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Benjamin Spillman

Creator of popular Vegas ad seeks new deal

13 April 2009

LAS VEGAS, Nevada -- Even the best ads can't transport a tangy shrimp cocktail or a happy crowd of tipsy pub revelers from Las Vegas to Ken Oakley's home in San Jose, Calif.

At least the frequent Las Vegas visitor gets to think about his favorite places when he sees the ubiquitous "What happens here, stays here" ads on television.

"The thing I like most about the ads is that it is like you are in on a secret," says Oakley, 37, who visits as often as six times a year with his wife. "It is adding to the mystique of the town."

Assigning cash value to the mystique is the challenge facing tourism boosters this week.

The Las Vegas Convention and Visitors Authority is scheduled to consider another deal with R&R Partners, the agency that created the cheeky slogan in 2003.

"What happens here, stays here" is considered one of the best advertising tag lines in the nation in recent decades, up there with "Where's the beef" and "Just do it."

But keeping Las Vegas under such a bright spotlight comes at a cost, both fiscal and political.

In recent months the relationship between R&R and the authority has come under scrutiny, primarily from a conservative Las Vegas group with members who oppose the authority.

Supporters of the Las Vegas marketing machine describe the cost as the price of attracting folks like Oakley, who with his wife spends as much as $750 per day during a visit. It takes fewer than 41,000 visits by tourists like Oakley, whose three-day tab in Las Vegas can be $2,250, to equal what the authority will spend with R&R this year, about $91.2 million. That's less than 1 percent of the approximately 39 million people who visit Las Vegas annually.

Oakley, who likes to visit the Nine Fine Irishmen pub in New York-New York and get shrimp cocktails at the Golden Gate downtown, says the ads capture the mystique of those and other haunts.

"The little stuff that you do makes the biggest impact on your vacation," he says.

"It's hard to explain," he says. "Their ads help you to share with other people."

Critics say while the ads may be popular, the relationship between R&R and the authority is bloated.

They say resorts could pick up more of the burden of burnishing the Las Vegas brand without using a cut of the hotel room tax customers pay.

They point to vague billing statements plucked from thousands of pages of public records that represent the paper trail of R&R's relationship.

"If anyone gets upset because things are being transparent, maybe they have something to hide," said Las Vegas attorney Byron Mills, board member for Nevada Policy Research Institute, the think tank leading the critical charge against the authority and R&R.


The authority spent $88 million on the R&R Partners deal in the last fiscal year and plans to spend $91.2 million more this year. There is no specific dollar figure applied to the contract. Instead, the deal covers a scope of services and funding comes from the authority's marketing budget.

It's a lot of money for an authority suffering under the weight of recession.

In recent weeks the authority suspended an $890 million renovation of the Las Vegas Convention Center and revised projected annual room tax revenue from $243 million to $190 million, a decline of nearly 22 percent.

It also asked the Nevada Department of Transportation to postpone highway improvements along Interstate 15 between Blue Diamond Road and Tropicana Avenue, construction the authority is obligated by law to support.

The confluence of tough times with the sunset of one of the most lucrative promotional deals in the history of Las Vegas has prompted intensified scrutiny of the relationship between the authority and R&R Partners, a relationship that goes back 29 years.

They want an outside audit and open bidding for a new contract.

"The fundamental issue here is the people's right to know how the government is spending their money," says Andy Matthews, spokesman for the Nevada Policy Research Institute. "That issue is especially important today."

Late last year the institute detailed its allegations in a report by freelance investigative journalist John Dougherty with thousands of pages of supporting documents collected via public information requests to the authority.

The findings were myriad and complex, but the core implication was the authority spent nearly $400 million through R&R in the past five years and didn't do a good job tracking the dollars.

"The bottom line here is the (authority) could do a great service to the public by welcoming an independent financial operations audit," Matthews says.

Defenders of the R&R deal say it costs big bucks to do enough promotion to maintain occupancy rates around 90 percent in Las Vegas' approximately 140,000 hotel rooms.

In addition to creating television ads and buying airtime, the contract covers strategic marketing planning to public relations to sponsorships and promotion of special events. The services are on top of the estimated $33.7 million in-house sales and marketing operation at the authority.

Deal proponents resent the implication R&R Partners views the authority as a source of easy largess.

"We'll show you Tuesday what we earned, how it is earned," says Billy Vassiliadis, CEO and principal at R&R and a confidant to a generation of Nevada's most powerful Democratic politicians. "I've never taken anything in my life that I haven't earned."


Vassiliadis is upset the Nevada Policy Research Institute highlighted his personal ownership of a company called Airwave Productions.

The institute counts former Las Vegas Sands executive William Weidner, an outspoken conservative Republican and business opponent of the convention authority, on its board of directors.

Using public records from the authority, Nevada Policy Research Institute identified $4.1 million in advance payments from the authority to Airwave for ad production.

The institute contends the advance payments constitute loans from a public agency to a private company, a practice prohibited by Nevada law.

Vassiliadis calls the allegation absurd.

He says the payments were for costly work Airwave arranged through production companies. The companies require deposits for items such as cameras, mounts and other expensive production equipment.

Airwave doesn't have the budget to carry the deposits. So it makes arrangements for the work, alerts the authority to the amount required and collects a check to pass directly to the companies, Vassiliadis says.

"If there wasn't an Airwave there would be R&R production," he says. "The charges would be the same."

The institute also criticized the authority and R&R for a similar advance payments to Initiative Worldwide, a global company that buys advertising time on television and radio. Vassiliadis responded with the same reasoning.

He said R&R has a credit line of about $1.5 million, well below the cost to make a national media buy.

By receiving money upfront from the authority, R&R can pass it directly to Initiative for the buy and saves money for the authority because large, upfront payments can result in no-charge extras like premium time slots after football games.

"The authority gets anywhere from a 2 to 6 percent discount," he said.

Vassiliadis says it is wrong to characterize advance billing as loans because his companies don't hold the money. They arrange an ad buy or production and tell the authority the cost. Neither Airwave nor R&R benefits from holding the money because they don't hold it, he said.

"They send us the check, we send the check to the companies," Vassiliadis says. "We don't borrow money. That's absurd."

Vassiliadis says Nevada Policy Research Institute is twisting reality because the group has an anti-tax, anti-government bent and wants to weaken the publicly run authority.

"The coziness was asserted by a group of folks who have an ax to grind," Vassiliadis says. "That whole thing is at best inflammatory, at worst defamatory."


Although authority board members vigorously defend the work of R&R and oversight of the advertising contract, it's clear the accusations touched on sensitive issues.

Around the time the accusations were originally reported, Nevada Policy Research Institute board members said R&R's president of public affairs, Pete Ernaut, made angry phone calls decrying their work.

"I took away from it that he certainly wasn't happy we were doing it and we were taking food from his family's mouth," said Ranson Webster, a Nevada Policy Research Institute board member who says he spoke with Ernaut.

Webster, founder and managing member of Evergreen Capital in Reno, was one of just a few board members who would speak on the record about calls from R&R or its supporters.

He says the agency and the authority are so deeply entrenched in Las Vegas business and politics other board members fear a public dispute.

"We are dealing with a very powerful force in Las Vegas and they don't like it," Webster says.

Asked whether Ernaut was threatening in tone, Webster replied, "It was, I suppose, a veiled threat."

Ernaut admitted to heated conversations, but says he didn't make threats. He described a "spirited rebuttal" on behalf of his company.

"I certainly wasn't going to stand by and allow them to wrongly attack the integrity of my company or disparage the hard work of our employees with lies and misrepresentation," Ernaut says.

According to Ernaut, board members he spoke with "expressed complete dismay (the group) would sink to this level."

Not Webster.

"Absolutely not. I don't regret it. I think we are doing a public service," he says.


The investigation by Nevada Policy Research Institute and funding strain of the recession will almost certainly hang over the authority Tuesday when it holds its monthly meeting.

Board members will hear a recommendation from authority staff about whether or not to extend the relationship with R&R. The last two deals with the advertising agency were five-year agreements.

There are signs the next agreement could have a shorter time frame.

"My personal feeling is that long contracts are probably not in everybody's best interest," Las Vegas Mayor Oscar Goodman said last month of the upcoming decision.

Goodman, who is also chairman of the authority board, supports the work of R&R but says more frequent reviews of the advertising pact could be in order. "If you give an extended contract, you have to have year-to-year renewals," Goodman said.

That doesn't mean R&R won't land a new deal.

Authority President and CEO Rossi Ralenkotter is a staunch defender of big marketing budgets. He's maintained the authority's marketing and ad budget of nearly $125 million in the current fiscal year despite cuts elsewhere in the organization.

"Our job is to fill rooms," Ralenkotter says. "I will continue to maintain our direction and our marketing direction to create demand."

Mark Gimein, a New York-based writer who covers business and marketing topics for the online magazine Slate, says there's no question Las Vegas has done well selling itself in recent years.

Gimein, who recently criticized big budget branding efforts by the likes of Ford and American Express, says Las Vegas is a brand success story.

"There are tons of other cities that at various times have tried to brand themselves," he says. "The fact is it really hasn't worked for anybody in the same way."