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.

McCormick Place Loses its Luster

Has all the grumbling about Chicago’s vaunted McCormick Place as America’s premier tradeshow venue finally reached critical mass?

For years, corporate exhibitors have groused about government-controlled, money-losing McCormick Place. Stories abound of exhibitors being forced to spend hundreds of dollars for services as mundane as plugging in a piece of machinery, or being charged $1,000 to hang a sign from the ceiling, because of onerous union rules governing “who does this” and “who can’t do that.” It’s been a constant refrain of complaining I’ve heard at every tradeshow I’ve attended at McCormick Place, dating back some 20 years.

Despite all of the criticism about McCormick Place’s high costs and lack of user-friendly service, it remains the largest convention complex in America, with over 2.5 million square feet of exhibit space. But attendance has been declining pretty dramatically, from ~3.0 million in 2001 to ~2.3 million in 2008. While the figures haven’t been released yet for 2009, it’s widely expected that show traffic will be reported as down another 20%.

As the current economic recession has put the most severe strains yet on the tradeshow business, it seems that a rebellion against McCormick Place is in now full swing. According to a recent article in The Wall Street Journal, “a gradual drop-off in business … has turned into a rout as a string of high-profile shows have pulled out.” The deserters include a triennial plastics show (~75.000 attendees), as well as the Healthcare Information & Management Systems Society’s annual conference (~27,500 attendees).

But isn’t tradeshow attendance off in other convention centers as well? Well … yes. But clearly not as much. In truth, tradeshow attendance has been under pressure at a “macro” level ever since 9/11, and an important reason beyond the issue of terrorism is technological innovation and the ability for people to interact through video-conferencing and for companies to demo their equipment and services via the Internet and other forms of digital communication.

Tradeshows were once the only way to gather a community together, but now there are other options. One school of thought holds that large tradeshows are now less effective than small, targeted conferences that provide heightened ability for attendees to interact with one another on a more intimate basis. Some events no longer charge attendees … but they make sure to “vet” them carefully to ensure that the show sponsors who are underwriting the costs are reaching prospects with important degrees of influence or buying authority.

On top of these “macro” trends, the current economic downturn just makes McCormick Place look more and more like a loser when it comes to the tradeshow game. Compared to Chicago’s three most significant competing tradeshow locales – Atlanta, Las Vegas and Orlando – the cost of many items from electricians (union labor) to foodservice (greasy spoon-quality coffee at Starbucks® prices) to hotel accommodations (room fees and surtaxes that won’t quit) ranges two times to eight times higher in Chicago. And in today’s business climate when every cost is scrutinized closely, none of this looks very cost-effective to the corporate bean-counters.

True, Chicago is more centrally located for travel from both coasts: Who wants to take a five hour flight from New York to Las Vegas or from California to Orlando to attend a meeting?

[On the other hand, no one can honestly say that the weather in Chicago is preferable to sunny Florida or Nevada!]

So it would seem that Chicago’s worthy tradeshow competitors have achieved the upper hand now. I just returned from two national shows this past week – the International Air Conditioning, Heating & Refrigeration Expo and the International Poultry Expo. Where were they held? Orlando and Atlanta – the same cities which are attracting McCormick Place’s erstwhile customers.