The ups and downs of major games shows, the cancellation of GC Leipzig, and the “temporarily suspended” status of other shows indicate that developers and publishers who plan to exhibit in 2009 and 2010 need to read their space contracts more carefully. In some cases, the contract language has changed in very significant ways which – if a show is canceled – can easily bankrupt a small studio, and put new and unanticipated financial burdens on larger studios.
I’ve identified the six worst examples of “fine print abuses” that exhibitors need to know about before they sign the dotted line for 2009 and 2010 shows. All six abuses focus on two themes: show organizers reducing exhibitors’ rights, and show organizers transferring risks and liabilities to individual exhibitors.
Example 1. Watch out for new and potentially huge exhibitor penalties if show organizers decide to cancel the event.
As the global recession continues, show organizers are keenly aware that slow sales of exhibit space, sponsorships, and tickets may force them to cancel their show at the last minute. What’s new in 2009 is that some show organizers are – by contract – giving themselves the legal right to recoup all their losses from individual exhibitors!
Here is a direct quote from the Exhibitor Space Contract for a new show scheduled toward the end of 2009: If the show cancels, “you will be obligated to defray a reasonable share of the expenses resulting from the preparation of the event.” In other words, the show organizers can add up all the show-related costs to date (including show cancellation fees for venue contracts, union contracts, marketing and advertising contracts, etc.), and divide the total cost among all the signed exhibitors, and you’re legally liable for paying your assigned share. The show organizers have full authority (which you cede to them when you sign their Space Contract) to decide what costs are included in their tally, how much those costs are, how those costs are divided up (square foot purchased vs. number of exhibitors), and you have no legal recourse as per the contract you signed.
Here is an example of how financially risky this can be. Let’s assume four things:
1) exhibit cost is $50 per square foot and you buy a 10×10 booth;
2) only 30 exhibitors signed up instead of the expected 50-60;
3) the show cancels; and
4) show organizers claim they have incurred liabilities of $800,000 (not unreasonable for a mid-sized show).
What happens now?
If show costs are divided up on a per exhibitor basis, your original liability of $5,000 (100 sq. ft. x $50) is now increased by $26,000 ($800,000 divided by 30 exhibitors = $26,000 per exhibitor) bringing your total liability to $31,000 – for a show that no longer exists!
This is very important to studio employees who have a stock option arrangement with studio owners/investors. That $31,000 in our example must come from operating capital. This means it could come in part from your budgets for development, QA, and community expansion efforts which could negatively impact game quality and sales, and may ultimately reduce the value of your shares.
Example 2. There is a new “application” step being introduced into the space selection process, and it puts you at risk.
Until 2009, exhibitors signed a Space Contract that was legally binding. Starting in 2009, some shows now require you to take one preliminary step first: you need to “apply for the right to purchase exhibit space” and once that application form is received, the show organizers will then give you access to the Space Contract.
Here’s the trick you need to watch out for: The show organizers consider the first preliminary step – applying for the right to apply for space – as a legally binding agreement, even without your signature. This means that you have automatically committed to buy space – any space, any hall, any size – but you now must purchase space. If you don’t, you’ll get billed for a 10×10.
The next step – completing the actual Space Contract itself – is where you identify the amount of square footage you want to purchase and maybe the actual booth number you want.
Example 3. Show organizers boldly tell you they are not obligated to honor their own contracts or agreements.
Did you know that even if you get all the official approvals for your exhibit, that the show will not necessarily honor those approvals? A “real life” Exhibitor Contract for a 2009 show reads, “Irrespective of official approvals of the booth, any objections made by [the show organizers] concerning the booth must be immediately complied with.” That means you can get all the engineering approvals for, say, a two-level exhibit, and then once it’s installed on the show floor, the show organizers can arbitrarily void already-obtained approvals and demand you pay for – immediately and in full – any and all changes requested by anyone on their management staff. If you don’t comply, they can shut you down and you don’t get a refund. And, no appeals process is in place; their decision is final no matter how outrageous it is.
Example 4. If the show arbitrarily changes location or dates, and you can’t attend, you’re still financially responsible.
In previous years, such show changes were made in response to “Acts of God,” but what’s new for 2009 is the “Acts of God” clause seems to have disappeared from some Space Contracts. Without the “Acts of God” clause, show organizers now claim the right to change show dates and locations for any reason they choose, and you have no input. If you aren’t available during those new dates, or if the show is rescheduled into direct conflict with another show at which you’re already exhibiting, you can’t get any refund – you’re still on the hook for the full amount even if you can’t be there. According to an Exhibitor Contract for another upcoming 2009 show, if the show organizers change, move, or cancel show dates, “you shall not be entitled to the payment of any resulting damages which you may have incurred.” And that, my friends, means your entire show budget is at the mercy of the show organizers who make such decisions based on what’s best for them, not what’s best for their exhibitors.
Example 5. Show organizers can arbitrarily change your booth location and the footprint dimensions.
In the old days, we used to sign space contracts that specifically identified a booth number. In recent years this changed to buying a specific number of square feet without identifying a booth number. What’s new for 2009 is that some Show Contracts are not doing either, and that’s quite risky for exhibitors. Here’s another direct quote from a Space Contract: “…the organizer is entitled to subsequently allocate you[r] booth space other than stated in the confirmation of acceptance, to change the size and dimensions of your floor space…without claims arising on your part.” Translation: They can change your entire exhibit (size and location) – including moving you to a distant booth with a pillar inside – and you have no recourse. Can you imagine finding out at the last minute that your space has changed, and your booth won’t fit? Or get moved to a larger space and you have to pay for the unwanted extra square footage? Or get moved to a different Hall?
Show organizers don’t provide a deadline date in the contract. They can change your booth right up until the move-in date. Can you imagine trying to re-schedule all your booth meetings the day before the show opens?
Example 6. Fixed price floor space is being replaced with variable pricing.
Be sure to check the contract fine print regarding the actual cost of floor space. Until 2009, we used to pay a flat rate per square foot (or square meter) and that price was firm. Starting in 2009, some shows are selling floor space based on a variable price model. This means you pay a fixed price for the floor space, but then you will be invoiced for additional costs for any increases the show organizers experience. Specifically, they pass on to exhibitors their share of any higher costs incurred for increased venue costs, higher production and labor costs, higher taxes, higher energy surcharges, and any other fiscal charges imposed by the venue. This means several weeks after a show, you could have a surprise charge on your credit card to cover these surcharges, and you’ll never know the amount until after the charge has been made.
Transfer of Liability from Show Organizers to Individual Exhibitors
The term “transfer of liability” means that as the economic noose tightens around trade show organizers they may change the “fine print” in the Space Contracts to transfer various liabilities from themselves to you as an individual exhibitor. Not all shows are doing this but the trend has started. This could, theoretically, change the entire scope of the trade show industry. The “transfer of liability” trend allows show organizers to announce a new show, sign up only a dozen or so exhibitors, then use the “under sold” excuse to cancel the show, and still make a profit. The profit comes from the signed exhibitors who are assessed their portion all the costs associated with canceling a show. The very real danger Exhibit Managers face in the next 12-24 months is that the “fine print” could now increase your company’s financial exposure to levels that some CFOs might call unacceptable. Companies considering exhibiting at any of the major shows (E3, GDC shows, GamesCom, SPIEL, and CES as examples) between now and the end of 2010, must be sure to read the “fine print” carefully, During your contract review process, you may find yourself asking a legitimate question: Are we at the point where the financial risks now included in some Space Contracts outweigh the value of exhibiting at a show?
Doug Mealy is president of Online Marketing and Public Relations (www.om-pr.com) which has launched over 300 titles at 155 shows worldwide for 115 CEOs of game developer studios. You can reach him at [email protected].