Home TypeNews Phil Soar: The tricks of the trade

Phil Soar: The tricks of the trade

by EN

Many of us have worked in different businesses. They all have hidden tricks which are just not obvious to outsiders. In my experience, retail tricks are the most common (raising prices on Friday only to offer 20% discounts on Monday etc). My very first job was making sausages in a travelling butchers. I won’t say any more.

Here are a few largely unknown tricks of the trade in our own exhibition sector. Some of them have a financial element, so if you don’t feel up to delving into some accounting sleights of hand, best not read on.

  1. Visitors and perceived quality

A few years ago it was a big issue with some giftware and clothing exhibitors in the UK that we didn’t get enough foreign visitors – and in particular Chinese, Japanese and Korean. So we considered this. To be honest, trying to fly Chinese buyers over from Shanghai to an essentially provincial fair was not going to be easy.  The two universities in Birmingham had a large number of Chinese and Japanese students – many of them quite mature. So the show director advertised for about 30 of them to walk the halls for three days. He gave them badges in Chinese and Japanese and asked them to show interest but to make it clear that their English wasn’t good enough to hold buying conversations. They would speak to their bosses when they got home.  He didn’t get any more exhibitor complaints.

I noted that when Donald Trump announced he was running for President he used a theatrical agency. They employed hundreds of out of work actors to turn up at Trump Towers in Trump t-shirts and cheer. The actors got $50 cash each.

2.The party trick of looking the other way

This is a subtle and involved, but very clever. Please try to bear with me because this is the single most outrageous trick I have ever come across. I have changed some of the details and dates to conceal the actual event, but the central facts are correct.

We had an acquisition which was finalised in 2002 but was based on the profits the show would make in 2004. This is the most common sort of deal in our industry. We were prepared to pay eight times the 2004 profits (which we expected to be circa £1m) and so we paid £6 million up front in 2002 – with the balance to be paid in 2004 based on the 2004 profit. We expected to pay another £2m(8 minus 6) in 2004.We got to 2004 and the show made £1.3m– so eight times £1.3m was £10.4m. Hence we gave the sellers another £4.4m (£10.4m minus the £6m we had already paid in 2002).

The sellers left the business and we had a new team take over. That was £2.4m more than we expected to pay, but the show appeared to be a lot more profitable – so acceptable news.

So far so good. But, a year later, in 2005, the visitor revenue from the show fell by £300,000 and the profit dropped from £1.3m back to £1m– and we couldn’t work out why. It was a conference/seminar based event and a large percentage of the revenue came from delegates and also from visitors who paid to come into the event and had the right to attend seminars. The visitor numbers in 2004 and 2005 seemed similar, and the halls in 2005 were just as crowded as they had been in 2004. There are other obvious ways of checking visitor traffic – email bookings, registrations, how many show guides are collected, security clickers, cups of coffee sold etc etc. The attendance numbers really were the same. We couldn’t work it out – where had the lost revenue, and hence our profit, gone?

Eventually it dawned. Twenty years ago it was still normal for visitors to pay cash on the door at events in Europe and particularly so in the US (this was not a UK event though I have quoted the numbers in pounds to protect the guilty).

We had been looking the other way

I will try to explain with a childhood story. Every Christmas at our family get- togethers we played a game of “guess the object” (you have probably done the same). Aunt A and Aunt B were in cahoots in the game. Aunt A would go out of the room so as not to hear. The children chose an object – say the Christmas Tree. Aunt A came back into the room and Aunt B asked her to find the chosen object. “Is it the pudding?” “Is it the cake?” “Is it the flowers?” “Is it the tree?”  Aunt B would ask.

Aunt A always got the right answer – and we children couldn’t work out how. There was no pattern to the correct answer – it wasn’t always the first, third, eighth or fourth object Aunt B named; it didn’t follow the same object each time (which would have been an obvious clue); there was no intonation in Aunt B’s voice. Aunt B didn’t wink or shake her head (that’s what we children were convinced she was doing, but she wasn’t).

How a Christmas party trick alerted me to the scam

It took us several Christmases to work it out. It was the basic magician’s trick. We had all been looking the wrong way. We were looking at Aunt B when we should have been looking at Aunt A. When Aunt A came back into the room she placed a certain number of fingers round the door as she came through. Aunt B added that number of fingers to a set number agreed with Aunt A in advance – say four – each time. So with two fingers it would be the sixth object named. With no fingers the fourth object.

That was the explanation for the sudden surge in profits in 2004. We had all been looking the wrong way.

There is little cash on site at exhibitions nowadays, but twenty years ago at consumer and conference events there was a lot. The attention of the front desk on-site staff was rigidly, and understandably, directed to making sure no one stole cash out of the till.

They were putting cash into the till

But in our case the opposite had happened – the sellers had been putting cash into the till. As it was cash, it couldn’t possibly be traced and the trick could never be proved. For every pound they put into the till, they got £8 back when they received their final payment. In the case I quoted the sellers must have put around £300,000 into the till in used 10s, 20s and 50s – and it was simple because no one was looking out for someone putting cash into the till.

It took two years of analysis to work this out – it was a unique experience.

The same thing can happen in cash businesses like bars. If you intend to sell a bar it is easy to inflate profits by putting some cash into the till each night rather than taking it out – and I have seen that happen in a past life.

  1. Changing the year end

This is a little arcane but it can be a weird sleight of hand (if company accounts are not your enthusiasm, then you can turn off now).

All companies have to report their performance, profit and loss etc every year. The great majority of companies have a December 31 year end, meaning that their annual 12 monthly accounts correspond with the calendar year.

But exhibition companies have one unique (as far as I know) feature. If your company runs just one exhibition, then for 364 days every year (365 in a leap year) you make a loss. And for 11 months a year, your monthly management accounts show a loss. On only one day in the whole year do you declare a profit – and that is the day that your show closes. This is an HMRC rule – not one the industry has created for itself. The logic is simple – until the show closes on its final day there is no certainty that it will ever run fully and make a profit (this sounds unlikely – but remember that the Harrogate Exhibition Centre burned down during the Harrogate Gift Fair in 1990).

How the calendar can force you to a massive loss

This leads to some very odd consequences. Let’s say that your year-end is 31 December (like almost all exhibition companies) and you have one show which runs on 30 and 31 December, 2022. That’s okay – you can take all the profit on 31 December 2022 and set it against all the costs you have incurred in the previous 364 days. But let’s say that, because of the natural pace of the calendar, the following year the show runs on 31 December 2023 and 1 January 2024. All the profit then comes on the final day of the show – 1 January 2024 – and all the profit goes into 2024. Your profit for 2023 will be a big, fat negative – all of your costs for all of the 365 days of 2023, but none of the revenues and profits. This may seem peculiar and unreal – but it is what would happen. The next year, 2024, however, will look great – there will the profit from two shows but only one year’s costs.

Exhibition companies always make a loss for 364 days a year

Now for the trick. All companies are allowed to change their taxation year end once. Blenheim, for some peculiar reason, had a year end of 31 August (meaning that its financial year ran from 1 September to 31 August). But in 1991 we bought the single biggest show in France – Batimat – which had a turnover of £30m, far bigger than any other Blenheim show. The problem was that it was biennial – running in November 1991, November 1993 etc. This inevitably meant that the Blenheim Group profit numbers would bounce up and down like a yo-yo depending on whether or not it was a Batimat year. Like all stock market quoted companies the issue was always: “What will the profits look like for the next two or three years, and how do we make them look better?”

So what did we do? We changed the year end. We had the normal accounting year from 1 September 1991 to 31 August 1992, which included Batimat November 1991. And we then changed our next annual year end to 31 December 1993 – meaning that the next accounting period ran from 1 September 1992 to 31 December 1993, and which thus included Batimat November 1993. (As I said this is allowed as long as you only change the year end once). So we were able to include the massive biennial Batimat event in two consecutive financial years and without having to change the date of the event. What we did was logical – changing to a year end of 31 December did not appear perverse.

Magically turning a biennial into an annual

We were completely transparent about this. We stated that this one year was a 16 month year (September 1992 to December 1993) and that the results should thus be reduced by 12/16 to compare year on year like-for-like figures. But of course the sheer size of Batimat made a big difference to the 1993 profit. Not a single shareholder or analyst ever asked a question about Batimat. And 1993 (even reduced by 12/16) turned out to be the most profitable year Blenheim ever had in its 14 year existence.

Clarion did the same thing a few years ago – moving their year end to 31 January. This was to get their big ICE event into the upcoming year’s accounts. As it happened ICE later moved into February (it is now February 1-3) which somewhat defeated the object – but that is another story.

The lesson of this one? No one ever changes their year end for benign reasons – there is always a story behind it. And it so happens that the singular peculiarity of the exhibition world – that the profit occurs on only one day out of 365 – makes such a step not only possible but often advantageous.

  1. Deliberately confusing visitors and attendees

 This is the oldest and most transparent of the tricks of the trade. There should be a firm distinction between visitors and attendees and this is made clear by the companies which still audit our events (only 17 were audited in 2019 as far as I can discover). Visitors are unique persons, counted only once, who enter the show and have no association with any exhibitor or conference provider (one might use the word ‘buyer’ as a synonym). Attendees are basically everyone in the hall – in other words visitors, press, exhibitor personnel, speakers etc. Oddly, the audit rules state that someone working on an exhibition stand can be counted every day they attend – so four people working on a stand for three days are classed as 12 separate attendees. For most trade shows, the number of attendees will be between 50% and 100% larger than the real number of visitors.

Are visitors and attendees synonyms?

If you are trying to tell prospective exhibitors how many buyers they might meet, then visitors is the number to use. But because the words visitors and attendees are effectively synonyms and can be easily confused, it became the norm just to use attendees. This is an interesting development. It was not true 20 years ago, when real visitors was far more common and around 150 shows were audited by ABC annually. The benefit to the organiser is obvious – he or she could quote a much higher number of attendees without in any way being dishonest and relying on the reader not to understand the meaning of the word.

As an aside, I used to regularly produce Top 100 Shows lists for EN. But nowadays this is close to impossible to do. There is no longer any means of tracking real visitor numbers year on year in the industry.

We will probably never again see ‘top 100’ lists

I checked the 10 largest trade show websites to see what was being said (I agree that Covid-19 has made numbers problematic as well). Twelve years ago every one would have quoted how many visitors they had, though in some cases they used the word ‘attendees’. Today, I could find only two quoting numbers at all, both for attendees and both round numbers (eg. 20,000+, 30,000+). Given that Covid-19 will probably cause attendances to be a little lower for another one or two years, then it is hard to see how companies will be rushing to push those numbers out publicly.

So what was once the standard measure for our industry – how many visitors attended the event – has to all intents and purposes disappeared.

Thus I do not believe we will ever see again credible lists of “the biggest shows” or “largest visitor attendances”.

  1. The multi-year tenancy deal trick

This is another arcane manipulation which used to be more common. I will use the actual example of a large IT show in one of our biggest venues a few years ago. The show director was worried about his/her sales but was very conscious of needing to reach a high profit number to get his/her bonus (let’s just use “her” from here).

So she went to the venue and asked them if they would do a three or four year deal. She asked for a big discount in year one, but then a very large increase in years two, three and four. The deal suited both sides. From the point of view of the show director, she got a big reduction in costs for the next show and thus made her full bonus – and she would worry about year two and year three when she got there.

Businesses hate to have one really good year

The venue was having a good year and had already knew it would meet its budget in the next 12 months – so having a smaller rental that year was not a worry and helped smooth out profits (note that all businesses fret about having one really good year because of the need to beat it in the following 12 months). Having a much bigger tenancy fee in years two, three and four was also great for them – it pencilled in useful jumps in income in years to come.

Well, you can guess the rest. The market turned and revenues declined in year two. That was compounded by the guarantee to the venue of a far higher tenancy cost – so lower revenues and higher costs squeezed the show. By year three the old show director had gone and the event never ran again.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Related Articles