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Convention Wisdom

By Steve Rhodes

With McCormick Place cycling back into the news lately, I thought it would be a good time to go back and take a look at the piece I wrote while at Chicago magazine about the convention complex in October 2004. It's not online (sigh), so I'll just present excerpts here. I've left out sections on political scandals at McCormick Place as well as Mob ties, how trade shows are arranged and set up, and some of the color gleaned from the month when I went to every show I could there. Instead, I've tried to streamline the story here to what seems most relevant today. The piece was called "The Toughest Game In Town."


One morning last spring, 200 or so people gathered in a parking lot on the Near South Side to celebrate the groundbreaking for an $850-million expansion of the McCormick Place convention center. Under a white tent, the Eddie Harrison Jump Stars Orchestra entertained, while guests sampled from buffets of fancy snacks - vanilla creme-filled profiteroles with a dark chocolate glaze, lemon meringue tartlets, and cracked telly-cherry peppercorn infused long-stem strawberries with creme fraiche.

The waitstaff wore black uniforms and white gloves. Souvenir paperweights filled one table; a model of the new building sat on another. Television personality Bill Kurtis emceed the event, championing the "growth of an industry that has helped define our town for decades - the convention and visitors industry." Leticia Peralta Davis, who was chief executive officer of the Metropolitan Pier and Exposition Authority is in charge of McCormick Place, promised a grand future. "On this very site, for decades to come, new products will be unveiled, new inventions that will make the technology of our era seem primitive by comparison," she said. The addition, she vowed, would even have transformative powers: "Take my word," she said. "The neighborhoods around us will be reshaped and reborn, in architecture, in culture, and commerce, thanks to a burst of energy that will grow outward from this innovative new building." In all, the morning was filled with the kind of civic boosterism that accompanies huge projects, years in the making, that are expected to generate hundreds of millions of dollars for the city.

Convention officials needed the good vibe. The groundbreaking came amid a flurry of bad news for McCormick Place. The expansion had already been tainted by bid-rigging charges involving the project's main contractor and Scott Fawell, Davis's predecessor. Fawell is now passing time in a South Dakota prison, having been convicted on a wide range of fraudulent schemes he perpetrated while working in the secretary of state's office. The Chicago Sun-Times had recently reported on union workers with Mob links who continued to plague the convention center. McCormick Place was already operating at a deficit, and Davis had already laid off 15 percent of the work force (116 jobs, including 13 unfilled positions) the previous summer. The exposition authority was still coping with the loss of its $5-million annual state subsidy, and a chunk of state funding for the city's convention and tourism bureau was in danger during the latest budget battle in Springfield. A fight was heating up over convention costs and union work rules - thought to be costing the city business - that within days would be joined by the mayor and the governor. And, as if to rub salt in the wounds, the National Hardware Show, which left Chicago after 28 years due to a precipitous decline in attendance, had just held its first event in Las Vegas, and it was a smashing success.

"We've living in a brutally nasty competitive environment," says Heywood Sanders, a public administration professor at the University of Texas at San Antonio, and a leading expert in the convention industry. "And it's not clear that adding space gets new business."

The groundbreaking couldn't make the bad news go away, but if the industry dignitaries in attendance wanted solace, they could walk across the street to remind themselves of the fruits of their labor. One of the city's showcase events, the National Restaurant Association show, was in full swing inside the convention center's sleek exhibit halls. (A quick geography lesson: The two buildings west of Lake Shore Drive - called McCormick Place North and McCormick Place South - constitute the bulk of what is now really McCormick Place; the old building east of the Drive, now called the Lakeside Center - home of the Arie Crown Theater - has been relegated to secondary status. The new building, McCormick Place West, will spread out west of the North and South buildings, to Indiana Avenue.)

The restaurant show is a Chicago mainstay, having run here for 55 years, just the kind of gathering that has helped keep the city at the forefront of the convention and trade show business. And trade shows don't get much more fun than this. More than 70,000 people attended this year, coursing through aisles of vendors hawking their edible wares, from Oregon Dungeness Crab to Trader Todd's Adventure Beers, or pushing the latest innovations, such as Table Shox, "Your Wobbly Table Solution." Panelists expounded on such topics as "Utility Cost Savings: Ruby Tuesday's Experience." Former Secretary of State Madeleine Albright delivered the keynote address.

This, convention officials could tell themselves, was what it was all about.

Except that the restaurant show people had announced that they, too, were considering leaving McCormick Place.

* * *

Though the vast majority of Chicagoans have probably never set foot inside McCormick Place - only a few events, such as the auto show, are open to the public - the complex occupies a central role in Chicago life. Like O'Hare International Airport, McCormick Place is an economic hub whose impact ripples across the city's hospitality, retail, and tourism industries. And like O'Hare, McCormick Place is a political playpen emblematic of how the city conducts its business and civic affairs, a place where unions, contractors, vendors, patronage, corruption, the Mob, and political influence connect with business and industry. McCormick Place also represents the city's outsize ambition. Like Chicago itself, McCormick Place once burned down and was rebuilt bigger and better. By the nature of its work, it stakes a claim to Chicago's place in the global economy. Further, the black behemoth that is the Lakeside Center represents Chicago's Miesian heritage of modern architecture. It is also a sad lesson in the despoiling of the city's prized open lakefront, and demarks the city's North and South sides. (Mayor Richard M. Daley once called it the city's Berlin Wall.) McCormick Place is also a measure of the power of the press, or at least the Chicago Tribune; the center is named after famed Tribune publisher Col. Robert R. McCormick, who lobbied for the building decades before it was built. And every few years, McCormick Place inspires dreams that it could grow into more than just a convention center, be it a stadium (McDome, anyone?), a casino, or the anchor of a gentrifying neighborhood.

* * *

Chicago practically invented the modern convention business. McCormick Place was the nation's first "purpose-built" exhibit hall constructed solely to house conventions. The entrepreneurs who put on the shows were no longer limited to hotel ballrooms, armories, and airplane hangars. The convention center put the city atop the business, and the rewards were plentiful - the tourism industry gained a built-in schedule of visitors, and government budges were stocked with sales and hospitality tax revenues that came from out-of-towners, not local voters.

"This is the cleanest money you could ever go after," says Jerry Roper, president of the Chicagoland Chamber of Commerce. "We don't have to throw out their garbage or educate their kids. They're coming into this city and they're spending dollars that are just so clean they go right to the bottom line for the state and back to the various local municipalities. When you're generating the kind of money that is being generated, it is just good money. And it's quick money."

In theory, Roper is right. Conventioneers and business travelers spend about $5.2 billion a year in Chicago on hotels, restaurants, cabs, shopping, tourism, and so on - at least according to the Chicago Convention and Tourism Bureau. Economic impact figures, however, are based on complicated formulas that should be viewed with skepticism. Sanders doubts the real figure is that high. "We have a formal, analytical figure for that," he says. "Bullshit."

What we do know is that last year more than 2.5 million people attended 83 shows at McCormick Place, the city's biggest convention center, though not its only one. Hotels are still used for many conventions and meetings, as are a host of other venues including Navy Pier and various conference centers around town. And that doesn't count the suburbs. (The Donald E. Stephens Convention Center in Rosemont is the nation's tenth largest convention complex.)

As North America's largest convention space, of course, McCormick Place is the big dog and a bellwether of the business. Unfortunately, the trends are troublesome. Competition has intensified as cities have scrambled to build or expand facilities. (Even Schaumburg just sold $239 million in bonds to build a convention center and hotel. Lombard and Rockford are also in the race.) In particular, Chicago no longer has the biggest shows to itself.

"Other cities began to see what Chicago saw," says Douglas Ducate, president and chief executive officer of the Center for Exhibition Industry Research. "So they got on the bandwagon in Atlanta and Las Vegas and Anaheim and Dallas - the major cities all began to build convention centers. That gave organizers more options, so the industry just exploded during the nineties, fostered to some degree by the technology and dot-com phenomenon, but as much as anything by having more and more facilities with more and more space that enabled these shows to grow."

And then the boom went bust. The convention industry was hit hard by the faltering economy and the aftershock of 9/11. Officials say the business is finally returning, but the numbers still don't look good. Last year's 83 shows at McCormick Place were an increase from 76 in 2002, but attendance was only 2,512,168, compared to a peak of 3,329,914 people attending 82 events in 2000.

The trend is nationwide, but Chicago convention officials are telling a story of dominance lost. True, it's a familiar story. Through the decades local industry pooh-bahs have frequently sounded alarms that the city had lost - or was about to lose - its edge. The warnings have invariably been coupled with calls for more public money to expand McCormick Place, and for more union concessions on such things as pay and work rules.

But today, it is indisputable that Chicago is no longer number one, at least by several key measures.

"Las Vegas," Roper says,"has blown everybody away."

* * *

The question really isn't "Why Vegas?" It's "What took so long?" "Entertainment, cost, number of low-fare airlines, five-dollar cab rides, 45 gourmet restaurants, January and February weather - they've got a lot of things going for them," says Ken McAvoy, a senior vice president at Reed Exhibitions, which owns the hardware show. Oh, and you can gamble there. "We call it the Big Funnel," says McAvoy. "There's only so many trade shows in the United States. There aren't more trade shows being developed; they're all being funneled into Las Vegas."

For example, by 2003, Las Vegas had increased its market share of the top 200 shows to 19 percent from 13.5 percent in 1998, as measured by square footage. (During the same time period, Chicago's market share edged up to 13.5 percent from 11 percent.) "The reality in today's market is that Las Vegas has separated itself from the field," says Ducate.

Vegas is winning, McAvoy says, despite McCormick Place's superior facilities. "I can guarantee you that McCormick Place's quality is ten times anything that is in Las Vegas," says McAvoy. "But the total amount of space [in Las Vegas] surpasses everything else."

The Las Vegas Convention Center now has nearly two million square feet of exhibition space, just 200,000 or so square feet shy of McCormick Place. But Las Vegas has an abundance of additional exhibition and meeting space, including facilities in several casinos, led by Mandalay Bay's 1.5-million-square-foot conference center and the Sands Expo Center, which as 1.2 million square feet of space. Both rank among the nation's ten largest convention centers.

(Chicago's other main rival, Orlando, is charging ahead as well: Last year Orlando expanded its convention center to 2.05 million square feet.)

Casinos and conventions have proven to be a shrewd combination. "Las Vegas has a pretty one-sided agenda," says Roper. "I've always said over the years it isn't about trade shows there; it's about getting show delegates to gamble. And what they've been able to do is build the amenities to assure that success."

Las Vegas convention officials are also able to piggyback on their city's huge tourism bureau, which has an annual budget of $138 million. Orlando is the next closest, if you can call it that, at $38 million. Chicago checks in at $14 million - 13th place. The specter of Las Vegas (and, for that matter, theme-parked Orlando) looms so large that the Chicago Convention and Tourism Bureau uses the slogan "Attractions Not Distractions" on its marketing literature. (As lame as that sounds, [the] Supercomm [tech show] rejected Las Vegas in part because the atmosphere wasn't sufficiently businesslike.)

Las Vegas is also one of many cities with a less expensive (and more cooperative) labor force than Chicago's. "Some [labor forces] have a reputation for being more expensive and difficult to work with than others," says Heidi Genoist, senior associate editor at Tradeshow Week. "And Chicago is one of those."

* * *

For all the talk of high labor costs in Chicago, convention officials still use wage rates as a selling point. A Web site dedicated to the McCormick Place West expansion boasts of average hourly pay that is lower than that in several other cities, including New York, San Francisco, Philadelphia, San Jose, and Atlantic City.

"We honestly don't believe Chicago is out of line with its labor costs," says McAvoy. "We do believe that some of the work rules need to be reworked to make it easier to exhibit, but that's no different than any of the other cities."

Indeed, work rules, not wage rates per se, are the issue in Chicago. Show managers are concerned with issues such as the size of work crews, the way overtime pay is calculated, and allowing exhibitors to do more of their own work instead of being required to hire union labor for certain tasks.

"There are a number of jobs that occur in McCormick Place that require a minimum three-man crew that in every other city in the country would be one, maybe two," says Mary Pat Heftman, a senior vice president with the National Restaurant Association. Overtime pay is a sticking point because it runs before 8:30 a.m. and after 4:30 p.m. regardless of whether or not a laborer has worked eight hours. Six years ago, unions granted concessions to exhibitors, allowing them to plug in VCRs, TVs, computers, and other appliances without having to hire a union worker and to operate their own video equipment. Exhibitors with booths under 300 square ffeet were allowed to set up their own spaces - unless power tools or ladders were involved. Show managers would like to see similar concessions granted to large exhibitors. "It's pretty difficult to explain why someone who has 400 square feet of space would have to pay to have the same thing done that someone with 299 feet can do themselves," says Heftman.

The situation was deemed dire enough that Mayor Richard M. Daley and Governor Rod Blagojevich attended a summit in June that kicked off a series of negotiations between the unions, contractors, and exposition authority. Both the mayor and governor were careful to emphasize that it's not just the unions who have to sacrifice - the show managers and contractors do, too. For that matter, other interested parties, such as hotels, might also have to take a hit.

Indeed, union officials say they're willing to make further concessions as long as the pain is shared - something they're not sure happened during the last round of negotiations in 1998. "We believe that we gave concessions that would keep and lure new business to Chicago," says Dennis Gannon, president of the Chicago Federation of Labor, AFL-CIO. "We don't believe that the contractors ever passed that savings on to the customer."

The contractors say that's nonsense. "All of the changes that did occur were passed on to exhibitors or show organizers if they were billed," says John Patronski, executive vice president of industry development for GES. Bob Lozier, executive vice president of Freeman, says that not only have the savings been passed on, but contractors have absorbed the 3.5 percent to 5 percent annual raises labor has received.

Gannon doubts the contractors are suffering. "Follow the money," he says. "If you look at Freeman and GES's profit margins over the last four years, they didn't go down. But I can tell you that the money that was going in the pockets of the working men and working women down there went down from the concessions we had to come across with."

Further complicating the discussion is a confusing billing system that doesn't break down costs with as much specificity as some would like. "The exact economics is a mystery," says Heftman. "It's so convoluted."

For example, according to Davis, the contractors are responsible for moving freight off the loading docks and into the exhibit halls, and it's not clear how much of a markup they are getting. "There has to be transparency in the way contractors bill our customer," she says.

In any case, everyone is going to have to give something back to the exhibitor. "You can no longer defend to your exhibitors why we would be in a city that would cost them 40 percent more to exhibit when there are other cities that are big enough now to take us, and who are much more cost-efficient," says the restaurant association's Heftman. "We can't expect people to pay for things here they wouldn't have to somewhere else just because we're Chicago, and just because it's been that way for 50 years."

Negotiations continued, slowly, through the summer, with little substantial progress.

Labor costs, aren't the only factor on which convention centers compete. "They always like to try to blame the unions as to cost, but that's only one of maybe 20 things," says McAvoy. "You've got to look at the hotel costs, the cab costs, the airfare costs, the restaurant costs, everything else."

* * *

If it seems as if McCormick Place is always expanding, that's because it is. The bill for the North building came to $312 million. The South building project, which included the renovation of the North building and Lakeside Center, came to $987 million. The Hyatt Regency McCormick Place cost an additional $108 million, while a parking garage and conference center cost $95 million. The debt on those buildings is still being paid off. Are we getting a return on our investment? At the groundbreaking, Davis repeated a familiar refrain: "Whenever we have expanded our space, it has led to an expansion in our business. More space has meant more shows."

Convention officials say the expansion is needed to keep pace with the competition. For one thing, officials say, the new building will allow McCormick Place to book more shows simultaneously during peak times when some business has to be turned away. For another, the building's design has been altered to adjust to new market conditions resulting from the faltering economy and the post-9/11 environment, in which companies are focusing more on smaller educational conferences than large trade shows. That means more meeting rooms, less exhibit space. The building going up now is not the building that was sold to legislators. "It started out very different, what was submitted to the General Assembly," Davis says.

On its face, the reasoning of convention officials makes eminent sense. But Heywood Sanders, for one, says every city is using the same rationale. And cities are getting desperate, he says, pointing to the Dallas Convention Center offering itself at 50 percent off, and the Tampa Bay Convention & Visitors Bureau's "Great Tampa Bay Giveaway," which includes a free $1,000 shopping spree if a certain threshold of meetings or hotel rooms are booked.

Not every city can win the arms race, Sanders says. And Chicago doesn't have the advantage it once had. "It's not clear anymore that being the biggest gets you all that much," he says. "Expanding will get them nothing."

Maybe we'll know if he's right by the time of the next groundbreaking.


Comments welcome.


Posted on January 6, 2010

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