This is a scary picture
December 21, 2004
Where was I? The conference center, part II. Last week I
gave you all of the info on the new one in Denver. Not booked. No money to
market it. New tax anticipated to fix that. A pretty bleak picture, if you
believe the Denver Post.
But Rich Scharf doesn't. He's the president of the Denver Metro Convention and Visitors Bureau. He thinks it's going to be good for Denver and it better be, because it's his job to fill it. But we'll get to that later.
Now we need to look at some research done by one of the industry's leading authorities, Heywood Sanders. He's a professor of public policy and also leads the graduate degree program in public administration at the University of Texas in San Antonio. He's also recognized as the best-known, best-informed independent critic of publicly financed conference centers in America today. When I talked to him, he painted a very scary picture.
So here are some random statistics: Convention space in the U.S. has doubled in the past10 years, while demand has decreased. Even last year, as available exhibition space increased by 6.6 percent, space actually rented dropped by 5.3 percent. Boston, Houston, Tampa, Phoenix, Albuquerque, Atlanta are all down. New Orleans usage has dropped 50 percent since 1998; Los Angeles is down 65 percent.
It's pretty clear. The growth in convention business simply has not matched the increase in space and competition. And it can only get worse. Recently completed expansions in Salt Lake, San Antonio, Seattle, Dallas, Las Vegas, San Diego, Houston, San Francisco and Minneapolis will come up against not only existing centers but planned expansion in Chicago, Kansas City, Los Angeles, Phoenix, New Orleans.
But wait. Did I just include L.A., New Orleans and Phoenix in conference centers that are expanding? Weren't they also on the list of centers that were down in bookings? So why would they be planning expansions when their business is already falling off?
Here's another area in which Sanders weighed in heavily. Unfortunately, these decisions are seldom based on traditional business theories because public money is not viewed in the same way as private funds. Additionally, since politics in general is not a rational process, there's no reason to expect rational results. Bureaucrats like notches in their belts. Politicians seek plaques on the wall. Hotels want bookings. Meeting planners want commissions. And there's the overriding feeling that any increase in business is a good increase.
But the numbers just don't work. The demand can never catch up to the supply available and quite simply, according to Sanders, "they aren't worth the millions communities are pouring in to them."
Worse yet, excuses are made when they don't work. It's not filled? It must be too small - expand. No hotel? That must be the problem - build one. The motivation in doing so is to revitalize the economy through large-scale infusions of public funds to lure people (and their money) to city centers. It's a common refrain. And it's the same story, regardless of the size of the community.
What's really disturbing is the overriding theme of "throw caution to the wind" when consultants are asked to prepare evaluations for a community. Professor Sanders told me that he has been asked to review 70-80 market research studies after they have been prepared and included in business plans for either expansions or new developments of convention centers across the country. Not one has said, "Don't do it." They haven't even said, "It might not be a good idea." Every single one has said, "Build it and good things will happen."
There's also a feeling out there that bigger is just plain better, a perception that spaces have to grow to accommodate the large groups. But according to Scharf, there aren't a lot of those. In reality, most exhibition spaces are broken down regularly to adapt to smaller demands. And truth be told, there are a lot more small groups than large ones.
But if it's any consolation, we're not alone. Dozens of other cities are also looking to the convention business to solve economic problems even though that business is collapsing everywhere and has been doing so since the mid-1990s.
While it's not uncommon, Professor Sanders calls it simply a disaster waiting to happen. He says that "under the best of circumstances they're a problem. Under the worst of circumstances they are an enormous nightmare."
Even Rich Scharf believes that when Denver is successful - and he believes when rather than if - it will be at the expense of some other facility in some other town. He is confident that the "winning" facilities will have at their core very strong city centers. Cities that have "an abundance of amenities and activities that have broad appeal with lively and exciting downtowns." And as the professor pointed out, "Cities that already have an enormous appeal to visitors and include a very elaborate visitor infrastructure."
Sanders also stressed that the only way one convention center can win is for another to lose. And the competition is fierce. Convention centers across the country are engaged in price wars. Rates are being slashed with some offering the convention center space for free in the hopes that food, rooms, parking, etc., will provide some revenue for the cities. You can find not only free exhibition space, but in one example, $5 a head for every attendee you bring plus rebates on hotel rooms.
"Early bird" rates are negotiated for dates way out. Discounts are given for quantity rentals. His opinion is that no one can really compete in that environment. Especially when places like Las Vegas have a $160 million marketing budget with $65 million going straight to advertising.
But Las Vegas is not our competition, you say? How about Monterey? You might remember that Monterey was the first stop on a series of "peer resorts" visited by the business community, Vail Resorts and town of Vail officials several years back. And it was chosen because of our similarities rather than differences. They have seen their convention center business drop by 50 percent.
Then there's the hotel component, a necessity in Denver according to Schraf, who said 50 percent of their attendees surveyed said they would not be back unless a hotel was built on the premises. Sanders' take is that while a hotel does not guarantee success, it's a definite plus and one we'll be competing against in other cities.
But we're getting closer. More facts to weigh at least. Next week I'll try to assess what it all means to us in Vail, Colorado, as we move toward D-day. It's a huge financial commitment for us and one that must be arrived at judiciously.
Is it possible that the $40 million that taxpayers agreed to spend on a conference center might in fact create a white elephant? Is there an alternative to regenerating the local economy? Is it not only prudent but intelligent to explore the options? I think so. Stay tuned.
Do your part: call them and write them.
To contact the Town Council, call 479-1860, ext. 8, or e-mail firstname.lastname@example.org.
To contact Vail Resorts, call 476-5601 or e-mail email@example.com. For past columns, vaildaily.com-columnists or search:ferry.
Kaye Ferry is a longtime observer of Vail government. She writes a weekly column for the Daily.