How did exhibition organisers arrive at a business model that produces such strong margins? CloserStill and Nineteen Group chairman Phil Soar looks at the evolution.

I often get asked how trade show companies make 25-30% margins. Why? That’s because I spend much of my time with private equity, hedge funds and venture capital. And, let’s be clear, it is not because we attract the Einsteins of the world.

The question is a fair one. We seem to be a “media” business (though we really are not) and our big companies make 30% margins despite the fact that incomers appear to be able to enter our market and compete easily.

Business sectors with 30% margins will (almost) inevitably draw strong competition from outsiders – particularly when there is no need for major capital expenditure. And this usually results in more players in the game and margins falling to more “normal” levels – say 10%.

Using an example from 30 years ago, in 1993 Blenheim Exhibitions made a profit margin of 25%, which was the eighth highest profit margin of all the 2,300 companies then quoted on the London Stock Exchange.

Margins this high suggests that we are some sort of monopoly – which we most certainly are not (even in the UK the AEO has 100 members).

There are exceptions – Microsoft makes 42% margins because its imbedded products are so difficult to shift. And tobacco companies are another example because the nature of their product and their intense distribution systems are essentially impossible to displace. When Blenheim was eighth in the profit tables in 1993, the seven companies with better margins were the oil majors (Shell, BP) and brewers – all tied liquid quasi-monopolies.

So why do the larger trade show companies keep making such large profits when it appears (on the surface) that their businesses can be so easily challenged and disrupted? And they can be disrupted – this is not the place for a history lesson, but CloserStill and Nineteen are both very recent organic start-ups and are now the second and fifth largest organisers of exhibitions in the UK.

Much is to do with chance

With no-one purposely creating any model, the larger companies basically stumbled into a way of operating which has led to these high margins.

It is crucial to understand that no one created this model. No one said: “If we do A, B and C we will become rich.”

As a result of a lot of wittering about, good fortune, and what Darwin called evolution, we arrived where we are. Can it last? Will it last? Should it last? No guarantees – but it’s an important question if you are an investor.

Hugh Jones of RX has opened up a serious debate about how we deal with our customers (I should stress that I am talking about trade, not consumer, events) – that they should pay more for what they get. And that we should pay them more individual attention now that our data capture and AI tools are giving us more firepower than 20 years ago, when the best we could do was send out a list of visitors.

I have said before that I think there is much to agree with in these arguments.

So what is this unintended model we fell over?

For most companies, the current model comprises three core elements:

  1. Regular repetition of place and time and hence familiarity
  2. The restrictions on competition inherent in the slot system
  3. The annual subscription/rebook process

Let’s consider what the consequences of these elements are:

  • A slow, usually annual, cycle which provides time to defend your product
  • The slot system, which allows us to build a moat around our events. This is not an absolute, but most major markets have only two large locations. The US is an exception, but even there 15 of the 20 largest events are in the destination cities of Vegas and Orlando
  • “Why don’t the venues just let anyone in and drop their profiles?” comes the question. It’s because venues realise the system works for them – they make far more from one big show than three small ones. Added to which, the first venue to try it would see their customers flee elsewhere.
  • We are probably unique as businesses in that we have all our customers in one place at one time – and all easily accessible
  • Critically, what it means for staff numbers. I agree that the subscription system probably leads to lower revenues in individual cases – less chance to upsell space, or to offer other benefits (data etc). And less chance to simply charge far more – seriously, how often does an exhibitor question price at a rebook? But the massive benefit is in staff costs – how many people does it need to rebook say 80% of a show (this may not be the norm, but is perfectly common). Assuming that a large company can use staff from other shows on the rebook (CloserStill and Nineteen use up to 40 rebookers on a show), and that accounts and operations are centralized, then a £5 million show can be run with seven or eight people. Let’s assume a person costs £70K per annum – that means a staff cost of £500,000 out of a gross contribution of at least £3m. But let’s consider the real significance of this in a paragraph below.
  • Exhibitions are not at the forefront of any company’s mind. If they rebook at the show, that’s fine. They put it the diary and their booking and their revenues are largely guaranteed. If you don’t book them at the show – then the sell has to start again, maybe months later. And, so often, out of sight, out of mind.
  • Every customer who has rebooked for your show has a clear disincentive to consider booking at some possibly competitive show elsewhere.
  • The brand effect – brands work not because they are palpably better than the competition, but because they are familiar and proven and because choosing them avoids disappointment. A good trade show is a provably reliable brand.

In my fifth” consequence” above, I have stated that the subscription system allows us to run our shows with an often smallish number of staff.

Again, let’s assume a person costs £70K per annum – that means a staff-cost of £500,000. But assume that we take the alternative route. We don’t rebook but choose to speak (and hopefully upsell in detail) to all of our exhibitors during the next 12 months.

How many people would that take, full time? Impossible to say, but on a £5m show I would guess perhaps 20 to 25 people – at a cost of £1.75m.

Assume a typical 60% current gross margin on the show. So with eight people – a gross profit of £3m. But with 20-25 people, the gross profit drops to £1.8m. So the simple question is – can you bridge that £1.2m profit gap by doing it another way?

For smaller shows the extra cost is even more critical to the bottom line. I appreciate that these numbers are theoretical – but they explain the argument about why the subscription system works so well (just as it does for McAfee, Netflix and many more).

The last paragraph is at the very heart of why we (currently) make such high margins.

STRESS: this is not an argument for the present or any other particular approach. One of the essences of evolution is that we cannot predict what will happen (or “be fit” for) in the future.

The mutations are random – the only Darwinian truth is that evolutionary change can only make the model better “fitted” to its particular circumstances.

You will recall the Peppered Moth, which in the 19th century was white, but a random mutation created one with dark wings. This mutation was more suited to the smoke blackened buildings and trees in the North of England because it made the moth harder for birds to spot. Hence the white ones tended to be eaten and the dark ones not – meaning that after a few years only the dark moths had survived.

The crucial point is that this change was not an improvement to the moth, and the dark moths did not drive out the white moths. But it meant that the dark moths were better suited (“fitted”) to that particular environment.

No one ever created or imagined our model

I cannot stress this enough. It evolved over a number of years (35 years by my estimate). Systems are not perfect, just like the human body is not perfect. They evolve at particular times to fit particular circumstances.

Evolution has no teleology (meaning it has no purpose – the Whig view of history, that change lead automatically to a better, British, world was debunked a century ago).

That was Darwin’s great insight – there is no controlling intelligence; a random mutation will become the norm if it fits the circumstances (and in today’s world, “fit” tends to be what private equity wants).

I am not arguing that our “model” is perfect or even the best – I am arguing that it has mutated to reach its current evolved state.

So, what mutations led to our current state?

On rebooks, the subscription model was barely known before 2000.

There were some busy and part sold-out shows where exhibitors had to “ballot for space” – Networks, Spring Fair, PC Expo, Harrogate Gift Fair etc. This was highly, highly peculiar – the idea of raising prices as a means of regulating demand and increasing profit rarely seemed to occur (in some cases stronger trade association links could have been a deterrence).

In my experience, it was Phil Nelson’s development of the organised rebook with Penton and Ithaca in the 2000s which was the earliest example of the current model.

Indeed, it was only in 2022 that Emerald announced it was going to introduce this in an annual statement, and many medium sized companies still do not have a rigorous approach.

The importance of the slot system was barely recognised before the opening of the NEC in 1976. With the NEC, ECO and Harrogate (then a far bigger player), there seemed to be sufficient capacity to not cause conflict.

Indeed, Blenheim launched what quickly became its biggest show (Premier Collections) in 1990 when there was no clothing event at all in the NEC. 

An absurdity of trade show history

After 2001, ExCeL arrived and increased capacity even further, so it was not until 2012, when it became clear that Earl’s Court would have to close, that slots in the UK were really recognised as being critical to a trade show company’s profitability.

It is one of the absurdities of trade show history that both Reed and UBM both invested very substantial sums in the development of ExCeL. Both argued that the extra venue would help bring tenancy prices down. But they were two of the dominant forces in the UK (along with EMAP) and apparently did not recognise that the extra space would allow competitors to compete with their existing large events.

The idea that “slots” and “building a moat” were an essential part of our business model was clearly in the future.

Evolution – Fitness for the environment

Evolution is about fitness for the environment. And the environment of 2024 is about private equity.

We might therefore assume that evolution will tend towards more profit attached to an assurance of longevity (though I stress again that the very essence of evolution is its randomness).

So how might we evolve further? The answer is always that we cannot know. We cannot know what sort of world we need to be fit for.

But if I were to hazard one Darwinian guess – it would be charging for trade shows.