Needed: Better Benchmarks for Convention Investments

Realistic convention-center performance measures would help public officials see the market more clearly as they make decisions about expansion proposals.
by | July 14, 2011

State and local governments regularly invest in sports stadiums, arenas and convention centers. Although these facilities don't make money, the idea is that they more than pay for themselves by generating tax revenue, creating jobs and spurring private development by attracting visitors who would otherwise spend their money somewhere else.

But how do we know if the strategy is working? The convention industry provides perhaps the best example of the need for objective benchmarks to determine whether past projects have succeeded and to inform future public investment decisions.

Rising Supply, Falling Demand

The national supply of convention exhibit space has increased by more than 70 percent over the last 20 years, but the past decade hasn't been kind. According to the now-defunct industry publication Tradeshow Week, attendance at conventions, trade and consumer shows decreased from 126 million in 2000 to 86 million in 2010.

Even such industry leaders as Las Vegas, Orlando, Atlanta and Chicago saw business decline after completing expansions in recent years, according to Prof. Heywood Sanders, who tracks the convention industry. Some opened their expanded facilities during a recession, but all saw business drop.

With hotels--particularly the large, moderately priced kind convention planners favor--proving increasingly difficult to finance, many industry insiders are blaming the downturn on a shortage of rooms proximate to convention centers. The response has been a spate of publicly owned or subsidized hotel development.

But that hasn't cured what ails the industry. Convention hotels in Baltimore, Austin and Phoenix are doing poorly, and St. Louis' convention headquarters hotel is in foreclosure.

Nonetheless, a 1,167-room headquarters hotel just opened in Washington, D.C., and Philadelphia recently unveiled a $787 million convention-center expansion. Convention and/or hotel expansions are also underway in Dallas, Detroit, Indianapolis, Nashville and Orlando.

'Tourism Plus'

The traditional measure of convention center performance is hotel-room nights--the number of nights people stay in hotels as a result of conventions. But in March, Massachusetts Convention Center Authority Executive Director James Rooney told the Boston Globe that measuring success "strictly on the notion of how many hotel room-nights are generated" is "narrow-minded thinking." For months, Rooney has been touting less-tangible benefits of conventions such as the importance of "place making."

A 27-member "Convention Partnership" has been appointed to make recommendations to the state legislature about expanding the Boston Convention and Exhibition Center and building a publicly subsidized headquarters hotel. Though still falling far short of projections, the BCEC is doing better than most these days.

In November, an academic from Great Britain made a presentation to the Convention Partnership on "The 'True' Value of Business Events." Prof. Leo Jago's message was that tourism-based measures such as room nights grossly underestimate the value of business conventions.

The Massachusetts authority hired a local economic-development consulting firm to look at how to measure the impact of this "Tourism Plus" strategy. The firm convened a focus group of business and academic leaders, who agreed that new benchmarks should be added to (rather than replacing) traditional measures of convention performance such as hotel-room nights.

Betting the Farm

But realistic metrics proved elusive. Among the new ones proposed were counting complementary events held in conjunction with conventions and the number of second homes bought in the area by VIPs who attended Boston conventions--not exactly the kind of data on which you base a decision to bet the farm.

Still, the torrent of convention-center expansion and publicly subsidized hotel development continues, with price tags that sometimes top $1 billion--all in a market that almost no one denies is overbuilt.

Achieving consensus over realistic convention center performance measures would help public officials see the market more clearly as they make decisions about current expansion proposals. But it's even more important that the ones that go forward do so with objective performance goals. They might at least prevent some proponents from coming back a decade later and saying that the problem was that they didn't expand enough.

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