Thursday, January 20, 2005


Subject: FOS report: Convention centers: The drug of the nation
Date: 1/21/2005 6:23:36 PM Eastern Standard Time
Sent from the Internet (Details)

January 21, 2005


On Monday, the Brookings Institution released a report by University of Texas researcher Heywood Sanders on the economics of convention centers and the public subsidies that help fund them. It took me a couple of days have time to give it a thorough read, but it was worth it: Sanders' findings are pretty darn damning of this industry, and point up many parallels with the sports stadium racket:
Cities are spending taxpayer money on new and expanded convention centers at an unprecedented rate: $2.4 billion a year now, with 44 new or expanded centers currently in the works.

The stated goal of all this spendthiftery is to capturea share of the growing convention market - except that the market, Sanders finds, is shrinking, and now seems unlikely ever to rebound to its previous levels.

With a glut of convention space and fewer and fewer big conventions to fill them, event planners are increasingly "churning" through various venues for the best offers. As a result, many cities now find themselves throwing good money after bad, offering deeply discounted rates in order to attract any business at all.

The upshot, as convention center consultant David Petersen tells Sanders: "In North America, only two or three convention centers in major markets consistently generate enough operating income to pay operating expenses" - and that's after the public has paid off the center's initial construction debt.

As far as remedies go, Sanders has a long list of recommendations, running from increased use of independent auditors to investigate the claims of convention center boosters, to better public oversight of the process of allocating funds for these beasts. Notes the report: "Even where the voters have said 'no' to center bond issues or new taxes - as they have done in Pittsburgh, Columbus, Portland, and San Jose - investments in convention facilities have a way of happening despite the electoral outcome - as in Pittsburgh, Columbus, Portland and San Jose." Like I said: Parallels.

Over the past few days, Sanders' Brookings report has gotten a mess of press coverage, with the New York Times noting it "raises questions about the wisdom of joining the convention hall space race," while Bloomberg News columnist Joe Mysak called it "The Report Wall Street Doesn't Want You to Read." Of course, then there's Arizona Republic columnist Jon Talton, who looked at Sanders' figures of a plummeting convention market and drew this conclusion: "This is an arms race that Phoenix must win. If only 10 cities nationally will eventually compete for trade shows, Phoenix should be among them. If anything, the Civic Plaza expansion is years late."

I tracked down Sanders for a quick chat yesterday, in which he laughed about the Arizona Republic story (noting of Arizona that "in stadium terms, they're the biggest Kool-Aid swallowers"), and elaborated on some of the points raised by his report:

Seeing the quote that only two or three convention centers cover operating costs absolutely floored me.

Let me make it clear: They never cover debt. In the perverse world of convention centers, if you actually run in the black you're doing a bad job. For the following reason: The convention market is so competitive, with cities offering rent discounts, that if you're making money, you're likely only doing it because you're doing local events, banquets and weddings and local shows. Because they all pay. So if you make money, you're actually failing at bringing in out-of-towners.

Because the out-of-towners have so many choices that they're never going to pay enough to pay operating costs?

Oh, yeah. If you go to the Dallas CVB website, you'll see what kind of deals they're giving - five bucks a night for every hotel room, half-price rates, special fares on American Airlines.

You were cobbling this together based on what data was available. How confident do you feel about these findings, given how little hard data there is on the convention industry?

It's a little bit like being a CIA intelligence analyst - you have to read the tea leaves. What struck me, however, is how consistent it is. If you're looking at declines of 30 and 40 and 50%, you're looking at pretty hefty declines. And if you're looking at those declines from New York to San Francisco, and Los Angeles to Boston, and Chicago to Houston, and they're consistent, we're in pretty good shape.

We've talked before about how attention to convention centers has trailed a bit behind stadiums. Do think it's convention centers' time for the spotlight?

I'd like to think. But it's not easy. Look at a stadium - the hype is consistent from one end of the country to the other, but at least once it happens, you can see what the attendance numbers are, you can look to some degree at a team's finances, you can look around the stadium and see what happens. With convention centers, it's enormously difficult just measuring attendance. In that kind of environment, even if someone wants to study one city, it's tremendously difficult.

While this website will remain focused on stadium shenanigans, if there's a bit of spotlight left over in coming weeks and months, expect me to focus it on convention centers as well.

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