Oklahoma City is moving ahead with development of a new $250 million convention center amid fierce national competition that pits what industry observers say is an oversupply of meeting space against shrinking demand.
The consequences include a sharp drop in bookings at one of America's largest convention centers in Chicago.
Heavily subsidized conference hotels, meanwhile — some also built after receiving upbeat projections from Conventions, Sports & Leisure — have experienced financial losses and in some cases debt defaults.
The same firm provided a report for the Greater Oklahoma City Chamber that the Oklahoma City Council relied on in deciding to ask voters to approve $250 million for a new convention center downtown.
Even as that report was being used to argue the case for the largest single MAPS project investment to date, the Destination Marketing Association was telling The Wall Street Journal that the country's convention industry was a “buyer's market” that suffered excess capacity.
Since then, the market demand has plummeted, with the Center for Exhibition Industry Research reporting attendance below what it was in 2000.
Former Mayor Kirk Humphreys, who oversaw expansion of the Cox Convention Center in the late 1990s and is on the MAPS 3 committee overseeing planning for a new convention center, is among those who say a new facility is needed regardless of the performance of the national market.
“The Cox Center, by the time the new one gets built, it will be 50 years old,” Humphreys said. “If you need to know why we need a new one, just walk into the south entrance of the Cox Center. It's serviceable, but it's not who we are as a city. We can do better than that. In most other areas of our city, we've moved forward the past number of years, and it's time we move forward with this.”
Others, however, are not so certain.
For the past year, Ward 2 Councilman Ed Shadid has been calling on the city to slow down plans for a new convention center, suggesting the city erred by never doing its own needs assessment study or updating what was completed for the Greater Oklahoma City Chamber five years ago.
Even more worrisome to Shadid is what he argues was not well explained to voters — that for a new convention center to be successful, it will require the city to pay and build a conference hotel and acquire another $200 million for a second-phase expansion that consultants say is necessary for the city to achieve its goal of competing with bigger regional cities for business.
“This should be the most publicly vetted, well studied project of all the MAPS projects or anything in recent memory,” Shadid said. “To be this far along, and to not have any publicly available study on convention center economics or a needs assessment is not acceptable.”
A recent report by The Wall Street Journal may give some Oklahoma City civic leaders more cause for concern. Representatives of convention centers in Boston, Atlanta, Louisville, Ky., and Reno, Nev., all described a fierce competition in which bookings were being given away and subsidies were being thrown in for meeting and festivities costs.
Heywood Sanders, a professor of public administration at the University of Texas at San Antonio and a veteran researcher on the convention industry, warns that Oklahoma City is about to invest in an industry where the supply of meeting space expanded by 35 percent since 2000 while attendance — demand for the space — dropped by 1.7 percent.
At issue not just with Shadid, but also officials in other cities including Boston and Philadelphia, is the veracity of reports compiled by Convention Sports & Leisure, which provided a similar report and projections to Tulsa civic leaders.
A 2011 Boston Globe investigation reported Minneapolis expanded its convention center at the advice of Convention Sports & Leisure and was then beset with low occupancy and huge deficits. In Washington, D.C., a center that opened in 2003 was producing much less hotel business than Convention Sports & Leisure had predicted.
Sanders noted that after an expansion at one of the nation's largest convention centers, McCormack Place in Chicago, it is seeing attendance that is hundreds of thousands less than it was a decade ago before the expansion.
Sanders warned Oklahoma City will face similar disparities.
“Among the things that strike me, if you go back to the 2009 CSL report to Oklahoma City, that lovely chart they have seems to show the convention business growing steadily with just a little blip in 2001,” Sanders said. “That is a misrepresentation of the actual industry performance. The underlying numbers don't show anything like that.”
As an example, Sanders quotes numbers for the National Restaurant Association, which has met at McCormack Place for a half century. According to Sanders, the conference drew 105,000 attendees in 1993, 97,000 in 1998 and this year attendance totaled 61,000.
Sanders pointed to list one city after another that have ordered up a study by Convention Sports & Leisure and used such reports to spend millions on an expansion, only to see a drop rather than a rise in business.
Oklahoma City could benefit from rebound
John Kaatz, author of the Convention Sports & Leisure study written for the Greater Oklahoma City Chamber, said that his firm's estimates are “conservative.” He agrees that the industry went into a slump over the past few years — but insists a solid rebound is under way.
“There are cycles in the industry where in heavy growth periods, cities run up construction of space, and then the inevitable down cycle hits,” Kaatz said. “Then, with a rebound, you see the reverse phenomenon with demand growing dramatically — and supply is stagnant.”
With that logic, Kaatz argues Oklahoma City might be the smart exception in building a new convention center at a time when other cities are pulling back similar expansions. While the headlines are filled with worries about a “fiscal cliff” and a potential economic downturn ahead, Kaatz is projecting annual increases of about 3 percent in the convention business.
Demand, he said, will go up again.
“There is relatively little in terms of development going on right now,” Kaatz said. “So supply is being dampened. … There will be winners and losers; there always are.”
Such optimism is dismissed by Sanders, who, unlike Kaatz, believes the industry is not going to see a return to growth experienced in the 1990s due to a fundamental change in how businesses use online communications and virtual conferences.
“If you compare what they said to Oklahoma City to what they give to other cities, the reports are structured very similarly, and they sometimes have in places the exact same language,” Sanders said. “They are very upbeat, things are looking great, there might have been a lapse, but things were great before — when they weren't at all.”
More answers needed?
Douglas L. Ducate, president and chief executive of the Dallas-based Center for Exhibition Industry Research, joins Sanders in painting a gloomy picture of the convention business over the past decade. But he advises that the industrywide numbers don't tell the whole story — and cautions that Oklahoma City should be more concerned about selecting what segments of the business are most viable.
Ducate notes that housing and construction trade shows experienced a far more serious plunge compared to the overall average while health care conferences dropped only slightly during the recent downturn.
“What is the market, what is the justification for building a new convention center in Oklahoma City?” Ducate asked. “Is it that you can't handle the events you have? Are you outgrowing it? And what potential growth are you seeing and in what areas? Who will you be running up against? Will you be competing with Dallas or Tulsa? Dallas and Tulsa don't compete with each other very much.”
Ducate advised that the large national trade shows are breaking up into smaller pieces, and that the nature of the convention industry has changed dramatically since the 1970s when every city dreamed of exhibitors attracting thousands to see a wide array of goods and displays.
Today's planners, he added, are more likely to seek out more meeting rooms.
Cox Center replacement needed
Mike Carrier, president of the Oklahoma City Convention and Visitors Bureau, said Oklahoma City's need for a new convention center is unaltered by the turmoil in the national market.
The Cox Convention Center is more than 40 years old and will hit its 50th anniversary shortly after a new convention center is expected to open in 2019. An expansion as part of the original MAPS program in 1998 simply made the Cox Center a functional convention center, Carrier said, whereas before it was an outdated arena surrounded by even more obsolete rooms that were virtually unusable. The Cox Center, he noted, cannot accommodate one convention starting on the same day another one ends, and it doesn't have enough space to accommodate existing and potential customers.
“We need to build a building that is right for Oklahoma City,” Carrier said. “We don't need to be worrying about what's right for Boston, Chicago or Atlanta.”
First and foremost, Carrier said, Oklahoma City needs a new convention center to just keep the business it already attracts.
“A lot of the businesses we have need things we don't have in our convention center,” Carrier said. “There also are national shows looking for good education space, to be the primary group in house when here, that need more space and better space than what we have today. They don't need mega centers like Chicago, Boston or Denver and don't want to pay the prices they pay in those cities.”
Carrier said he also believes the fragmentation of larger conventions and trade shows might create more demand for space in smaller markets. Oklahoma City, he said, might not be able to compete with Denver for large conferences, but might be able to grab smaller customers from similarly-sized cities.
Shadid, meanwhile, wants to see the city launch its own needs assessment study. Shadid notes that in addition to dramatically different market conditions, the Convention Sports & Leisure report cited other variables — lack of airport connections, weather and national perception of the city as a boring destination — that won't be addressed by building a new $250 million convention center.
Ducate is not surprised when he hears of any city second-guessing a convention center expansion in today's economy. He said in some cities, civic leaders are quietly contemplating whether to exit the business all together.
“Right now, it's clearly a buyer's market,” Ducate said. “What we're beginning to see is some cities are getting out of the competitive race, they don't want to compete because of the cost to retrofit or build new. And therein lies the question — the public decision to be made is do they still want to try to compete in this market? And if so, there are things they need to do.”
At a glance
Recommendations from the report
What Convention Sports & Leisure recommended:
• 200,000 square feet of prime exhibit space expandable to 300,000 square feet
• 50,000 square feet of meeting space expandable to 75,000 square feet
• 35,000 square feet of ballroom space expandable to 50,000 square feet
• A 650-room conference hotel with 50,000 square feet of meeting and ballroom space
• Populous hired to design a convention center
• The Alliance for Economic Development of Oklahoma City is negotiating an acquisition of the former Fred Jones Ford Dealership block south of the Myriad Gardens for a new convention center
• A request for proposals is being prepared to seek a consultant for development of a conference hotel