...sports groups?
This would be a town-wide event with athletes from up to 500 miles away. One weekend, eliminations at events possible.
What's your experience with hosting the athletes, with parents, for this sort of thing? No athlete comes as part of a 'team' so this is not 1 coach with 20 students running rampant.
Interested in your experiences, how you handle the cancelations due to eliminations, breakfast timing, etc.
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Spare me the perky.
locally....we have found that "sports groups" more likely to be more trouble than they are worth. Always wanting something different, breakfast early etc etc. Not the usual B & B going people in most cases. But I know you are used to dealing with these types 
Yes this would be different that a whole team elimination but still you could be caught with an empty room at the last minute. I have not had (directly anyway) this type of stay. Had Grands of players stay though.
Our sporting events are usually during our slow months so I will do a shorter but not last minute cancelation as I feel many of these people are just waiting for space to clear at a cheap(er) hotel and will run the first chance they get, regardless. With Grands, they are thinking of a more peaceful stay away from the screams of the masses of the young running around and screams coming from the pool.
So getting back to your question, I would think about how it will effect your business bottom line if they do cancel and go from there. If this is going to be during a slow(er) time when you most likely will not be full and do not feel you would take a real loss if they cancel, then go for it. If you think you would be out cash if they cancel because you could have rented it otherwise, I would not reduce my cancelation policy and be firm with my deposit fee.
The situation could also be that they are eliminated once they have already checked in, again leaving you with a possible empty dirty room.
Yes there is the possibility of a 'walk in' that was caught off guard of the invasion thinking they would easily find a hotel room, and suddenly the hear the stampede and decide your cozy place would be ideal.
If you do go the distance and book guests for this event, breakfast can (most likely is) an issue. The option is given (unless it is at an unGodly time - I am no Gillum
) for an early breakfast but they usually (at least in my case) opt out and so I make muffins and package easy to eat fruit for them to take on the go.
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"Do not forget to entertain strangers, for by so doing some people have entertained angels without knowing it." Hebrews 13:2