Meetings business is picking up but CVB funding is still a big issue for many destinations, while an oversupply of convention space in some markets gives planners a negotiating edge.
LET'S START with the good news: convention business, like the economy, continues to pick up steam. The Center for Exhibition Industry Research estimates a 3 percent increase inbusiness last year, with continued growth predicted for 2012. Many cities, including Las Vegas, Boston, and Philadelphia, saw a big bump in total room nights booked, with 2012 trending the same way.
An increase in hotel business equals an increase in room tax revenue, the primary funding source for many convention and visitors bureaus. This is good news, as CVBs have weathered some of the toughest years ever, following the economic implosion of 2008. Room tax revenues declined an average of 16 percent between 2008 and 2010, prompting cutbacks in many CVB budgets. According to Destination Marketing Association International, however, CVB budgets are stabilizing, and some are even growing.
But that is just part of a complicated story. The Great Recession caused the largest collapse in state revenues on record, and with many cities and states still digging out from under big deficits, convention bureaus, tourism agencies, and convention centers that receive state or city funding are anticipating tough years ahead. In March, for example, Peoria, the Illinois city that is often touted as a microcosm of America, was debating whether to slash the city's annual contribution to the Peoria CVB from $720,000 to $275,000.
Moreover, while hotel occupancy rates are trending upwards, hotel room rates in many areas have not yet returned to pre-recession levels, meaning that room tax revenues haven't either. Says Jack Ferguson, president and CEO, Philadelphia CVB, “Our average hotel rate for the city hasn't returned to 2007 levels, so in that respect, we're still in a buyer's market for hotel rooms.”
The Big Disconnect?
A buyer's market is certainly the case when it comes to groups that utilize convention center space in markets where, for whatever reason, demand has not materialized. The Lancaster County (Pa.) Convention Center, for example, has operated in the red ever since it opened three years ago, and if the trend line continues, hotel room tax revenue will be funneled from the Pennsylvania Dutch CVB to help fund the new center.
The scenario of less-than-promised performance/return on investment for convention facilities is playing out in municipalities around the country. In Baltimore, a proposal to build an 18,500-seat downtown arena and a $400 million expansion of the convention center is being greeted with some skepticism, as meeting attendance at the city's convention center has been trending downward over the past six years.
New York Gov. Andrew Cuomo proposed in January to tear down the Javits Convention Center in Manhattan, which has come to host mostly “gate” or public shows and events. The governor would like to build the country's largest convention center/exhibition hall near JFK International Airport in Queens. Dubbed “Cuomo's Folly” by critics, the center would feature a 3.8-million-square-foot exhibition hall and would be funded by a public-private partnership with the operator of the new Resorts World Casino in Queens (adjacent to the proposed site for the center).
A statistic that is often quoted in press reports states that the number of convention attendees at U.S. convention facilities dropped from 126 million to 86 million from 2000 to 2010, while in that same time period, the amount of convention space increased from 53 million square feet to 70 million square feet.
The subsequent oversupply of convention space is a boon to many groups, giving them the leverage to negotiate big concessions from cities anxious to get business on the books that fills area hotel rooms. These concessions can include free rental of the convention hall, food-and-beverage discounts, and complimentary shuttle buses.
In a Virginian-Pilot news article about discounts given convention groups at the Virginia Beach Convention Center, Courtney Dyer, the center's manager, explained that the size of the discount is determined by the number of attendees, the time of year, estimated spending, and other factors. “It's all driven by the projected return on investment,” Dyer said in the December article. “We more than make that money back through direct spending and city tax receipts.”
In short, for many cities, the convention center remains a substantial loss leader in order to drive spending and tax receipts from “outside,” or visitor, dollars. It's an old story for the convention industry, but one that is much more problematic in the tough deficit environment that many states and cities are facing.
CVBs, convention centers, and tourism organizations that can demonstrate a robust link between convention business, jobs, and economic development seem to have the best success at surviving budget cuts. Case in point: Florida Gov. Rick Scott's proposed state budget, presented in January, preserved Visit Florida's $35 million budget allotment, while Florida hospitals are looking at $2 billion in proposed spending cuts.
“It's all about jobs,” Maryann Ferenc, a member of the Visit Florida board, said in a January article in the Tampa Bay Times. “Just about overnight, people are all of a sudden realizing that the tourism industry brings jobs.”