In convention biz, perks can drive business deals

VIRGINIA BEACH

The Virginia Beach Convention Center hosted the National Table Tennis Championships earlier this month, and city tourism officials were pleased to have lured the annual competition away from Las Vegas.

That victory wasn't cheap.

USA Table Tennis reserved more than $111,000 worth of space for the weeklong competition but paid nothing. In return for promises to spend at least $5,000 on meals and book at least 1,000 hotel room nights, the city agreed to rent the convention space at no cost.

That sort of deal isn't uncommon in the increasingly competitive convention and trade show industry. Thanks to a boom in convention center construction the past 20 years and a recent decline in demand, convention planners command huge discounts and often require additional perks, including free shuttle service.

Convention center officials say the discounts are needed to lure visitors who in turn pour millions of dollars into the local economy each year.

"It's a buyer's market," said Al Hutchinson, vice president of convention sales and marketing for the Virginia Beach Convention and Visitors Bureau. "Groups know there are incentives out there to meet in other destinations, and we have to compete with that. That's part of doing business now."

As the City Council grapples with plans to build a $109 million, 361-room convention headquarters hotel with a $67 million initial public investment, some outside observers say the trend of giving meeting space away is illustrative of an oversaturated market further hampered by dwindling attendance figures.

"You're looking at really, really, substantial declines," said Heywood Sanders, a public policy professor at the University of Texas at San Antonio and longtime skeptic of the economic benefits of convention centers. "If and when the economy recovers, will attendance recover? At the very least, I think we have to say that's a significant question mark."

In Chicago, total attendance for major events at McCormick Place, one of the nation's largest convention centers, has fallen by 33 percent in the past 10 years, city data show. Attendance there at conventions and trade shows, the kind of events that draw out-of-town visitors, dipped 11 percent between 2008 and 2010.

At the Georgia World Congress Center in Atlanta, attendance at conventions and trade shows dropped by 40 percent between 2007 and 2010, according to that city's figures.

But trends at facilities in large cities don't tell the whole story, said Thomas Hazinski, managing director of HVS Convention, Sports & Entertainment Facilities Consulting. HVS studied the feasibility of the proposed hotel at the Virginia Beach Convention Center. The Chicago-based firm concluded the four-star facility along 19th Street would bring thousands of new visitors to the city each year, generating revenue that would more than pay for the investment.

Hazinski said meeting facilities can still thrive if a city has a good product. The company's study projected a convention center hotel in Virginia Beach would generate 96,000 new hotel room nights, create 900 jobs citywide and attract 86,000 new convention center attendees each year.

"They have particular opportunity," he said. "It's a matter of coming up with a new and better project. If you're in the industry, you have to be there as a competitor and constantly be reinventing yourself."

As part of that progression over the past 20 years, cities have built bigger, fancier convention facilities and have offered increasingly sweet deals to entice meeting planners to come.

When the American Bus Association held its annual convention in Virginia Beach in 2008, the group walked in with a list of demands: free space, free shuttles, discounted meals.

"That's typically our starting point," said Peter Pantuso, Bus Association president. "Convention centers are willing to do that because we're bringing a couple thousand tour bus operators to town, who in turn could bring groups back to the city."

Between 1986 and 2010, the national supply of convention space more than doubled to 92 million square feet, according to HVS estimates. The number of centers grew by 78 percent over that period.

The expansion in meeting space has outpaced demand, HVS found in a pre-recession state-of-the-industry report that concluded the only way for cities to remain competitive was to keep building.

Increasingly, discounts and other incentives are part of the business, said Hutchinson, the tourism marketing official.

Virginia Beach has discounted more than $1.8 million in convention costs since 2010. The price break is typically tied to promises by meeting planners to rent a certain number of hotel rooms and spend a certain amount of money on food and drinks at the convention center.

In April, when the American Helicopter Society International held its annual forum and trade show here, the group paid $20,000 for $51,000 worth of convention space. In exchange, meeting planners signed a contract assuring they would use 1,700 hotel room nights and spend $100,000 with the convention center's exclusive catering service. The city receives about a 30 percent cut of food sales at the center.

The size of the discount is determined by the number of attendees, time of the year, estimated spending and other factors, said Courtney Dyer, convention center manager. "It's all driven by the projected return on investment," Dyer said. "We more than make that money back through direct spending and city tax receipts."

The city spends about $5.8 million a year to run the convention center and almost $1 million in addition to that to market it. Users paid $3.6 million in fees, leaving an annual city subsidy of nearly $3.2 million, including marketing costs. The city further pays $15.1 million a year on debt service for the facility.

City officials estimate convention center users paid $3.4 million in hotel, meals and admissions taxes and resulted in $36.8 million in local spending in the last fiscal year. The city often is willing to give space away to drive those figures.

At least 14 large groups rented convention space at no cost the past two years, a total discount that would have meant $911,000 in the convention center's coffers had full price been paid. Those groups wouldn't have come without the deals and spent millions of dollars locally, convention staff said, more than justifying the giveaways.

Other convention centers offer similar price breaks, including the Raleigh Convention Center, which is cited as a model by advocates of building a headquarters convention hotel in Virginia Beach.

Two years after the Raleigh center and its headquarters hotel opened in 2008, convention officials in the North Carolina capital asked the city to double the amount of money reserved for discounts, to $750,000. Convention officials told the Raleigh City Council the tough economy and fierce competition had forced them to offer bigger incentives, often giving the space away for $1.

People in the industry say meetings and conferences will pick up again as the economy does.

"I think there's been a pent-up demand for meetings," said Tom Bolman, executive vice president of the International Association of Conference Centers. "Corporations can only go so long without having them. They have to get people together and train them."

Some say a recovery is under way.

"Group business - or more hotel rooms - has not rebounded to pre-recession levels but it's stronger than it was in 2009 and 2010," said Jeff Higley of Smith Travel Research, which tracks the hotel business.

Not everyone is convinced convention business will rebound with the economy.

"The huge increase on the supply side means Virginia Beach is competing with a lot of facilities, many of them close by, on price in a market that even before the recession wasn't going gangbusters," Sanders, the Texas professor, said. "If you offer deep enough discounts and good enough deals, you can get attendance numbers that are okay. But once everyone is doing it, you have no comparative advantage."

City tourism officials say doing nothing would put the city at a competitive disadvantage.

"If you're not moving, you're falling behind," Dyer said. "The thing we risk is, what happens if we don't do this hotel and business goes elsewhere?"

Mike Hixenbaugh, (757) 222-5117, mike.hixenbaugh@pilotonline.com

Aaron Applegate, (757) 222-5122aaron.applegate@pilotonline.com