Maxed Out?

Enough already: Professor Heywood Sanders says new facilities are not the panacea many cities hope for.

This winter, a wave of news stories on municipal convention center spending and industry demand swept the pages of daily papers and magazines across the country, driven by a scathing study released by the Brookings Institution, titled “Space Available: The Realities of Convention Centers as Economic Development Strategy.”
    The 32-page report, written by Heywood Sanders, a professor with the Department of Public Administration at the University of Texas at San Antonio, presents the convention marketplace as being stuck in an era of decline, laden with an ever-growing “glut” of new convention center space that will not bring significant new business to any given city.
    Nonetheless, Sanders argues, municipalities across the country are overspending public funds on new centers and, worse, building attached hotels and offering deep discounts to attract a steadily shrinking pool of attendees. In fact, some cities, desperate to live up to pie-in-the-sky attendance expectations, are giving their multimillion-dollar convention center space away for free.
    “This analysis should give local leaders pause as they consider calls for ever more public investment into the convention business,” Sanders writes.
    But in the wake of the Brookings report, institutions and individuals in the convention industry are howling over the methodology Sanders used in reaching his conclusions. They even question the honesty and motives of  Sanders himself, who has earned notoriety as the naysayer-in-chief of the meetings and conventions trade. 
    “The Brookings Institution report was very disappointing and troubling because much of the analysis was faulty, incomplete and based on erroneous assumptions,” says J. Stephen Perry, president and CEO of the New Orleans Metropolitan Convention and Visitors Bureau. “The analysis was theoretically unsound, and the methodology was suspect. It was far from an objective report and reflects unfavorably on Brookings’ usual high standards.”
    Steven Hacker, CAE, president of the Dallas-based International Association for Exhibition Management, calls the report “an assault on academic integrity. It’s not worth the ink it’s printed with. It’s the equivalent of standing in a crowded theater and shouting ‘fire!’ It’s a way of saying these buildings are somehow corrupt.”
    Clearly, the meetings industry’s rebuttal to Sanders and his Brookings report is intense and at times quite personal. A nerve has been hit. But can Sanders back up his theories?

Center dissenter
Sanders conducted his study by first examining attendance and occupancy data from convention centers and nearby hotels in several cities, using numbers from convention and visitor bureaus or the centers themselves, and then making comparisons with consultants’ earlier forecasts. Time after time, Sanders found, the city-financed consultants’ projections were fantastically rosy. “The promise that is always laid out is high attendance, thousands of jobs, millions in economic impact and huge returns on these public investments,” he says. “Those results, certainly in this market environment, just haven’t happened. What has happened, however, are calls for more spending and more space and a massive publicly owned hotel next door to the center. Those keep happening.”
    Even some of the most dominant cities in the convention business have seen declines, says Sanders, who cites significant attendance slippage at several centers. Among them:
    " Atlanta’s Georgia World Congress Center, where attendance in fiscal year 2004 was less than half of that in fiscal 1997, despite a 2002 expansion;
    " New Orleans’ Morial Convention Center, which posted a 41 percent attendance decline from 1999 to 2003, despite a 1999 expansion;
    " Chicago’s McCormick Place, which saw a 24 percent drop in attendance between 2000 and 2003, and with a massive new building due to open in 2008; and
    " New York City’s Javits Center, which is down 32 percent in attendees since 1997 and has plans to expand the facility, build a hotel and an adjacent stadium.   
    Sanders says even convention industry powerhouse Las Vegas is not immune to this gloomy trend. In 1999, the average event at the Las Vegas Convention Center saw 26,154 attendees, but that head count dropped to 16,369 in 2003, despite a huge expansion the year before.
    Sanders also examines so-called regional centers and finds plummeting business at the major publicly owned facilities in Atlantic City, Baltimore, Charlotte (N.C.), Cincinnati, Dallas, Denver, Houston, Indianapolis, Phoenix, San Jose (Calif.) and Washington, D.C.
    The report concludes, “The bottom line: With events and attendance sagging in even the hottest destination spots, few centers are even able to cover basic operating costs and local economic impacts have fallen far short of expectations.”

The numbers game
It sure sounds grim. But wait a minute, say convention industry advocates, Professor Sanders’ facts do not paint the complete picture. 
    Critics of the Brookings report do not take issue with the disappointing numbers on convention center attendance, nor do they argue with the fact that in numerous instances consultants were off base in their optimistic, city-funded reports encouraging center expansion and construction. Rather, complaints center on the fact that Sanders looks primarily at numbers generated at convention centers from the late 1990s through 2003. 
    “He takes a window of 1999 to 2003 and suggests that the decline in attendance and participation is indicative of an industry in decline, which is completely absurd,” says IAEM’s Hacker. “Anyone with even a passing acquaintance with travel will know that the reasons for the decline have everything to do with the economics of that period and everything to do with September 11 exacerbating that. The Travel Industry Association published data in August 2001, a month before 9/11, that indicated 77 percent of U.S. businesses had curtailed all but essential travel as a direct response to the economic recession taking place. A month later, the bottom fell out.”
    Industry boosters say many of the optimistic city projections Sanders cites were made prior to the recession, the dotcom bust, 9/11, the anthrax attacks, SARS, the wars in Afghanistan and Iraq, terror alerts and security hassles, so they can’t be faulted for their enthusiasm. 
    “If you look at where the industry was going back in 1998 or 1999, we were showing double-digit growth in attendance, and the cost of financing was at an all-time low,” says Carey Rountree, executive vice president of sales and marketing with the Atlanta Convention & Visitors Bureau. “So it made a lot of sense to expand our industry as it was growing. Then it went into decline and, let’s face it, corporate travel is what fuels trade shows, so it was a matter of a perfect storm that hit our industry.”
    Besides, whisper some, it is well understood in the industry that consultants often cook numbers a little to help generate support for a convention center or headquarters hotel project. “They fall short of these expectations because they’re set too high,” says Joe McGrath, president and CEO of the Greater Pittsburgh Convention and Visitors Bureau. “And the expectations are set too high because you can get the project done. It all depends on whose yardstick is being used. Some of those yardsticks are faulty.”
    A rebuttal-style white paper recently produced by the Chicago-based Center for Exhibition Industry Research faults Sanders’ “one-sided” criticism of consultants: “Cities engage consulting firms to study situations and identify possible opportunities to help guide the decision-making process,” the CEIR paper notes. “These firms submit reports and findings that support their conclusions and recommendations that are stated as opinions. Judgment of a decision to move forward on a project is made by the marketplace first by the voters in the case of a public referendum, and ultimately by the bond-rating agencies that make financing possible.”

A space glut?
While attendance at many individual convention centers fell for the past few years, Heywood Sanders notes, the ever-growing roster of cities building and expanding their centers has flooded the meetings marketplace with cheap exhibit space and has brought about a new era of cutthroat competition between destinations looking for group business. 
    “Localities have continued a type of arms race with competing cities to host events,” the Brookings report states. “Over the past decade alone, public capital spending on convention centers has doubled to $2.4 billion annually, increasing convention space by over 50 percent since 1990. Nationwide, 44 new or expanded convention centers are now in planning or construction.” 
    It’s hard to argue with the fact that a wide range of destinations from New York City to Spokane, Wash.; from San Juan, Puerto Rico, to Regina, Saskatchewan are busy building more taxpayer-funded meeting space. Indeed, according to Trade Show Executive magazine, 18 percent of North America’s 244 exhibition facilities now are in some phase of redevelopment. By 2009, there will be an added 5,245,448 square feet of exhibit space and 2,314,732 square feet of meeting space in the United States and Canada combined.
    “I think that totally misses the point,” says Pittsburgh’s McGrath. “Whether or not there’s an oversupply of convention space, if you’re a destination looking to be in this game, you need an airport, hotels and a competitive, viable center.” 
    IAEM’s own white paper rebuttal, issued within a few weeks of the Brookings Report, takes issue with several points raised by Sanders, including the notion that a convention center “building frenzy” has lead to an overabundance of exhibit space. “The once-again rising demand for meeting and exhibit space, both now and in the future, suggests that a glut of convention space does not exist,” the IAEM document says. “For the years 2000-2003 there was a temporary imbalance between facility supply and event demand. The pace of supply expansion has substantially diminished since 2000, while the demand for space is again accelerating.”
Yet, Sanders argues, cities with centers  still must compete in a marketplace where supply so outpaces demand that destinations are forced into making dramatic deals to attract group business. In the end, giveaways and incentives to lure groups diminish the economic gains
the convention center was supposed to bring about. 
    “It should be clear, especially to meeting planners, that we live in a world in which the stock of available convention center space has massively increased,” says Sanders. “And that overbuilding has occasioned a remarkable number of deals. For instance, the American Association of Librarians didn’t like Orlando because they were spread out over a great distance. The librarians sought other venues for 2010, when they were supposed to visit Orlando again. They received a promise of discounts from the Javits Center in New York, a promise that Philly would pay the $175,000 penalty due to Orlando, and Dallas said it would both pay the Orlando penalty and give a discount. That’s where we’re at right now.” 
    But CEIR sees it differently. The organization’s white paper states: “Competition for convention business is keen because of the positive economic impact to a city to host a convention. Convention centers in the United States were built as ‘loss leaders’ in that they were publically funded and not expected to cover costs, much less generate an operating profit. They are not commercial shopping centers or office buildings.”

The Long Road Back

Georgia World Congress Center

"We’ve seen some big increases in attendance in 2004,” says Carey Rountree, executive vice president of sales and marketing with the Atlanta Convention & Visitors Bureau, in reference to business at his city’s Congress Center. “It’s a matter of the economy catching up. As we built the expansion, we were at an all-time high of occupancy, over 80 percent, and in 2004 we got back up to same occupied square footage as we were at our peak. And we’re seeing some activity in convention attendance in Atlanta, beyond just the Congress Center. We peaked in 1999 with more than 3.6 million, declined to 2.8 million in 2003 and were at 3.1 million in 2004.”

Shrinking events
Besides looking at attendance numbers for various centers and measuring the ever-expanding supply of convention center space overall, the Brookings report also examines participation at events, using industry publication Tradeshow Week’s annual listing of the 200 biggest conventions and trade shows as a basis. The list changes from year to year, depending on which shows are a given year’s most successful. 
    With this measuring tool, Heywood Sanders notes that in 1992, the 200 top events used 50.4 million square feet of exhibition space and drew a total attendance of 3.9 million people. Over the next several years, these numbers climbed until, in 1996, the industry peaked with a total of 5.1 million in total attendance, after which attendance dropped modestly from 1997 through 1999, until it climbed back up to 4.8 million attendees in 2000.
    As Sanders writes in his report: “Something had begun to change in the convention and trade show industry such that well before Sept. 11 the largest and most successful events in the business were not yielding more attendees.” 
    But then came 2001, the year of recession and the 9/11 attacks, which shook the travel, hospitality and meetings industries worse than any other economic sector. 
    The Tradeshow Week survey reflected these woes, reporting “the steepest declines in the directory’s history.” In that fateful year, the top 200 events’ use of exhibition space shrank by 1.3 percent, while attendance at these shows fell by 4.5 percent from 2000. The slump continued in 2002, when the top 200 spanned 64.65 million square feet and drew 4.2 million attendees; in 2003 the top 200 took up 61.9 million square feet and brought in 4.1 million attendees. 
    The Brookings report concludes, “The data from the Tradeshow Week 200 illustrate how, by the end of the 1990s, convention and trade show growth began to shift into a decline.”
    But do these statistics prove the case? Sanders’ many critics argue his methodology is faulty, and his use of the Tradeshow Week 200 gives an incomplete view of the overall industry.
    “When you skim the top based on size alone, you’re dealing with dynamics that aren’t representative,” says IAEM’s Hacker. “A trade show is simply reflective of the size and health of the industry it represents. But the Tradeshow Week 200 is representative of size alone not a show’s longevity, stability or the relationships built at these events.” 
    As Nancy Murphy, vice president of sales with the Las Vegas Convention and Visitors Authority, notes in disputing Sanders’ metric, “We do 26,000 meetings a year in Vegas. Sure, the big ones are visible when they’re here. But the majority are 500 people or less, housed at hotels.”
    CEIR concurs in claiming the Brookings report totally fails to account for the majority of events in the industry: “Only 38 percent of the 11,094 exhibitions produced in the United States are held in convention centers, while some 41 percent are held in hotels. Hotels provide a favorable environment for launching new events that are typically less than 10,000 square feet. The historical growth path has been for events to grow and prosper in the hotel environment until they are large enough to move to an exhibition center. Thus, the hotel and conference center environment become an incubator for convention centers.”

Ready to rebound?
Perhaps the most controversial aspect of Professor Sanders’ report is his assertion that the meetings and events industry is in a state of permanent decline, one that began prior to the recession and terrorist attacks of 2001, and one that will continue into the foreseeable future. “Simply put, the overall convention marketplace has shifted dramatically, in a manner that suggests that a recovery or a turnaround is unlikely to yield much increased business for any given community,” he says in the study.
    Critics scorn this notion as negatively biased. In fact, they say, a spate of anecdotal evidence and some new industry surveys suggest the marketplace could be in the midst of a turnaround.
    “We had 14 different meetings that set attendance records here in 2004,” says Pat Moscaritolo, president and CEO of the Greater Boston Convention & Visitors Bureau. “If I were talking to Professor Sanders, I would tell him to look at what happened in Boston in 2004. There was a big turnaround in terms of conventions and meetings, like the American Transplant Congress they had 4,665 attendees [last year], when their previous high was 4,019 in 2002. The firefighters hit 3,700 here in August, when their previous high had been 3,200 attending in Las Vegas in 2002. Look at 2004. I believe the curve is going in the right direction.”
    “In 2004, we had the largest growth in demand and revenue and the second largest for future bookings and room night bookings in our convention sales department,” says Joe McGrath of the Greater Pittsburgh CVB. “It does hint that things are turning around.” 
    According to “FutureWatch 2005,” an annual report by Meeting Professionals International and American Express, the meetings industry will “experience solid increases in spending, international travel, employment and training budgets.” Overall, “FutureWatch 2005” predicts a 5 percent budget increase for 2005, building on a 3 percent increase in 2004. For suppliers to the meetings industry, overall revenues are projected to increase 13 percent, on top of a 10 percent jump in 2004.
    In addition, the Travel Industry Association’s annual estimate of business and convention travel which had shown a decline from 164.3 million trips in 1999 to 138.2 million in 2003 rose in 2004 to 143.7 million trips and looked forward to a rise to 148.9 million in 2005. 
    “The anecdotal evidence we see is very encouraging,” Hacker says. “Everything from the Association of Critical Care Nurses to the Consumer Electronics Show is setting attendance records; 2004 seems to be the base year of the turnaround, and the numbers seem to be inching up.” 
    Despite such hopeful signs, Sanders sticks to his guns in concluding that conventions are in permanent decline and cities should get out of the business of hosting them so graciously. “What people don’t often understand is that percent changes are based on a base,” he says. “If you have a 14 percent drop from one year to the next, then a 14 percent increase, you’re not back where you used to be.
    “I would expect that travel generally will begin to turn back up,” Sanders continues. “The question is, what’s the character of the upturn generally for the convention business and for any given city with more space coming on the market? This is not a product of what happened in 2001 or 9/11. Those things did occur, but their impact on attendance at convention centers, in terms of the scale of loss, are far more pervasive. New York, Chicago, Las Vegas, Orlando and even Wichita have seen a far more dramatic drop [in meetings business] than the downturn in airline passenger volume or hotel occupancy. We haven’t seen air travel drop 20 or 30 or 40 percent, but we’ve seen that in the performance of these centers.” 
    But Sanders’ legions of industry critics insist his conclusions don’t hold water. Indeed, some feel his report is nothing less than sabotage.
“We felt that it was a blow to the industry in terms of the potential recovery that we’re seeing,” says Jim Caldwell, vice president of sales and marketing with D.K. Shifflet & Associates. “It cast a totally negative sentiment toward the industry and where it is going. I think he went too far in giving people the idea that the convention business was down the drain. We don’t see it that way.”
    “I call him ‘Doctor No,’” says Hacker of IAEM. “He is the only consistent voice opposing the construction and expansion of convention centers in America. I defy anyone to find a credible competitor to Heywood Sanders. Given that, and given the fact that his own financial self-interest is enhanced whenever an opponent of expansion picks up his report. I don’t know why anyone would float such a bizarre set of theories except to line their own pockets.” 
    Heywood Sanders says in response, “All I do is deal
with numbers and substance. There’s no personal attack in that. Everything I do is as accurate as possible. I share my sources. There aren’t any secrets, and people are welcome to question it. How many people were supposed to turn up at the new center, and how many turned up? [Anyone] can look at those numbers and see what happened. I can look at numbers in Baltimore and see the declines in attendance, that its operating loss has doubled, and we see that in dozens of places.”
    Sanders adds, “Am I telling people in the industry things they don’t want to hear or disagreeing with those numbers they’ve been putting out for years? Sure. My interest is academic. There’s no great money to be made from telling cities to be careful about this.”