Last May the Illinois General Assembly took the unprecedented step of enacting labor, work-rule and cost reforms specifically directed at Chicago’s two major convention facilities: McCormick Place and Navy Pier. Dubbed the “McPier” reforms, they cover everything from the amount of overtime contractors can charge for booth set-ups to what attendees pay for parking and bottled water at the facilities.
Now that the reforms are phased in, the Chicago Convention & Tourism Board reports a stream of both returning and new business that the facilities would not have garnered if the changes had not taken place. A steady flow of lost business to newer facilities, particularly those in “right to work” states, has been at least partially reversed.
It’s a scenario that long-time observers of the convention and exhibition industry say is indicative of an inescapable fact: a steady avalanche of new and expanded facilities across the nation has brought a whole lot more competition for conventions and trade shows than ever before.
New Choices
“New players are creating a redistribution of events,” says Doug Ducate, CEO of the Center for Exhibition Industry Research. “Our census shows that half of the major shows in the U.S. were held in 16 locations in 2000; now it’s up to 21.”
Steven Hacker, president of the exhibition industry organization IAEE, also notes the trend.
“There are more first-class facilities than we’ve ever had before, and it is definitely benefitting the buyer,” he says. “There was a time when a large event could only go to one place: Chicago. Now there are so many opportunities to rotate to desirable places.”
The increasing competitive business environment has caused many convention facilities to reexamine their business models, he adds.
“There is rising awareness on the part of venues and facilities for the need to streamline operations and make things more affordable and convenient for customers, especially exhibitors, as they are the ones paying a lot of the costs that make an event successful,” Hacker says.
According to Ducate, competition for convention and trade shows has intensified to the point where many facilities are taking extreme measures, including deep discounting and aggressive booking incentives to reel in business.
“The competitive landscape is as rough as I’ve ever seen it—and I’ve been in this industry for 40 years,” he says. “There are so many give-aways and incentives given to groups now. You have to wonder how the destinations can afford to do this. Are we heading into a predatory pricing model where no one can make money?”
McPier Impact
Is competition fierce enough to spark McPier-style reforms in other cities where labor has a strong presence? Ducate and Hacker believe this is likely to happen, as does David Causton, general manager of McCormick Place.
“I think cities and facilities are watching what we are doing very closely,” Causton says. “They are waiting to see how this all plays out.”
According to Causton, the results of the McPier reforms have exceeded expectations, influencing major customers such as the Healthcare Information and Management Systems Society (HIMSS), National Restaurant Association and the International Housewares Association to keep major events in Chicago. HIMSS had made headlines in 2009 when it moved its 2012 convention out of Chicago, citing high labor costs; HIMSS has now signed on for 2015 and 2019.
“Equally important, new business is coming in,” Causton says. “We’ve always been big with medical groups, but now alternative energy groups and other industries are coming here because of the changes.”
Causton says growing competition for convention and trade shows made it essential for Chicago to put a lid on costs, a need that was intensified by the economic downturn. The goal was not just to retain large trade shows but to attract other rotational customers who may have been intimidated to meet in Chicago.
“With the downturn, we had a lot more available space to sell,” he says. “We knew we had to keep costs down, particularly for exhibitors. The reforms give exhibitors more opportunity to do their own work, reduced the cost of utilities and expanded the hours that count as straight time, not overtime. We also lowered catering prices by 10 percent, lowered costs for bottled water and soda, and made it allowable for people to drive in their own small vehicles and unload.”
By and large, the reforms were made possible by engaging a high level of community support—from the mayor on down, he adds.
“There is general awareness now that we’re in a competitive market and it’s important to protect our market share,” he says. “It’s not even just about the hotel and restaurant jobs that get protected, but about the industries represented in our trade shows. Many of those industries are located in the Midwest, so the whole region has a stake in this.”
Philadelphia Story
Where are similar convention center reforms likely to happen next? One possibility is Philadelphia, where a $786 million expansion of the Pennsylvania Convention Center is about to debut.
In January, a state-commissioned report provided by Crossroads Consulting Services was released, concluding that Philadelphia’s hotel industry had lost over 400,000 nights of business between 2007 and 2009 largely because of union labor costs and work rules at the convention center.
Although unable to comment on any specific work changes being sought for the facility, convention center spokeswoman Roz McPherson says the convention center management team “knows that we’re in a very competitive climate and we need to make changes to stay competitive. Labor will have to make some concessions.”
She also believes there is broad community support for making the facility as user-friendly and affordable as possible for customers.
“Everyone here is excited about the expanded convention center,” she says. “They don’t want to stand in the way of making the convention experience anything less than great.”
Profit Centers?
In making convention centers more affordable and user-friendly for customers, both Hacker and Ducate say there are a complex set of circumstances to consider. Work rules, labor costs and charges levied by convention centers for catering, parking and dozens of other items are all part of the equation.
“It’s a cost issue, but it’s not fair to make labor the scapegoat in this,” Ducate says. “It takes skilled workers to put things in and take them out. In Europe, shows typically have a three-week move-in period, while we have three days. If we want speed, we have to pay for it.”
While noting that “labor is not the enemy,” Hacker says that work rules can be a real stumbling block, especially when it comes to overtime regulations.
“The business of exhibitions is not a 9-to-5 one, set-ups need to happen on Sunday so the show can start on Monday,” he says. “So if the work rules say that Sunday counts as double-time, that’s unrealistic.”
Adding to the challenge for many convention facilities, most of which are publicly owned and rely on subsidies to operate, is a growing need to generate revenue to help cover their expenses during a time when many cities are strapped for cash.
“Many of these public buildings are under intense pressure because their operating budgets are being reduced,” Hacker says. “We’re closing schools in some cases, so there’s not a lot of sympathy out there for event facilities.”
Ducate agrees, adding that “ultimately, we will see a major change in the business model” of how convention centers are operated.
“Buildings and destinations can’t keep giving things away and still maintain the facilities,” he says. “And, with so many cities cutting essential services, how can they keep writing a check to the convention center? This is going to be a huge challenge for elected officials.”
One possible change in the business model that Ducate envisions is that ownership of some trade shows could shift from associations to the convention facilities themselves.
“You could see cities or facilities like McCormick Place own shows—that model already exists in Europe and there’s some talk about it here,” he says. “Associations might see that their growth is not all that certain and they might want the cash. They could continue to do the programming and get paid a fee.”
