Shopping Centers

Meetings & Conventions: Shopping Centers December 1997 Current Issue
December 1997
Shopping Centers

An inside look at the deep mysteries of pricing at facilities across the country

BY DAVID GHITELMAN

To the weary convention-goer or trade show attendee, all convention centers may look the same. The people who plan events in them, however, know better. They're extremely aware that these facilities can be as different from each other as snowflakes in at least one regard: Probably no two convention centers have identical pricing structures.

"There are no standards at all on how convention centers are priced," says Deborah Rosencrance, vice president of meetings and exhibits for the San Francisco-based American Academy of Ophthalmology. "You can't expect to go from one city to the next and find that anything is the same. Each contract negotiation is like reinventing the wheel."

Centers vary on the way they charge for virtually every aspect of a gathering. Some facilities won't negotiate final contracts -- or set firm prices -- until a year or less before an event, while others will go as far as three years out. Some charge half-price for move-in and move-out days; others allow groups four or five move-in, move-out days before they start charging.

Some centers are eager to negotiate rates; others require the approval of the city council or state legislature before they can take a nickel off their rack rate. Some have a long list of exclusive suppliers; others have a very short list. (The convention hall with no exclusive suppliers appears to be an extremely endangered species.)

Even on the issue of price per square foot there is considerable variation from facility to facility, with some charging for gross square feet (all the space in the building or part of the building the group is occupying) and others for net square feet (only the space the group is actually able to use).

This inconsistency -- particularly when it leads to unanticipated charges -- can give planners the sinking feeling that centers are taking them for suckers. "It drives me crazy," says Joyce Stanley, director of exhibits for the New York City-based American Society of Mechanical Engineers. "You have to clarify what the pricing means, and it can be confusing. Some facilities don't make you aware of certain charges until the last minute. Sometimes you get the information from your decorator, rather than the facility. You're paying a significant amount to the center, and you get the feeling it's nickel-and-diming you."

Not only do price structures differ from city to city, but they've begun to change from year to year in the same facility. "We've gone in naively thinking the situation is going to be what it has always been," says Jim Johnson, president of Meetings & More, a Scottsdale, Ariz.-based independent planning and association management firm, "but since 1993 there are a lot of new costs involved. At some convention centers, if I want a podium in the ballroom I have to pay extra for it. Now, we're a little more perceptive. We've realized that we have to be on our toes. What used to be assumed is no longer the case."

Center to Center

The sales directors for the centers and for convention bureaus eagerly defend the practices at particular facilities, but in the process highlight the center-to-center inconsistencies that increasingly have planners climbing the walls.

Consider the issue of how far in advance centers will negotiate contracts with groups. Michael Holt, director of sales for Atlanta's Georgia World Congress Center/Georgia Dome, explains that he can give firm prices for the next three years. "I just did an agreement with a group for July 2000 and quoted them firm prices," he says.

Mike Gamble, director of sales for Philadelphia's Pennsylvania Convention Center, says he will offer groups rates well into the next millennium. "We will confirm prices long-term," he says, "although I'm not anxious to go past 2010."

However, Gamble's quotes for the year 2009 are not as firm as Holt's for 1999. At the Philadelphia facility, the amount a group will pay in 12 years is based on the current rate plus however much prices in general rise in the next dozen years according to the U.S. government-determined consumer price index.

Exclusives also vary from place to place, with planners unable to choose their vendors for a wide-range of extremely odd services. At San Francisco's Moscone Center, which has relatively few exclusives, groups must use the facility's own shoeshine stand. At Denver's Colorado Convention Center, Internet access is an exclusive. And at Seattle's Washington State Convention & Trade Center, exclusives include emergency medical personnel and badge checkers. Badge checkers? "That's a 10-minute conversation I have with everyone who looks into using the center," says the facility's sales and events services director, Michael McQuade.

However, not all convention center representatives themselves find the differences particularly striking. "People ask us why all centers conduct their business differently," observes Claude Legris, senior sales manager at the Pennsylvania Convention Center. "I tell them we'll all run our centers the same when our customers all run their businesses the same."

Civics 101

Eric Jones has seen convention centers from both sides now. Since April, he's been president of EDJ Enterprises, a Phoenix-based meeting and event planning firm. He brings to this new job more than 15 years experience in convention facility management in such cities as Houston, Tampa and Phoenix. As a result, Jones understands the rising chorus of planner complaints. "Convention centers are the most unstandard part of the meetings industry," he says.

He also has an explanation for why planners and convention center management often find themselves working at cross-purposes. "Being government-owned, facilities have rules that do not relate to the business world," explains Jones. "You have a business trying to operate in a government environment."

A decade or so ago, this was not as much of a problem as it is today, he notes. Back then, the convention centers -- and the usually local governments that funded them -- didn't care too much about a facility's bottom line as long as it brought groups to town to fill hotels and restaurants. Now that the age of big government is over, however, centers are expected to at least break even, if not earn a profit.

"For years, the buildings were underpriced because they were loss leaders," says Jones. "But for the last eight to 10 years, state and local governments have been asking them to cover their own operating expenses or even to make a profit. It's forcing facilities to operate like a business."

What planners need to do to cope with these changes, Jones suggests, is learn all they can about the politics and economics of convention center management. At present, he says, too few planners do adequate research before entering negotiations. "The facilities don't take the time to understand the clients' needs, and the clients don't take the time to understand the facilities," he laments.

Among the questions to ask:

Who owns the convention center? The answer will go a long way to explaining whether the facility will be eager for or indifferent to a particular piece of business. If the city owns the building, says Jones, it will probably be very anxious to negotiate favorable rates with planners who are bringing large events to town. If, as is increasingly the situation, the state owns the convention center, and perhaps owns another two or three centers in other cities, it's not going to be so quick to offer deals for an event that is only going to benefit part of the state.

If the convention center is privately owned, the owner has to at least try to make a profit on each event. If the center is owned by a state or municipal authority, management is government-related but usually has enough distance from elected officials to be flexible in negotiations.

How is debt being retired, and where do operating revenues come from? "If the debt is being retired by the center's operating revenue, a planner is going to spend a lot of money," says Jones.

On the other hand, he points out, if the debt is being retired by the hotel tax, the center will be hospitable to groups that bring a lot of out-of-towners in need of a place to stay. This means the other kinds of events will probably be less welcome.

"If the hotel tax pays for the building," notes Jones, "the center will not be giving consumer trade shows dates every year for the next 10 years."

It can also mean that when planners consistently negotiate down the room rates at a city's hotel, they are forcing the local convention center -- if it is funded by a percentage of those room rates -- to charge more. Jones points out that it can often be easier for an association to have its members pay an extra $25 a night than to come up with another $40,000 to pay the convention hall.

Who signs the contract? "If the center's general manager signs it, then he or she has a lot of authority," says Jones. "When I worked in Tampa, the mayor signed the contract, and if you wanted to change a word, you had to go to the city council."

What does the rental fee include? Jones recommends that planners try to get as many services as possible packaged into the price, rather than pay for services à la carte.

What are the center's major profit areas? Does the center make more money from a food and beverage function than from renting exhibit space? If so, would holding an elaborate dinner there get a group a break on the charge per square foot?

Come Together

These questions may help planners navigate their way through many of the obstacles created by the irregularities of convention center pricing. They don't, however, solve the underlying problem.

Jones proposes a long-term solution to the chaos: an industry association for convention center managers. "Facility representation is not good," he says. "Convention center people make up only one-fifth of the membership of the International Association of Auditorium Managers. Times have changed, but the industry hasn't responded."

At October 1995's White House Conference on Travel and Tourism, he says, out of 1,800 attendees, there were only three facility managers: "Convention centers are major capital contributors to the travel and hospitality industry, they make a multibillion investment in this industry, but we have not been taking the lead in shaping its future." Jones hints that he is currently involved in setting up such an organization, which may be launched within the next year.

Perhaps an industry association could help convention centers get political recognition of their economic clout. Even if it only established industry standards on how much to charge for move-in days, how far in advance to sign contracts and whether groups could bring in their own electricians, caterers and hat-check personnel, the organization would have gone a long way to simplify the jobs of planners. *

Key Cost Questions

Since the ways in which convention centers charge for their use vary so widely, how can a planner shed some light on this extremely murky picture?

Eric Jones, currently president of EDJ Enterprises, a Phoenix-based independent planning firm, and a 15-year veteran of convention facility management, recommends that planners focus on the broader canvas of convention center politics and financing to find out what kind of deal their groups can expect from a facility.

He advises planners to fax these 10 questions to a convention center they're considering booking, and to be sure to get answers well before signing a letter of agreement -- to say nothing of a contract.

Who owns the convention center?
Who is retiring its debt and how?
What are the center's internal revenue sources?
Are the rental structures inclusive or à la carte?
Are the rental rates flexible (or can they only be changed by the city council, state legislature, etc.)?
Are facility operations underwritten by public funds or are they self-sustaining?
Who employs the staff at the center? Is it private or government?
What are the union jurisdictions in the facility?
Who signs the contracts for the center?
Can I have a copy of the boilerplate contract?

* D.G.