Convention centers: Where the laws of supply and demand don’t seem to matter.

McCormick Place, Chicago, IL

For those of us in the business world, it comes as no surprise that conventions and trade shows are in significant decline. While they’re not exactly on life support, we’ve witnessed convention attendance drop pretty significantly over the past decade.

In fact, the decline in the United States has been more than 30% — from 125 million attendees in 2000 to just 86 million in 2010.

It’s not hard to understand why. The “shocks and hard knocks” of the economy have contributed, of course. But in addition to this, the ways people communicate have been changed forever by the online/interactive revolution.

With lean staffing — who has time anymore to take four days away from the office? – plus the ability to congregate easily online in virtual forums and meetings, the need for face-to-face interaction just isn’t the same as it once was.

With such a steep decline in trade show attendance, one wouldn’t expect that investment in new or updated convention centers would be high on the agenda, correct?

Think again. Even as cities and their convention centers are competing for a shrinking pool of convention-goers, they’ve continued on an expansion binge – paid for by hapless taxpayers.

You don’t have to look hard to see example after example of initiatives that make essentially no economic sense, being undertaken by cities in a form of one-upsmanship that is reminiscent of that famous Irving Berlin song, “Anything you can do, I can do better.”

At McCormick Place in Chicago – the convention venue everyone loves to hate – the city has invested heavily in expansions and upgrades in recent years. In 2007, a new $900 million expansion was completed … and today McCormick Center is running at 55% capacity. Swell, fellas.

Closer to where I live, Baltimore City built a brand new, city-owned hotel to the tune of $300 million, thinking it would improve the sagging fortunes of its convention center. Opened in 2008, the hotel has managed to lose money in every successive year – as much as ~$11 million in 2010.

So what is Baltimore’s reaction? It’s now considering putting together a new public-private initiative that will add an arena, yet another convention hotel, plus an additional ~400,000 square feet of convention space. The cost in public money? “Only” about $400 million.

From Boston to Austin and from Columbus to Phoenix, public officials dupe themselves into believing that if only they upgrade or expand their convention facilities, they’ll see robust growth that meets or exceeds optimistic projections of increased hotel bookings and other ancillary economic activity.

Time and again, they’re wrong. And not just because of the economy or changing business practices. When every other city is expanding right along with you, no one is going to attract more than their fair share of any additional business potential that may be out there.

I love what Jeff Jacoby, an op-ed columnist for the Boston Globe, had to say about the newest efforts to expand Boston’s convention center (along with a ~$200 million price tag in new public subsidies), even after a less-than-stellar 2004 improvement initiative fell woefully short of the predicted new convention activity.

“The whole thing is a racket,” Jacoby stated. “Once again, the politicos will expand their empire. Once again, crony capitalism will enrich a handful of wired business operators. And once again, ‘Joe and Jane Taxpayer’ will pay through the nose. How many times must we see this movie before we finally shut it off?”

How many times, indeed.

4 thoughts on “Convention centers: Where the laws of supply and demand don’t seem to matter.

  1. I agree. This is nothing more than politicians rewarding the people who contribute to them and hire their friends and family. It’s obscene.

    It’s also the reason I don’t live in Cuyahoga County (Cleveland), because they do stupid things like this and stick the taxpayers with the bill. First, it was new football stadiums … now it’s convention centers. One year ago today, the city broke ground on a new $465 million Medical and Convention Center. In CLEVELAND!

    Yes, I can see it now: Doctors and nurses from all over the world, flocking to downtown Cleveland. Get real.

    http://www.cleveland.com/cuyahoga-county/index.ssf/2011/01/medical_mart_construction_starts_downtown.html

  2. There’s a very simple answer: Supply and demand OF WHAT?

    When we narrow our focus to “construction, expansion, upgrade, infrastructure” and apply the “supply and demand” question to that, there’s your answer.

    The market in question is not that of having and hosting conventions and selling facility rentals or leasing, but that of a shrinking public trough and a higher demand for money to be made from large-scale publicly or semi-publicly funded construction undertakings.

    The supply side is that of political influence for sale. Very often, the carrot is job promises. The construction jobs, more often than not, go to specialized out-of-town or out-of-state sources. What is left is janitorial-type jobs which may be publicized in a big photo-op type fashion (“This multi-million dollar tax break will get this community 20 minimum wage jobs! Hurray!”) and soon the bulk of these jobs will go to out of town or to undocumented “talent” as well.

    It is a shell game of tenaciously hanging on to the public-contract self-service store.

    Supply and demand? Sure. Demand for continued income from public funds. Supply thereof in return for political support.

    Wolfgang

  3. OK, this one hit home.

    Lancaster (PA) went through a highly public and much scrutinized campaign to bring a Marriot-anchored convention center to our fair city. This was a multi-year battle that resulted in an approval to “go.”

    The only good news, from my perspective, was that the project saved the historic Watt & Shand department store façade. Since then, I’ve heard that the facility is running well below capacity. I simply don’t understand how they believed that a city, with no downtown attractions (other than the quilt museum – which closed this past weekend) was going to generate convention traffic.

    Our largest corporate entities can’t muster enough events in a decade to justify the need. Lancaster is an hour or so drive from Philadelphia and Baltimore, and 45 minutes from Harrisburg. To make matters worse, the parking facilities are miserable.

    Can you say: “boondoggle?”

    Here’s a link to the facility. Please, please bring your national sales meeting to Amish country! http://www.lancasterconventioncenter.com/

    FYI to the previous writer…..”Cleveland Rocks!”

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