Big space question

On the eve of its public debut, the Pennsylvania Convention Center is already notable for how much it stands out, literally.

The $786 million expansion - the largest public-works project in state history - has given Philadelphia a great commodity in the competitive business of hosting conventions: a total of one million square feet of sellable space.

When 3,000 conventioneers gather March 7, in what will mark the modest working debut, the gleaming glass-and-brick edifice that now looms over Broad Street just north of City Hall will rank 14th in the nation as judged by exhibit space, up from 23d.

The expanded center will be home to the largest ballroom in the East Coast, just one of the many superlatives that promoters say will make Philadelphia more competitive in the fierce national battle to draw conventioneers. Now large enough to accommodate two major events at once, the center becomes a significant player in the field, larger than Boston's and nearly as large as New York's and Washington's.

Yet, with size come sizable challenges. In the still-struggling economy, the projections for the expanded center are modest: The total number of conventioneers now booked for the next five years is lower than the number of conventioneers drawn to the center in the last five, according to a recent study. Tourism officials, however, predict that those numbers will almost certainly change as the economy improves and as the city leverages the new appeal to book other gatherings.

At the same time, the center is also bringing old challenges into its new space. Some of the issues that made the smaller venue less competitive remain, including a labor arrangement that the convention industry views as both onerous and costly.

And even though it is bigger, the Convention Center still faces intense competition. More than 17 million square feet of new exhibit space have been added nationwide in the last decade, even as the industry of hosting conventions is redefining itself.

To those in the business, more space does not secure a profitable future for convention centers.

"Just building a building that is large enough to house exhibitions, or making one bigger building from one that already exists, does not guarantee any level of success," said Steven Hacker, president of the International Association of Exhibitions & Events, a trade association whose members include 1,500 exhibition organizations.

It is a buyers' market, he said, and "the competition has never been more fierce."

The city's convention and tourism officials, while recognizing the challenges, are sanguine about the future. They note that Philadelphia has already established itself as an attractive host city because of all it has to offer beyond the doors of the Convention Center. The publicly financed expansion, they argue, will make the city an even more attractive alternative when courting conventions, big and small.

With the new space, "Philadelphia is poised to compete," said Jack Ferguson, who as president of Philadelphia Convention and Visitors Bureau is ultimately in charge of marketing the Convention Center.

Talk to industry insiders about convention centers, and they speak of the "new norm." Whether building one or expanding an old one, the reality of convention centers is in the numbers or, more specifically, in how one city measures up against others in a competitive and changing marketplace.

How many square feet of exhibit space is available? How much does it cost to host a convention in your city? How many hotel rooms do you have? What are your operating costs?

Philadelphia's expanded center, which offers 60 percent additional exhibit space, debuts at a challenging time. In a difficult economic climate, even the bigger and more traditionally dominant convention cities are facing new problems.

Consider: The number of conventioneers in Las Vegas, which has one of the world's largest convention venues, dropped from 1.6 million in 2008 to 1.1 million in 2009. Atlanta's center, another major facility, logged 697,000 visitors in 2008 - and just 548,000 in 2009, and 473,000 in 2010.

The consequences of those declining numbers are real, said Heywood Sanders, who has studied convention centers and believes their impact is exaggerated. In the case of Washington's convention center, for example, the number of related hotel-room bookings dipped from 376,000 in 2008 to 280,000 in 2009, Sanders said.

"This is a market characterized by dramatic oversupply," said Sanders, a professor in the Department of Public Administration at the University of Texas at San Antonio. "Every city seems to believe all they need is more convention-center space and they will succeed."

The reality, he said, is something else.

Philadelphia's numbers have also been in decline.

Attendance at conventions and trade shows declined from 207,000 in fiscal 2008 to 171,000 in fiscal 2010, according to a recent report on the Pennsylvania Convention Center, ordered by the state and conducted by Tampa-based Crossroads Consulting. The report notes that in the last five fiscal years, the number of conventions held in the city declined 33 percent and trade shows 30 percent.

At the same time, the Philadelphia Auto Show and Philadelphia Flower Show - two events popular with city and suburban residents - accounted for nearly 50 percent of all attendance in the last four years. While these annual events are important, most attendees live in the area and consequently don't provide the economic boost generated by out-of-town conventioneers.

The Crossroads report shows convention and trade-show attendance between now and 2015 will peak at 333,000 in 2012, but fall to 233,000 in 2013, and 204,000 in 2014, reflecting travel cutbacks by large groups and businesses. By comparison, the smaller venue drew 293,700 in 2002 and 207,270 in 2008.

These numbers, however, do not reflect an important change in the convention industry. The report notes that many bookings are now made much closer to the event and not so far in advance, in part because of the challenging economic conditions.

Ferguson, of the convention and visitors bureau, anticipates that attendance will grow "dramatically," reaching 350,000 in 2015. His strategy is to market the center to trade-show organizers and meeting planners of national corporate gatherings, like those held by Oracle or Dell. Such groups often book meetings just a year out, he said.

In his view, having more space to sell is key. His projections? More than 1.3 million total attendees a year beginning in 2013. The center last drew at least one million total visitors in 2007.

If higher attendance projections are not met, taxpayers ultimately will have to cover shortfalls, because the center's operations are greatly subsidized by hotel taxes.

One of the direct consequences of a much larger space is higher operating costs. The center's total operating expenses are expected to climb to $35.6 million in 2012, the first full year, according to the Crossroads study. By contrast, operating expenses for the smaller venue totaled $24 million in fiscal 2010.

The Convention Center has run an operating deficit every year since it opened in 1993. As part of a new agreement related to the state's commitment to finance the expansion, it now falls to the state, and not the city, to cover that gap.

In recent years, the center's revenue - from the purchase of food, drinks, license fees, and more - has dropped, following the decline in attendance. For instance, revenue decreased 16 percent between fiscal 2006 ($9,965,832) and fiscal 2010 ($8,419,624). At the same time, operating expenses stayed relatively flat, about $24 million in both those years.

Revenue is not expected to grow much in the initial years of the expanded center because a common practice in the industry is to rent at discounted rates to both compete and, in the case of a new venue, to increase bookings. It is projected to generate $11.8 million in revenue in fiscal 2012. The result will be a bigger operating deficit, expected to reach $21 million this year, and then $23.8 million in fiscal 2012. In fiscal 2010, the deficit was $15.5 million.

To Pennsylvania Senate Majority Leader Dominic Pileggi (R., Delaware), these numbers may be troubling. "We have to do everything we can," he said, "to make sure that, as much as possible, the Convention Center isn't a drain on the state's general-fund budget."

If aggressive and innovative marketing of the new center is one key to success, industry insiders offer another: Fix the labor situation if you want to effectively compete.

The complicated arrangement that determines who performs the critical work of mounting exhibits in Philadelphia - how many workers are needed and how much they are paid - is part of the legacy of the smaller venue. Six unions are employed by the company, Elliott-Lewis, that works directly for the Convention Center and that supplies the labor to independent contractors hired by convention groups.

Union officials acknowledge that Philadelphia is costly, but they say the Convention Center's managers need to be more transparent about what contributes to those costs, including fees paid to Elliott-Lewis and markups by the contractors. It's not just labor, said Patrick Gillespie, president of the Building Trades Council in Philadelphia.

He knows the risks. "We are in the big leagues now, and [the unions] don't want to do anything that would put us at a competitive disadvantage. What we have to sell here in Philadelphia is amazing," said Gillespie.

While boosters such as Hacker, the president of the International Association of Exhibitions & Events, laud the new expanded center, they are quick to note that the current labor situation remains a drawback.

"It is very difficult and expensive to do business there, and that has to change," Hacker said. "If it doesn't, Philadelphia is forfeiting a number of competitive opportunities."

For at least a year, Ahmeenah Young, the Convention Center's president and chief executive officer, has discussed the need to modify the current workforce structure. The goal is to make things less onerous for exhibitors, especially those who want to have a hand in setting up and dismantling booths. That is not allowed under the current labor agreement.

Young had hoped to have, in her words, "new rules for a new building" in place before the debut. Collective-bargaining agreements are under negotiation - at least three expired - but the extent of the changes to work rules and labor contracts remains unknown.

Young, who declined comment for this story, as did Convention Center Authority board chairman Thomas "Buck" Riley, is aware of the stakes.

Ferguson, for his part, is optimistic: "I honestly think the building will mature."