perks.

Although the recommendations did not have the force of law, the pharmaceutical industry sensed such regulation would happen soon unless they showed they were taking such concerns seriously. The industry trade organization PHrMA soon published its Code on Interactions with Healthcare Professionals which did not mince words:

To ensure the appropriate focus on education and informational exchange and to avoid the appearance of impropriety, companies should not provide any entertainment or recreational items, such as tickets to the theater or sporting events, sporting equipment, or leisure or vacation trips, to any healthcare professional who is not a salaried employee of the company.

“On the team side, the effect was immediate,” continues Gonella. “It probably impacted a few hundred tickets per game. Some pharma business eventually started to come back, but never at the same levels we had seen before.”

BANKS ON THE BRINK

In the years following the global financial crisis, public demand for better regulation was felt on both sides of the Atlantic. In the US, the Consumer Financial Protection Bureau was created to prevent the worst kind of predatory behavior on the part of financial institutions. In the UK, the Financial Conduct Authority (FCA) was born.

Like the CFPB, the FCA was created to protect consumers from the kind of deceptive marketing that contributed to the economic crash. Unlike the CFPB, however, the FCA was given sweeping powers. It can order firms to change or even cancel promotions it considers misleading.

And it started going after client entertainment.

It accused fund managers of taking clients to events that were “…not conducive to business discussions.” In an instance of British understatement, it went on to say that “Hospitality provided or received did not always appear to be designed to enhance the quality of service to the client.”

Again, almost overnight, an entire group was ordered to summarily halt its client entertainment because it was all just a boondoggle. Because neither big pharma in the US nor banks in the UK could prove taking clients to events was a legitimate part of their business, they were unable to defend these events when regulators started taking aim.

And as soon as that happened, they folded.

PROVING TICKETS ARE LEGIT

Client entertainment will always be a target— not just by regulators, but by some of your own executives. It’s not hard to see why:

  • Marketing needs to see how it’s driving business
  • Compliance needs to show it’s all above-board
  • Finance needs to show the investment is worth the return

All too-often, nobody can provide hard, quantitative data showing that client entertainment is actually making a difference.

“It’s more about relationships,” one CEO recently told us when asked about how he could tell if his investment in company sports tickets was worth it. “We don’t even try to measure it.”

That kind of approach might work when the business is doing well and nobody’s asking questions about how company dollars are being spent. The moment the situation changes, however, those client entertainment assets are going to be placed under a microscope and— in all likelihood —cut.

So what can companies do to protect their client entertainment?

1. Put the right resources behind client events. 

Mike Lahaie, VP Premium Parternships for Barclays Center cautions companies to think realistically about the resources they’ll need to make sure tickets are going to the right people:

“Too often, I see companies just act on a vague notion that everyone loves going to events. While that may be mostly true, you need a better-articulated plan if you’re going to make client entertainment a real part of your marketing strategy and make it work for you like it does so many successful companies.”

Broadridge Financial’s Jeff Rayner agrees:

“Don’t kid yourself: starting client entertainment takes real work. Don’t think you can hand off everything to an admin and expect things to work… you need to allocate significant resources to it.”

Without those resources, your company won’t be prepared to prove client entertainment is a legitimate part of your marketing.

2. Track everything.

We’ve seen client entertainment abuses from every kind of organization. Seriously—large for-profit companies, non-profits, government agencies… if they have sought-after event tickets, they have abuse.

One of the common threads running through these organizations is the lack of documentation. It makes sense: if entertainment assets are not being used for legitimate business reasons, the last thing you want to do is document it.

But without air-tight documentation showing how your client entertainment is being used, your client entertainment is vulnerable. You’re just one audit away from client entertainment getting cut.

3. Have a policy.

This may seem like a no-brainer, but we’re constantly surprised at how few companies publish a T&E policy. Without clear guidance on who can go to events, what these events are for, and what prohibitions apply (like selling company tickets on the secondary market for personal gain), you are asking for trouble.

People already suspect your company’s client entertainment is just a boondoggle. Don’t make it easy for them to take your tickets away. By putting some basic rules and systems in place, you can protect your client entertainment and prove that it’s a legitimate part of your business.

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Before TicketManager, we tracked ticket usage manually in multiple spreadsheets and spent countless hours trying to report ROI. Now we are able to hold our employees to a standardized process and retrieve consistent reporting.

Diana Bing, Principal Financial