Did Wells Fargo save any money by canceling its lavish event?

Earlier this week, when the Associated Press broke the story of Wells Fargo’s planned 12-day trip to Las Vegas for top mortgage sellers, the bank initially stood by the event. The media and blogosphere were quick to light torches and sharpen stakes, and Wells Fargo promptly executed a 180 and canceled the gathering. Americans breathed a sigh of relief that banks wouldn’t be throwing away money on hotel suites and over-the-top entertainment while the rest of the country stared down the long barrel of foreclosure. Or would they? Between deposit forfeitures and contracts with hefty cancellation clauses, it’s all but a given that Wells Fargo, along with AIG before it, had to fork over fairly substantial amounts for the privilege of not holding their events. Indeed, it’s possible to estimate just how much based on publicly available details about previous iterations of this event as well as some general knowledge about standard event contracts.

In previous years, this meeting drew a total of about 1,000 Wells employees and guests. It’s standard practice to let employees participating in “attaboy” events bring a spouse or other guest, so we’ll call that 500 hotel rooms. Of course, there would be event planners on hand, too, but for a group of this size, hotels usually throw in a few rooms for staff gratis.

Let's say Wells had gotten those rooms for $100 a pop, a very low estimate. The gathering had been booked at the Wynn, a shiny Las Vegas behemoth where rooms at rack rate—that's the hotel version of a vehicle sticker price—start at about double that. Wells Fargo meeting planners would have negotiated that down from there. One of the bank's biggest bargaining chips would have been the promise of numerous hosted meals, cocktail hours, and open bars (referred to in industry shorthand as F&B, for "food and beverage"). Hotels like when corporations sponsor meals or cocktail parties. F&B accounts for a healthy chunk of hotels' profits; if guests are left to their own devices, there's a good chance they might dine and drink in another venue.

A lenient contract would make Wells Fargo pay for 80 percent of those rooms whether or not they used them. While some hotels are less flexible and make a group responsible for every single room reserved, let's assume Wells Fargo's contract negotiators knew their stuff and were able to wrangle out of 20 percent from the Wynn, leaving them on the hook for the remaining 80 percent. Savvy meeting planners also include a rebooking clause, which lets the canceling party off the hook if the hotel can put a bigger piece of business in the unused space. In this economy, though, it's overly optimistic to count on drawing that get-out-of-jail-free card, even though January is high season for Las Vegas.

Here comes the math: 400 rooms at $100 a pop for 12 nights equals a $480,000 cancellation penalty. Sound like a lot? We haven't included food yet. A good rule of thumb is to assume that F&B expenditures are about 30 percent of room costs. That's $144,000 more the hotel is going to want, especially since with less than a week to go, most of it would have been purchased already.

That's not all. Sales and incentive meetings are designed to give employees a pat on the back and get them revved up to sell more. This cheerleading takes the form of pillow gifts, entertainment, activities like golf games and spa treatments, and other high-roller forms of pampering.