Companies Cut Back on Corporate Parties

Last December, a large telecoms company rented out a motorbike center to throw a New Year's party for 200 senior managers. Ded Moroz and Snegurochka were decked out in skimpy leather costumes, while guests used a welding machine to make metal ornaments for the New Year's tree, which was subsequently set on fire.

The total price tag for the party: 1 million euros ($1.3 million).

This year, the company is debating whether it will even throw a party.

"There are many cancellations this year from large companies that made arrangements back in the spring. Some of them are breaking up their big parties or having a single event for top management only," said Sergei Knyazev, who organized the party for the telecoms company last year and is one of the country's best-known party planners. He declined to identify the firm, citing client privacy.

With the global financial crisis eating into revenues, companies are scaling back their New Year's parties, which range in scale from a restaurant outing to lavish banquets featuring appearances by international stars like the actor George Clooney and singer Bjork. About 25 percent of companies have pulled out of their New Year's party contracts in recent weeks, according to estimates from party planning agencies. As a result, prices for parties are dropping as well.

Parties for more than 1,000 people started at 500,000 euros last year, while the upper end of the budget extended as far as the imagination allowed. Companies have splashed out big money for star power, with George Clooney sitting at the main table with the company CEO at one party for an undisclosed fee and George Michael playing at Interros' New Year's bash for a reported $3.3 million two years ago.

Typical venues for corporate parties are restaurants, clubs and country sanatoriums, all of which are usually booked up for December and January.

This year, it appears that large companies with thousands of employees are breaking down their parties into departmental events with smaller budgets. Large venues that typically had clients lined up far in advance are now seeing cancellations.

"Out of seven contracts, two have already been canceled," said Tatyana Volnina, head administrator at Crocus Expo, a venue that usually hosts parties of several thousand people. "It's definitely on the decline."

Smaller companies with less than 100 people that once spent 500,000 to 2 million rubles for a New Year's party in a restaurant are organizing parties themselves this year, said Maria Lebedeva, a manager for Team Systems, an event-planning firm.

Companies canceling their party plans are mostly in the financial or construction sectors, said people in the party-planning industry.

Facing a drop in demand, party planners are fighting with one another over who can offer the most bang for the buck. "Whoever offers the best party for the price ends up getting the contract, so companies are getting more than usual for a smaller budget," said Alexander Shumovich, director of Eventum, whose clients have included Beeline, Shell and VTB.

He said small event firms might go bankrupt altogether because of a lack of contracts.

Russian pop stars, who have enjoyed the windfall profits of the past few years as much as anyone, are lowing their fees as well. Unlike Western singers, who earn most of their money through record sales and endorsements, Russian stars are more dependent on concerts, including company performances.

"Since this summer, New Year's performance prices have come down by 20 percent already," said Leonid Ignat, a spokesman for Alfa Bank.

The bank has not pulled out of its party agreement with a Moscow club but has not made a decision on a performer yet, Ignat said. "We stopped our talks with potential stars in September, hoping prices would fall," he said. Last year, Bjork performed for 2,000 Alfa Bank employees.

Typically, 70 percent of companies want a well-known performer at their corporate New Year's bash, said Knyazev, whose clients have included MTS, LUKoil, Interros and former President Vladimir Putin.

"This year, only 20 percent of clients have requested a star's performance," he said. "If artists don't lower their prices, they are likely to be out of work around New Year's."

Russian pop stars charge about 30,000 to 40,000 euros for a performance, but some nearly double their asking price for New Year's events, Knyazev said.

He predicted an even steeper decrease in parties in 2009, when companies will be operating on tighter budgets.

Companies will "toast each other with champagne in the office, like they did back in 1998," he said, referring to the 1998 financial crisis.