Milking The Cash Cow
GRAND RAPIDS — According to a report from the Brookings Institution on the nation's lackluster tradeshow business, cities that have been able to generate enough revenue to cover their convention center operating expenses have done so by booking more local events into those buildings.
Although it's too soon to say that is what will need to happen here, it is interesting to note that of the 14 months the DeVos Place exhibit space has been open, consumer shows targeted to local residents have produced the three highest revenue-generating months.
February of 2004 gave the building $535,318 in total income, with most of that revenue coming from four shows produced by Showspan Inc.
Last March was worth $444,199 in total income, with much of that revenue coming from a fifth Showspan show, two Jerry Seinfeld shows, and a Women's Expo.
Last month, January 2005, gave the building $411,432 in total income, as DeVos Place played host to public events that featured cars, RVs, and a bridal show.
Those three months were worth $1.39 million in total income for the building, which averages out to be $463,650 per month. Over the convention center's 14-month history, income for the building has averaged $277,373 per month.
Revenue from those three months represents 36 percent of all the income, $3.88 million, the building has received since December 2003.
In June, SMG projected that the local shows would be worth $915,626 and conventions worth $1.01 million in event income to the building this fiscal year. The fiscal forecast also projected 103 convention days and 56 public-show days for the building.
If those numbers hold true, then each convention would be worth an average of $9,818 and each consumer show would be worth an average of $16,350 in revenue to the building.
But Brookings reported the debt a city incurs from building or expanding a convention center is not repaid through a center's operation, or from taxes on attendees or exhibitors.
"Rather, the public revenues supporting convention center bonds typically include taxes on all area hotel rooms — in the city, the county, or even a multi-county region — as well as other broad-based taxes and surcharges," read the report, which is available at www.brookings.edu.
The county's lodging excise tax, paid by all hotels in the county, is on the line for $92 million of the building's $212 million construction tab. And the surplus from Van Andel Arena, which has annually topped $1 million, is being used to cover the convention center's yearly operating loss.
The Brookings report said cities are subsidizing buildings from general revenue funds or by creating a new tax as a source, while cutting funds to market their buildings to potential clients.
"To make matters worse, these centers must continue to scramble for events amid stiff competition. Increasingly, as a result, many facilities have been offering discounts on center rental rates and other special incentives, further compounding their inability to cover costs," read the report.
The Convention and Visitors Bureau knows that all too well. The CVB lost a lucrative meeting to Denver last year when officials there gave the convention free space. At last month's CAA board meeting, Bureau President Steve Wilson said the current tradeshow industry was "truly a buyer's market today."
Although buyers may control the tradeshow market, as the Brookings report confirmed, sellers are actively pursuing the local market.
SMG general manager Rich MacKeigan and Operations Director Jim Watt are marketing the new Steelcase Ballroom in DeVos Place and its adjacent meeting rooms as sites for local events such as wedding receptions. The ballroom is big enough to hold at least four separate events with 300 attending each on the same evening, while the six River Overlook Meeting Rooms can each accommodate about 130 guests. Before the ballroom opened, Watt said he had five inquiries about renting a portion of it for a wedding reception.
"That small number of centers that are able to generate enough revenue to cover — or at least come close to covering — their operating costs typically do so by booking a greater number of local events," read the report.
"There's a major tradeoff to this approach, however.
"Local events don't bring in out-of-town visitors spending their out-of-town money at local restaurants, retail shops and tourist destinations — spending that ultimately boosts a city's general revenues."