Last fall, as the city of Hartford, Conn., prepared to
welcome the Aircraft Owners and Pilots Association 2007 Expo, H.
Scott Phelps, president of the Greater Hartford Convention and
Visitors Bureau, estimated that the three-day convention would
infuse up to $10 million into the local economy.
How did Phelps come up with that
figure? Like number crunchers at most CVBs, he used the ExPact
delegate spending study, published in 2004 by the Washington,
D.C.-based Destination Marketing Association International, which
at the time was known as the International Association of
Convention and Visitor Bureaus. Phelps took the projected
attendance (10,000 people), multiplied it by the average length of
stay per delegate (3.56 days per meeting, according to ExPact) and
multiplied that number by the study’s national average for daily
expenditures per delegate ($290, which includes lodging, food,
transportation, souvenirs, etc.). That yielded $10.3 million. To be
conservative, Phelps shaved a little off the top and set the number
as an upper limit for the meeting’s potential economic benefit.
“It’s very important,” Phelps says of
estimating a convention’s value. “In some cases, you’re putting
incentives out there for groups to choose your city, and to do that
you have to look at the return on investment.”
Estimates of direct delegate spending
or a meeting’s overall economic impact are the backbone of the
meetings industry. Many convention centers are allowed to operate
at a loss because the revenue and tax money meetings generate
outside of the convention centers outweigh the cost of running the
facilities.
But how cities gauge that benefit is
inexact, and the industry remains deeply divided over how these
numbers should be calculated, because different methods tend to
yield alternately incomplete or inflated estimates.
Part of the problem is that, despite
the best efforts of DMAI, the industry suffers from a lack of
reliable spending information, throwing some cities’ estimates --
and their underlying formulas -- into question. In fact, the ExPact
study proved so difficult for DMAI to produce and statistically
deficient in certain regards that executives at DMAI decided they
needed to alter the way they produced spending reports. For DMAI’s
new delegate spending study, due to be released this month, the
organization bought spending data from a third-party company,
McLean-Va.-based D.K. Shifflet and Associates, and because DMAI no
longer surveys planners or exhibitors, the new report is missing
some key data upon which some cities have come to rely.
Estimates move
billions
Quantifying economic impact is central
to determining how much public funding city and state governments
earmark for tourism organizations such as CVBs, as well as for the
construction or expansion of meeting facilities. Additionally, the
estimates are an essential component of the vocabulary CVBs and
convention centers use to educate policy makers and the general
public about the importance of the industry.
In other words, these quick
calculations help move billions of dollars each year and earn the
support of politicians.
But while planners keep information
about how much their groups spend at hotels and inside meeting
facilities, few have comprehensive data about the overall spending
patterns of their attendees, and thus, it’s usually left to the
cities to make these estimates. Furthermore, the formulas cities
use are easy to manipulate, and estimates are difficult to verify.
“Therein lies the problem,” says Kenneth McGill, executive vice
president of Global Insight, a Waltham, Mass.-based economic and
financial analysis firm that works with CVBs. “It’s very easy to
hide poor work.”
In most cases, CVBs don’t have a choice
when it comes to gathering data. Only a few cities conduct their
own spending research, and the rest rely on whatever national
averages are available. That means the amount delegates spend in
College Station, Texas, or West Chester, Pa., for example -- two
contributors to ExPact -- might be used to calculate how much
attendees will spend in Portland, Ore., a city that relies on DMAI
numbers. What doctors spend at a major medical convention,
furthermore, could be used to project how much teachers or
librarians will spend at a modest annual meeting.
But even for those armed with in-market
research, delegate spending figures that cities calculate for
individual meetings are rarely, if ever, based on the actual
spending history of delegates from those meetings.
Still, short of surveying every
attendee at every meeting, there might not be a better way.
“There’s no perfect economic model for any industry, from GDP
numbers down to measuring the size of the tourism industry in a
small destination,” says David Bratton, managing partner and
founder of San Francisco-based Destination Analysts, which conducts
spending research for San Francisco and Irving, Texas.
It might be impossible to know exactly
what a meeting is worth, and it might be equally irrelevant. How,
after all, does one quantify the value of the media coverage a city
receives when a national convention comes to town, or a positive
impression a city makes on an attendee who later returns on a
family vacation -- all part of a meeting’s value, from a city’s
perspective?
Steven Carvell, a professor and
associate dean at Cornell University School of Hotel Administration
in Ithaca, N.Y., says the pursuit of total accuracy is foolhardy.
“Only the Lord Almighty will be totally accurate,” he says. There
always will be some margin of error associated with these
calculations. The best plan, researchers say, is to derive a sound
methodology, based on the best data available, and stick with it in
order to have results that can be compared year over year.
But CVBs that rely on DMAI’s numbers
now face potential consistency problems as well. The new DMAI study
does not contain all of the same categories of statistics as ExPact
did. The new report is more detailed in certain areas, less in
others, and some numbers have been omitted completely. Kristen
Clemens, vice president of marketing and communications for DMAI,
says the new study is “not directly comparable” to ExPact.
DMAI’s dilemma
In 2004, as DMAI prepared its tenth in
a series of delegate spending reports, the organization wanted to
create a brand identity for its direct-spend data. The result was
ExPact, short for “Convention Expenditure & Impact Study,”
which DMAI hoped would become a respected industry resource.
But ExPact had “some inherent flaws,”
according to Clemens, and DMAI has reversed course and is
abandoning the moniker altogether; the new study is being called
“Delegate Spending for U.S. Meetings & Conventions.”
DMAI’s main problem was its inability
to get a representative sample of CVBs and planners to contribute
data to the research effort. “It really started back in 1993: the
erosion of meeting planners’ willingness to provide access to
delegates and exhibitors for surveying,” says Michael Gehrisch,
DMAI’s president and CEO. It took DMAI 18 months and several
pleading messages to its members before the organization received
data from 12,920 delegates, 1,286 exhibiting companies, 86 CVBs in
the United States and Canada, and 77 event organizers.
But despite the large sample size,
there wasn’t enough reliable data to create spending averages for
meetings in medium or small markets; the report only contained
averages for spending in large markets, defined as having 30,000 or
more hotel rooms, and national averages based on all events
surveyed.
ExPact’s data not only skewed toward
large markets but also large conventions: 87 percent of events
surveyed were listed as international, national or regional events,
and the average attendance exceeded 4,700 people. Ninety percent of
the events included in the study had some exhibition component,
with an average of 278 exhibiting companies per event. Due to a
lack of sample size for state or local events, the study did not
break out delegate spending averages for those categories; it
reported one average for “international, national and regional
events,” and another for all events, which included data from the
state and local events surveyed.
Additionally, ExPact did not have
enough data to break down spending averages by industry (medical or
government meetings, for example). When destinations use the online
ExPact calculator, the tool allows users to fill in several data
fields about the meeting, including where it’s held and what
industry it serves, and the tool searches the ExPact database to
find similar events. Matches are given more weight when calculating
the meeting’s total spending. But Clemens admits, in some cases,
users “won’t see huge differences” if they try different variables,
because some categories have too few events to generate accurate
totals.
Consequently, medium- or small-market
bureaus using DMAI numbers might overestimate the value of meetings
in their cities if they’re not careful. This led the Greater
Madison (Wis.) Convention and Visitors Bureau, which relies on
ExPact, to reduce spending estimates by 30 percent to correct for
the skewed data. But other bureaus don’t make this correction.
Summing up the data collection process
for ExPact, Gehrisch says, “We didn’t think it was sustainable
going forward.”
Information,
please
To produce the new study, DMAI turned
to D.K. Shifflet and Associates (DKSA), a company that provides
travel data to the U.S. Bureau of Economic Analysis and the U.S.
Department of Commerce, as well as other public and private
organizations. DKSA will supply DMAI with attendee spending data
gleaned from a travel survey the company sends to approximately
45,000 households each month. Jim Caldwell, vice president of sales
for DKSA, estimates the number of respondents who indicate they
travel for meetings exceeds 10,000 annually. DMAI will no longer
use data directly obtained from its members or from meeting
planners in crafting its spending study.
By using DKSA numbers, the new study
will be able to break out spending averages for delegates in large,
medium and small markets, which appeals to DMAI, because the
majority of its more than 600 members represent the latter two
categories. “We need to be able to fulfill more members’ needs”
than only those in large markets, Clemens says.
But DKSA’s survey also has its
shortcomings for the meetings market. It doesn’t gather much detail
about the events respondents attended. The survey only asks
subjects to choose one of three categories to describe a meeting:
convention, training session or seminar, or other group meeting.
Thus, like ExPact, the new report from DMAI will not be able to
break out averages for events by industry or size. Additionally,
the new report will not include spending data from incoming
international travelers, a market segment DKSA does not query.
Perhaps more importantly, the new
report from DMAI will not include some information ExPact did
consider: average exhibitor and organizer spending. The 2004 report
shows that event organizers spend, on average, approximately
$454,700 locally per event and $715,700 per event in large markets,
and exhibiting companies spend roughly $6,750 apiece locally per
event at the average show and $7,240 per large-market event.
Because DKSA asks only about personal travel, this data no longer
will be collected, and its omission could cause some destinations’
spending estimates to tumble by millions of dollars per event,
compared to those in past years, if replacement data is not
obtained. “For us to [collect that data] on a national basis for
all markets is cost prohibitive,” Gehrisch explains.
Clemens defends the exclusion by
arguing that many destinations choose not to consider exhibitor or
organizer spending. “A lot of bureaus don’t actually use those
numbers,” she notes. Many CVBs treat exhibiting company staff as
regular delegates for the purposes of these estimates. “We didn’t
take this change lightly,” Clemens adds. “It came down to making
sure we provide delegate spending numbers, because that’s something
[CVBs] are definitely all using.”
HOW PLANNERS CAN USE THE NUMBERS
Sandra Toms LaPedis, San Mateo, Calif.-based area vice president and general manager of the annual RSA Conference for security professionals, believes her group’s economic impact numbers are so important, she tries to bend the formula used by the San Francisco Convention and Visitors Bureau to assess her meeting. “I would like our attendees to be more on the ‘doctor’ side,” she says, referring to the fact that doctors are regarded as big spenders. Knowing estimated delegate spend, she adds, can affect negotiations. “If I’m competing with another show organizer for show dates, it helps to say, ‘Here’s my economic impact.’ "
While total spending estimates aren’t the only metric used by venue or bureau officials to analyze a meeting -- room blocks and number of attendees are usually the main determinants -- the figures can be used to earn concessions, such as free parking or free Internet; attract sponsorships; or convince CVBs to host a reception or contribute to marketing or transportation costs.
Cathy Scheck, right, vice president of meetings for the Heart Rhythm Society, based in Washington, D.C., says she works with hotels to get financial reporting on “in conjunction with” business -- meetings held by other companies before or after the main convention that are only there as a result of the HRS event -- and she also cross-checks her attendee list with hotels’ registers so she can identify people who booked outside the block, include them in the audited room pickup and factor them into spending totals. Scheck says she builds these requirements into her hotel contracts and includes the numbers in her requests for proposal because it helps negotiate better rates and general concessions at key hotels and convention centers. “They might look at the RFP differently,” she says. “It might impact what they bid.” -- T.I.
Direct spend vs. economic
impact
Once bureaus collect the raw spending
data, they are split on what to do with it. The most contentious
issue is whether bureaus should calculate only direct delegate
spending, typically defined as dollars out-of-town attendees spend
once they arrive in the host city, or the meeting’s economic
impact, which includes “indirect” or “induced” spending streams,
such as wages for hospitality workers and costs associated with
supplying venues with products such as food, linens and
technology.
Some CVBs, including those in
Baltimore, Detroit, Las Vegas, New Orleans, Orlando and San
Francisco, stick with direct spend. Others, including those in
Boston, Dallas and San Diego, attempt to quantify the broader
economic impact. Some calculate both.
“I believe pretty strongly that you
should only report direct spend numbers. That’s the way we’ve
always done it,” says Robert F. Bedell, president and CEO of the
Indianapolis Convention and Visitors Association. “Economic impact
numbers are not nearly as credible.”
Gary Musich, vice president of sales
for the Atlantic City Convention and Visitors Authority, is less
diplomatic. “I hate economic impact,” he says. “Direct spend is a
real number.”
Direct spend can be simpler to
calculate and quantifies an input value the meeting represents for
a city. But there are disagreements even among direct spend
devotees, including whether to ignore spending from local
delegates, assuming they would spend that money in the local
economy anyway, or to include that group under the banner of
“retained tourism,” arguing that if the convention had been held in
a different city, those dollars would have been spent elsewhere.
Direct spend figures tend not to include exhibitor or organizer
expenditures, which some CVB executives say makes them more
conservative, but this also renders them potentially incomplete --
too incomplete for some bureaus.
Economic impact calculations are
infinitely more complex and describe how revenue from a meeting
interacts with the local economy, in an attempt to quantify a
meeting’s net gain or loss for a city. Using this method, meetings
will be worth more to cities with diverse economies, because impact
models factor in things like “leakage,” a term used to describe
money that is redirected out of the metropolitan area, in the form
of dollars used to supply hotels with food or linens if they aren’t
purchased locally.
Detailed models also attempt to
consider factors such as the business that was lost as a result of
the meeting being in town and how money cycles through the local
economy after hospitality workers are paid, such as when they
purchase gas or groceries.
In practice, most CVBs simplify this
task by combining all of these factors into a single “multiplier,”
a number by which the direct spending totals are multiplied to
arrive at economic impact. The Massachusetts Convention Center
Authority -- which compensates its salespeople in part based on the
economic impact of the meetings they book, and whose executive
director, James Rooney, holds an economics degree from Harvard --
doubles direct spend figures to estimate economic impact. The
Dallas Convention and Visitors Bureau multiplies direct spend by a
factor of three.
“The multiplier effect is standard
economic theory,” and not just a quick way to inflate totals,
argues Cornell’s Carvell.
However, adds Jeff Anding, director of
convention marketing for the New Orleans Metropolitan Convention
and Visitors Bureau, “when you’re looking at secondary and tertiary
spending, it gets really hairy.” Anding calls economic impact a
“moving target.”
Jan Freitag, vice president of
Hendersonville, Tenn.-based Smith Travel Research, concurs that
“it’s really hard to pin down” what the multiplier should be in a
given market. While most bureau executives would agree economic
impact is a valid metric in theory, many find the task of
calculating it too much art and not enough science.
Still, models matter. Researchers at
the Beacon Hill Institute, a think tank associated with the
economics department of Boston’s Suffolk University, conducted an
independent analysis of the 2004 Democratic National Convention in
Boston, after the city estimated the convention was worth $154
million. BHI determined that estimate was accurate, but only if
considering the benefits of the convention. Taking into account
lost business and additional costs associated with the convention,
BHI concluded the net benefit for Boston actually was dramatically
lower, at $14.8 million.
Sliding accuracy
Spending estimates tend to be more
reliable the wider the parameters. Annual numbers from a bureau
probably will be more accurate than an assessment of an individual
show because, over time, variations between groups even out.
For that reason, Paul Bachman, director
of research at BHI, questions how much money and energy bureaus
should spend to gather raw data. “I’m not sure the information
you’d gather would be worth the tremendous effort you’re putting
in,” he says. “You know people have to eat and drink and sleep, so
you have a baseline there.”
The dilemma is an example of
diminishing returns. DKSA’s Caldwell says in order to decrease the
margin of error for a spending study from 3 percent to 1 percent,
the sponsoring organization might have to pay researchers five
times more. “It becomes, at some point, cost inefficient,” he
says.
Sometimes, bureaus can get lost in the
numbers.
“People will say there are certain
groups that are good spenders and certain groups that are not good
spenders,” says Bedell of the Indianapolis CVA. “My take on it is
every group is a good spending group.”
