Maybe you've noticed convention centers popping up like daisies across the national landscape, even in heretofore unlikely locations. Over the past decade, public capital spending on convention centers has doubled, with 4 million to 5 million square feet of meeting and exhibition space in the next few years adding to the existing 61.9 million. One person questioning if this kind of investment makes sense is Heywood Sanders, professor of public administration at the University of Texas at San Antonio.
In his controversial article “Space Available: The Realities of Convention Centers as Economic Development Strategy,” published in January by the Brookings Institution, Sanders contends that the market is oversaturated, that demand will not catch up with supply any time soon, and that convention centers, by and large, are not meeting economic impact expectations. He argues for 36 pages that in city after city, millions of taxpayer dollars were tapped for new or expanded convention centers that have not paid off as predicted.
The Brookings report sparked widespread media attention, especially in cities in which new or expanded convention centers are being considered. It also provoked angry responses from CVBs and industry associations.
“Heywood Sanders' conclusions are so superficial and so misleading, they have painted a terribly inaccurate picture of the value, the condition, and the future of this industry,” says John Marks, president and chief executive officer at the San Francisco Convention and Visitors Bureau. “I'm shocked and disappointed that an institution as well respected as Brookings would attach their name to this.”
Some say it's just the latest chapter in Sanders' longstanding bias against convention center investment. But Sanders disagrees. “I don't view this as a crusade. A lot of folks don't necessarily understand what it is that professors do — professors do research,” he says. “I view this as an opportunity to get some really serious analysis and hard data in a place where it often doesn't exist.”
On the Trail
Sanders, a 56-year-old Harvard PhD and professor in the department of public administration at UTSA since 2001, became interested in convention centers in the 1980s. That's when he received a grant from the 20th Century Fund to study the downtown revitalization projects in several U.S. cities. “I'm a political scientist, not an economist,” he says. “My principle interest has long been in public investment and public decision-making, particularly as it's focused on downtowns around the country.”
At a time when the physical infrastructure of many American cities was falling apart, Sanders was struck by the number of municipalities investing in convention centers as an economic revitalization strategy. He wrote “Building the Convention City: Politics, Finance and Public Investment in Urban America,” which the Journal of Urban Affairs published in 1992. He argued that many cities were investing in convention center and stadium projects instead of necessary infrastructure improvements, largely for political reasons — i.e., money flowed to these projects in many cases from powerful backers with local political clout.
Sanders revisited the subject of convention center investment in 1997, when the Pioneer Institute for Public Policy Research tapped him to do a study on the proposed (now open) Boston Convention and Exhibition Center. “Much of the justification [for the new center] involved the argument that there was a growing convention business and lots of cities were seeing a great deal of success in the economic impact from new centers,” he says. Sanders challenged those assumptions, and pointed to the history of the existing convention facility in Boston, the Hynes Convention Center, which he said had not met its economic impact projections.
The new Boston center opened last summer, hosting about six events and 65,000 attendees in 2004, far short of projections. Room-night projections for 2008 are one-third of estimates in the feasibility study, Sanders says. But city officials are taking a long-term view, saying that 20 years from now, the center will be viewed as a milestone in the city's growth, and will spur economic development in the South Boston area.
Race for Space
Sanders' research for the Brookings Institution report, conducted over nine months, posits three main findings:
One, the overall convention marketplace is declining in a way that suggests a recovery is unlikely to yield much increased business for any given community. Attendance at the top 200 trade shows is languishing at 1993 levels, he says, citing Tradeshow Week data. Some convention centers, including those in top-tier destinations, have seen attendance declines of up to 50 percent since the late 1990s.
Two, cities have engaged in an “arms race” to host meeting and conventions by investing in new and expanded centers. Convention space has grown by 50 percent to 61.9 million square feet since 1990, and 44 new or expansion projects are in the pipeline. Over the past decade, cities' capital spending on convention centers has doubled to $2.4 billion annually.
Three, faced with increased competition, many cities are investing in additional amenities, including publicly financed hotels, and many are offering deep discounts or free rental space. As a result, few centers can meet their operating expenses. Convention centers are considered loss leaders; they are not intended to generate revenues to cover the cost of their construction but to create economic impact by bringing outside visitor dollars to the local economy. But with operating losses increasing, demand slowing, and supply growing, Sanders says economic impact is evaporating.
“The decision to build or expand is predicated on the assumption, ‘If you build it, they will come,’” Sanders writes in his report. But with a 16 percent decline in business and convention travel between 1999 and 2003, according to the Travel Industry Association of America, and consolidation in many business sectors, particularly technology, he argues that “they” are coming less frequently, creating a glut of convention space.
Quoting attendance figures from Tradeshow Week's list of the top 200 trade shows, he says attendance began dropping from a high of 5.1 million in 1996 to 4.5 million in 1999 to 4.1 million in 2003. Some of the largest events, National Hardware Show, COMDEX (before it folded in 2004), and CONEXPO, saw attendance declines of 59 percent, 80 percent, and 21 percent, respectively, from 1999 to 2003. With fewer mega-shows, many larger centers are expanding to accommodate a greater number of smaller meetings simultaneously, thus dipping into the pool previously fished by second-tier cities. Sanders argues that the Internet, mergers and acquisitions, and new ways of marketing and communicating have fundamentally downsized the need for exhibitions.
He also looks at convention center attendance figures provided by individual centers. In city after city, the data show downward trends for most. Two exceptions are Orlando, Fla., and Las Vegas, which Sanders calls the two “emergent national powers.” But even those centers have had their share of bumps in the road. The Las Vegas center has seen attendance dip in recent years, due in part to the emergence of privately owned convention centers such as Mandalay Bay and the Sands. Bookings in Orlando have climbed back up after a sharp decline in 2001, but they are still below 2000 levels in terms of attendance.
Industry Response: “Dead Wrong”
“His interpretation of how we look at business is just dead wrong,” says Marks, CEO of the San Francisco CVB. “We base [the Moscone Center's economic impact] around room-night production,” not building attendance, one of the performance gauges that Sanders uses. Since Marks took over the job 18 years ago, the Moscone Center has been expanded twice, and both times the decision to do so was based on generating additional room nights, Marks says.
“In each case, we've out-produced the room-night number called for,” he says, noting that last year the Moscone Center was responsible for 1.2 million room nights, up from 950,000 in 2002 and 1.1 million in 2003 (when Moscone West opened). That number is expected to reach 1.25 million in 2005, Marks says. From overnight hotel guests alone, the center generated $117 million in visitor spending in 2004, Marks estimates.
“Pure [convention center] attendance is a nonsensical approach for some cities,” Marks says, noting that boat shows, for example, could have high attendance but not fill hotel rooms. He and others say the report focuses too much on attendance and not on visitor spending and room-night generation.
Steven Hacker, president of the International Association for Exhibition Management, minced no words in rebutting the Brookings report. “If it were a vessel at sea, it would sink due to its own dead weight,” he stated in a press release. The report is “based upon a random number of generalizations that support the author's own opinions, leaving readers to accept the generalities as if they were facts,” Hacker said. “It's nothing more than a three-year snapshot in a decades-long success story.”
IAEM released a white paper a few weeks later that, among other things, takes issue with Sanders' omission of TIA data for 2004 and beyond, which indicates business travel is on the rise. According to TIA, person-trips climbed to 143.7 million in 2004 and are expected to reach 148.9 million in 2005. By 2008, the number is expected to return to 1999 levels, about 165 million. (The TIA data for 2004 and beyond was published after the Brookings report.) The white paper also cites Center for Exhibition Industry Research and Pricewaterhouse-Coopers data that indicate a turnaround in convention center attendance.
Doug Ducate, president and CEO of CEIR, a nonprofit group that collects data on industry trends as well as promotes exhibitions as a marketing medium, does not understand why Sanders would overlook CEIR research.
“His clarion call for national data from a nonprofit organization has existed for 28 years,” Ducate says. CEIR's numbers depict an industry that is slowly recovering. “He ignores the fact that for 15 years up to 2000, we had a 7.3 percent compounded annual growth rate [in terms of number of events].” And attendance for the more than 10,000 events that CEIR tracks dropped just 2.9 percent in 2001, he says, and by 2004, it is expected to be back to 2000 levels.
Ducate argues that the rush to build and expand new centers is not so much about space. “What he labeled a space race is really a technology race. The city that elects not to update their building is electing to get out of the race.” Centers are also expanding to add more meeting space because the first-generation centers had about an 80-20 ratio of exhibit space to meeting space, which doesn't cut it in today's marketplace.
Others take issue with the time period of the study. The technology bust and subsequent recession, 9/11, corporate scandals, war in Iraq, and the SARS outbreaks are all unusual circumstances that have had major effects on the business world, notes Michael Gehrisch, president and CEO of the International Association of Convention and Visitor Bureaus. Many cities were in the process of building or expanding new centers when the economy started going south in 2001, Gehrisch says.
He does agree with Sanders on two points. “One, proper due diligence, integrity, and research is absolutely necessary when you're looking at proposing a new or expanded convention center. Two, more accurate data would be helpful and desirable, particularly as far as attendance numbers go.”
As to whether demand will catch up with supply, “It's a market-by-market thing,” Gehrisch says. “Many convention centers have had a lot of success, and there's probably been some markets that shouldn't have built centers.”
To the criticism that he doesn't take into account the extraordinary circumstances of recent years, Sanders says the effects of these circumstances were what prompted him to do the study. Red flags went up when he saw that attendance declines, on a percentage basis, were steeper than that of other industries, including hotels and airlines. “There is a laundry list of things that have affected these events, but what's striking is how broadly and how deeply.” Sanders says his research goes back to 1991, so it's not just focused on the recession period.
In defense of the charge that using Tradeshow Week's data on the 200 largest shows too narrowly defines attendance trends, Sanders says it's a minor piece of his research, but notes that it's the source that consultants have traditionally used to gauge growth and demand. For a broader view, he also looked at the performance of individual centers over the past 15 years.
To the criticism that he puts undue emphasis on attendance instead of room-night generation, Sanders says the attendance data in the Brookings study is based on convention andattendance — not consumer shows, except in cases where centers don't report the numbers separately. The fact that private developers won't build headquarters hotels in many destinations illustrates the problem, he says. (The performance of publicly financed hotels is his next project, followed by a book on how centers have done compared to the feasibility studies).
While Sanders agrees that convention centers can be an asset for “certain highly competitive” destinations, he says “it's abundantly clear” that they cannot redeem a downtown core or address the problems of poverty, decay, and population loss that plague many cities. He hopes to get municipalities to take a hard look at convention center investments and not just make decisions based on estimated economic impact. He encourages cities to get independent audits or reviews of feasibility studies, which are far too often rosy predictions that fall short of projections.
“We need to talk about the substance of what was supposed to happen, what actually happened, and what it cost,” Sanders says. “I certainly would not say to any city, ‘You shouldn't do this.’ That's a local choice. But I would say, ‘Do this with a clear and cold eye to the reality of [convention center] performance in other cities.’”