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Ocean City

City settles MGH deal; additional issues in limbo

(July 18, 2014) Despite reaching the forgone conclusion this week of renewing its contract with MGH Advertising for another three years, City Council likely stirred up more political dirt than it settled in bringing the issue to a close.

The lengthy debate centered around two questions, the first being where tourism in Ocean City is headed–and how much control MGH has over that–and the second being if the city should put the contract back out for competitive bid, regardless of whether or not MGH has been a success.

Neither of these were fully answered, but are probably best summed up in the closing exchange between Mayor Rick Meehan and Councilman Brent Ashley.

“I think you can make the numbers look any way you want them to look,” Meehan said after going several rounds with his colleagues over the city’s tourism statistics. “I think MGH is doing the right thing for Ocean City.”

“Then they shouldn’t be afraid to show it,” Ashley replied.

Council ultimately voted five-to-two, with Ashley and Councilwoman Margaret Pillas in opposition, to extend MGH’s contract as the city’s marketing agent for another three years, at the current rate of $22,598 per month, for a total commitment of $826,488.

Thus, by 2017, MGH will have gone nine years without raising its prices – but the city will also have gone seven years without a competitive review of its marketing, and 14 years under the same agency.

“If I didn’t think we were getting a good deal with that price six years ago, I wouldn’t support it today,” Meehan said.

More critical, however, is that this is the second time in two years that the council majority has attempted to roll over MGH’s contract without previous public disclosure.

Tuesday’s discussion and public vote was sparked by questions from Ashley and Pillas over the council’s ability to circumvent the city’s own purchasing procedures, and possibly the Maryland Open Meetings Act, by approving a contract extension in closed session.

Council had not previously discussed or voted to decline an open bid, known as an RFP (Request for Proposals), which would be required for a contract of such value.

“I think we’re shirking our fiduciary duty by at least not going out and seeing what else is available,” Ashley said. “MGH may be the best, like my colleagues say, but we have to take a look. I just don’t see how you get around that rationally.”

In MGH’s favor, Tourism Director Donna Abbott said, the agency continues to not charge commission on advertising buys, does not charge hourly for creative work, and does not use sub-contractors. All work is done through a single contact, something which no other firm was able to offer in the last public bid in 2010.

Further, any savings MGH garners from purchases of advertising space or air time are passed back to the city.

“A lot of agencies don’t pass that savings back,” Abbott said. “They maintain a ‘house rate’ for everything.”

If the city were to change vendors now, it would also lose any future saving MGH would be able to offer from already having the city’s ad materials prepared from previous years.

“We believe a change now would cost us a significant amount of money in the future that could be used to promote Ocean City further,” Abbott said.

However, the city does pay a considerable charge to MGH for non-contract services – such as the redesign of the city’s website, social media, an mobile apps. Although these upgrades were well-received, the city paid MGH an additional $100,000 for the work.

Additionally, Ashley questioned, going back out to bid on the contract should not jeopardize MGH’s pricing or service – it should actually make the prices and services even more on-point if a new competitive review was given.

“If everything we’ve talked about is so good, then MGH should win the RFP hands down,” Ashley said. “So what’s the downside to taking a look?”

Further, much of the council’s support was predicated on support for MGH from business representatives from the Tourism Advisory Board, Ocean City Development Corporation, and Greater Ocean City Chamber of Commerce.

“These people speak for hundreds and hundreds of tourism-based businesses,” said Councilman Doug Cymek.

But, as Ashley pointed out, the letters of support which Meehan had requested of the organizations were not necessarily from the collective memberships, but from the Presidents of the three groups – Greg Shockley, Todd Ferrante, and Buck Mann – who are ex-officio members of the city’s Tourism Commission.

The Tourism Commission had recommended, in a closed session vote, that the council approve MGH’s contract extension.

Further, the Ocean City Hotel-Motel-Restaurant Association had not submitted such a letter, although President G. Hale Harrison had voted in favor of the recommendation. Pillas pointed out that the HMRA’s mid-week specials campaign, which is also contracted through MGH, was late in rolling out.

“It’s our policy to not issue any letter without the board meeting to support it,” said HMRA Executive Director Susan Jones. “We’re hoping we can communicate with MGH to let them know how the business community is doing and what our needs are.”

Pillas also maintained that the contract was not worth continuing, even if was a good deal, if the effect was the opposite of intended.

Despite increasing the advertising budget form roughly $1.5 million in 2003, when MGH first became the city’s marketing agent, to the current $5 million level, the city’s demoflush numbers have been 113,000 people less per year on average over the past 11 years than in the 11 years before the agency’s contract.

The city’s advertising budget is funded through the Room Tax, which was boosted to 4.5 percent in 2006.

But revenues from the tax have been steadily increasing, leading Meehan to argue that better hotel revenues from better tourism were increasing the city’s advertising budget, which then attracted more hotel visitors.

“During the very worst of times, we were able to maintain our place in the market share,” Meehan said. “That’s the fiscal responsibility, that our room tax has continued to go up in spite of the economy.”

The alternative way to look at this, however, is that increased room tax is driving up hotel prices, and pricing out the family demographic. Ocean City’s hotel prices are roughly 40 percent higher than its competitors during the peak season, according to reports from Smith Travel, although occupancy dropped roughly two percent last summer.

Further, the last market survey conducted by MGH showed that only 44 percent of visitors reported traveling as a family with children.

“Giving MGH another three-year contract indicates that this council believes MGH takes no responsibility for declining tourism over the past 11 years, or for changing the tourism demographics over that period,” Pillas charged.

The only member of council who did not appear to take an all-or-nothing stance toward the agency’s success was Joe Mitrecic.

“You have to take a look at the whole package,” Mitrecic said. “I don’t think Ocean City’s family image has changed. But maybe the younger, single people have more free funds at this point to spend on a vacation.”

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