Generally there should be a cancellation clause in the contract that outlines the fee schedule for cancelling by certain date(s) prior to the event.

If it is too far past the last cancellation date, you are liable for the rooms you agreed to fill.

Make sure all guests have the appropriate group code when they call in to make their reservations, or the agent won't be able to see the discounted rate that is available. You can also sometimes ask your sales mananger to release extra rooms at the discounted rate if in fact they are all full. It may be that something else is going on at the hotel where the room type you are entitled too is full.

In the end it is a contract, so don't be surprised if they want you to pay up to break it.