Convention Centers: Public vs. Private

Felix Niespodziewanksi, left, convention and meetings director for the Chicago-based American College of Surgeons, started in this business 40 years ago. "My first trade show was in August of '73 at McCormick Place, in the old building," he recounts. Over the years, Niespodziewanski planned many events there, a process that was often frustrating. "The difference between today's McCormick Place and what it was then is, without exaggeration, like day and night," he says. "I never thought I'd live to see such changes in McCormick Place."

McCormick's reinvention is a well-publicized success story. The sprawling four-building, 2.6 million-square-foot facility, historically plagued by customer complaints about service, labor and expense, underwent a dramatic transformation in 2011. Chicago's Metropolitan Pier and Exposition Authority named private venue-management firm SMG to run the center's operations, and reached a settlement with local labor organizations to implement work-rule reforms legislated the previous year.

Niespodziewanski has been organizing the American College of Surgeons' annual Clinical Congress since 1990, returning to McCormick Place every three years. The meeting typically draws about 13,500 attendees from around the globe, including some 8,400 surgeons. Working with the facility for the 2012 congress was a relative breeze, says Niespodziewanski.

"The staff is smaller," he notes, "but the people who are there are in tune with the industry, have been there a while and have worked on the delivery side of client services, resulting in a more customer-friendly atmosphere for planners, exhibitors and attendees."

David Causton, general manager of McCormick Place since 2004, has seen the changes from the inside. Causton worked directly for the city authority for seven years before SMG hired him upon taking over the facility's management. "Now we are more flexible and can react more quickly to customer needs and expectations," he notes.

Implementation of the new work rules has pleased exhibitors, too. "Before, costs were prohibitive," says Christopher Price, vice president of the Reston, Va.-based Graphic Arts Show Co. Price was so pleased with the changes that he produced a video detailing them to show to his prospective exhibitors. "Today," he says, "people are happier. They start off with less stress, less hassle and a better experience." (See "McCormick Place: What Went Right," left.)

Now Trending: Privatization
Excellent convention facilities across the country and abroad are public-run and highly successful, including the mammoth Orange County Convention Center in Orlando (see "The Orlando Center's Adoring Public," below). Some have even made the switch from private back to public, citing cost savings and other positive results (see "Memphis: From Private to Public"). However, the move to private management is on the rise.

McCormick Place is the largest publicly owned convention center to privatize management and operations, but it's far from the first. Its management firm, West Conshohocken, Pa.-based SMG, now runs 71 U.S. facilities, including many in top-tier cities such as San Francisco, Denver and, as of last month, Philadelphia. In the past five years, the number of convention centers SMG manages has increased by more than 14 percent.

Small- to midsize markets have long been using private management firms to operate their convention centers, explains SMG's Gregg Caren, senior vice president of strategic business development. But he has seen a definite uptick in interest from major market venues. SMG now manages more than 85 percent of the publicly owned, privately managed convention centers in the U.S.

Philadelphia-based (and Comcast-owned) Global Spectrum, SMG's closest competitor, runs a total of 31 convention centers nationally, primarily in smaller markets. And, Los Angeles-based AEG, which was selected to manage the Los Angeles Convention Center last month and recently bid to manage the facility in Hawaii, now runs operations at six centers globally -- in Qatar, Kuala Lumpur and four locations in Australia.

"It certainly is a trend," notes David Dubois, CAE, CMP, CTA, president and CEO of the International Association of Exhibitions and Events in Dallas. Dubois, who formerly served as president of the Fort Worth Convention and Visitors Bureau in Texas, where a city staff manages the convention center, has had positive experiences working with both scenarios. "The challenge is that the operational deficits at most centers continue to be problematic, because the pressures of city budgets are not going away," he says. "Obviously, cities that own convention centers are looking at ways to continue to put out a good product and provide good service to conventions and trade shows at their facilities, while lessening expenses." For many cities, a solution is to outsource, taking facility managers off the city's payroll.

The private management companies are enjoying the results of such decisions. In the first half of this year, Global Spectrum has responded to more RFPs than in any previous full calendar year in the company's history. They come from all types of venues, including arenas and stadiums, notes the company's senior vice president, Frank Russo. But there has been a particularly strong spike in interest from publicly run convention centers.

"Prior to 2008, the vast majority of our opportunities were for new buildings that were under construction," says Russo. "Because of the impact of recession on municipal governments, many more opportunities to manage existing venues have emerged. Local governments have an inability to spend money but are aware that you can't have an across-the-board cut to a convention center, arena or stadium, because it's an entrepreneurial function of government; the more you cut expenses, the more you might jeopardize service, revenue and repeat business."

And when it comes to a public facility like a convention center, local governments are competing with statewide facilities, hotels with meeting space, other regional convention centers and other cities internationally. "You can't do that on a cost-cutting budget," asserts Russo. "You have to be able to do that as an entrepreneur, as an organization that can spend money to make money."

When a private company takes over a facility's management, its goal is to turn the convention center -- which often is losing money -- into a profit­able venture. Running such venues efficiently and profitably are core competencies of private management firms, says Russo. Also, private firms are not bound by the political influences or regulations that could potentially affect procurement, personnel, salary structure and other processes at the government level. And, he points out, management companies generally are prepared to invest more money to lead to longer-term profitability.

"You need a full-strength staff that is customer-service oriented, gets the job done and generates repeat business. Many government organizations just aren't geared to do that," notes Russo, who previously worked in the public sector. "It's not that the people who manage these convention centers are not good, solid professionals, but they're involved in a governmental system that does not reward for bottom-line results, achievement and sales."

Even sources on the government side of the equation agree that public facility management has a host of inherent challenges. "This is an area where the private sector excels," says Miguel Santana, city administrative officer for Los Angeles, which just made the decision to go from public to private convention center management. In terms of motivating employees based on merit, Santana thinks the city has done a decent job. "But it's hard to apply some of those principals in government," he admits.

After completing an RFP process in mid-June, L.A. selected Los Angeles-based AEG to manage its convention center. (SMG, which had bid on the business, challenged the decision, claiming that AEG lacks the experience to run the facility. Officials were expected to vote on the issue by the end of June.)  

Part of the motivation to go private, says Santana, was to remain competitive with other large cities, many of which have gone that route. "We want to make sure our service is consistent with the experience convention-goers have elsewhere. Bringing in a firm that specializes in this industry and can put us on par with other major destinations is part of our objective. Part of it, too, is to generate savings so that it's run more cost-effectively and the savings get reinvested in the center or in other areas in the city."

Spreading the word
McCormick's move got the attention of other major cities, says David Causton. "Being the largest convention center in the U.S. and having decided to do this has gotten a lot of other facilities thinking, 'That's interesting, I never expected McCormick Place to do that. Should we give it another thought?' "

The board of directors of Philadelphia's Pennsylvania Convention Center Authority spoke with McCormick's top brass before deciding to privatize its management, having experienced similar, persistent complaints about customer service, labor and expense. A $787 million expansion of the facility debuted in spring 2011, but as of early this year, future prospects were looking grim. Citywide bookings were significantly down for upcoming years. The PCCA board issued a request for proposal in March, part of a four-point plan similar to the reforms made in Chicago. In early June, SMG was selected to manage the venue.

The other initiatives include a review and reform of the labor-supply model, a process now under way in conjunction with SMG. The convention center's situation is somewhat unusual, according to PCCA chairman Gregory J. Fox, in that a labor intermediary holds the collective bargaining agreement with the various unions. "We're reviewing that model and determining whether it would be good to make any changes or not," says Fox. "We want to be sure the labor supply model is structured in a way that's responsive to our customers' needs."

The PCCA will be analyzing existing work rules and looking for opportunities to make improvements in terms of service, billing transparency and other areas flagged for improvement. Philadelphia CVB president and CEO Jack Ferguson points to SMG's industry expertise and focus on customer service as key factors that he hopes will help turn things around for the facility. "It will allow us to tap into new business for Philadelphia and bring back others who had not planned to return," he says.

Pros, Cons and Caveats
"Ultimately, it's a customer-service issue," says Michael Lyons, AIBTM show director and a former member of the Pennsylvania Convention Center Authority's board of directors. "If you're running a really good facility and the costs are in line, clearly the customers will want to come back," he says. "That's why some cities are electing to work with these companies that have a great deal of customer-service expertise. But it certainly isn't a guarantee to success. Some cities that have taken on private management firms maybe didn't get the results they expected."

It's difficult to draw distinctions or make assumptions about facilities based on whether they are publicly or privately run, agrees Vicki Hawarden, CMP, president and CEO of the International Association of Venue Managers in Dallas. There are just too many variables in how each is operated; what might be the case at one publicly run venue could be drastically different at another.

"I've worked with both private and corporate venues as a meeting professional," says Hawarden, "and, really, I can't tell any difference between the two. It's not the type of organization that's running it, but the people you're dealing with at that venue."

One difference noted by planners: Public regulations can mean added costs. "City-run venues often have a set of terms that require you to use certain city services," notes Debbie Padilla, senior administrative specialist with Intel in Santa Clara, Calif. She recalls having to use a certain number of city police officers for a given amount of time as an example. Such nonnegotiable terms, and their accompanying fees, can add up. "It can definitely affect your budget," Padilla says. It might not be a deal-breaker, but she's grown accustomed to the relative ease of negotiating with privately run venues.

Hawarden believes most venues are becoming more flexible, including the publicly run facilities. "City governments sometimes had a tendency to say, 'Look, this is our standard contract and you can't change it.' Now that is much more flexible, no matter how the venue is run. There's an understanding that if you want to work with the customer you can't just have one contract where you can't change a word in it."

And she isn't convinced privatization is a long-term trend. "It's not like every venue, everywhere you look, is going down that path. It depends on the individual politics and culture of the city."

A variety of alternative models are emerging as well. Houston First Corp., for example, was formed two years ago as a "quasi-public" entity to run several venues, including the city's convention center. "I think everybody's just looking for the way to run a building in the most effective manner," says Hawarden.