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How much will the losses be?

by Ian Apperley
Convention centres were important during the Industrial Revolution. The glory days of convention centres started in 1851 with Britain’s “Crystal Palace.” Yet 167 years later, the Wellington City Council is still trying to sell us one of them, and it appears, again, to be suffering significant optimism bias.

Putting aside the 19th Century thinking, the reality is that – globally – convention centres are struggling and many cities have built these monuments only to find that they don’t return the money promised and end up being a cash sinkhole that ratepayers must continuously fill.

Internationally, the number of conventions is falling after a peak in the mid-90s. Since then, many convention centres have been posting ever increasing losses. A good case study is the Walter E. Washington Convention Centre in Washington DC, with only 48% occupancy in 2014. (Washington Business Journal: Most large convention centers around the U.S. operate at a deficit.)

Common problems include the fact that the number of convention centres has increased while the number of conventions has decreased. This makes for a highly-competitive market – even within Wellington we have several high-quality centres that will be in direct competition with a new building, not to mention other centres around New Zealand all within an hour’s flight.

A quick look at the statistics tells you that there are more than 300 convention centres in New Zealand and that Auckland takes the lion’s share of activity. But though the number of conventions is decreasing – business events, delegates, delegate days, are all going down – more convention centres are being built. It’s a race to the bottom.

The business case to build a convention centre often relies on an optimistic view of the number of accommodation nights. This is often touted as three nights per each attendee. The promised economics are then that the flow on effect of having those people in the city introduces cash to the city.

The truth is that the number in most cases is a lot closer to a single night per attendee; there are many case studies that support this. That is because most people who attend a convention are already from the city and there is no change in the amount of money that is spent.

No matter how pretty the buildings are, they tend to be a poor fit in the urban environment. Large, imposing, pretty much dedicated to a single-use service, and mainly empty. We are promised a “café” on the ground-floor, pretty much the go to for every building approved in Wellington these days.

The “consultation” over this latest version of a Wellington convention centre has been non-existent – the report to the Council this week refers to old consultations that go back as far as the Hilton on the harbour and more recently the Movie Museum. It also refers the lolly scramble consultation that went on around the Long Term Plan.

I suspect that if you asked people today what they thought about the increasing issues the city is failing to deal with, they would place a convention centre well down the list. Having our own Disneyland full of Peter Jackson memorabilia would have been one thing, having a boring single-use convention centre with an occasional touring exhibition from offshore, is entirely another.

I also think that if you asked people what we could spend over $150m on as a city, the answer would not be a convention centre.

Of course, the other challenge is the fact that it is the 21st Century, and the halcyon days of wandering up to the International Show Buildings in Newtown once a year to check out the latest vacuum cleaners and spa pools are over. Everything is online these days, including conventions. (And the trade events that survive all use the Westpac Stadium.)

Ask any Millennial if they want a convention centre and I guarantee that the majority will laugh at you. One Millennial said to me “Why would I support a bricks and mortar centre when I can watch any convention that interests me live streaming on my phone or television from anywhere on earth, on any topic I like, for a fraction of a cost of attending the event?”

The failure of convention centres globally follows a distinct pattern. Someone comes up with the idea. Consultants are engaged and retained at a high-cost. Said consultants tell local government it is a fabulous idea. The convention centre is built. The costs are blown out. Promised economic returns do not eventuate. The consultants, still on retainer, suggest investing more in the convention centre. More floor space, more amenities, more of everything. Rinse, recycle, and repeat as the ratepayer forks out increasing amounts of money.

It is highly questionable that a new convention centre in Wellington will bring the returns that are being promised to councillors this week. The real question should be: “how much are the losses going to be?” We’ve got better things to spend our money on.

Further reading.
“But taxpayers deserve an honest debate about whether building or expanding a convention center is an effective way to achieve them. And the debate should be informed by realistic economic-impact projections. What we don’t need is a continuation of the charade in which elected officials, local business leaders and convention consultants tout benefits that at least some of them know will never materialize.” Source – Do we really need to keep building convention centres?
“The number of conventions and total number of people going to conventions has decreased since it peaked in the mid-1990s. The situation we have now is that of more cities are competing for fewer dollars. It’s a classic race to the bottom.” Source – Convention Centres: It’s a race to the bottom.
“The overall convention marketplace is declining in a manner that suggests that a recovery or turnaround is unlikely to yield much increased business for any given community, contrary to repeated industry projections. Moreover this decline began prior to the disruptions of 9-11 and is exacerbated by advances in communications technology. Currently, overall attendance at the 200 largest tradeshow events languishes at 1993 levels.” Source – The realities of convention centres as economic development strategy.
“The center was promised to bring out-of-towners who stayed in hotels and spent money,” said Heywood Sanders of the University of Texas at San Antonio, who studies the performance of convention centers and is a longtime critic of such publicly financed projects. “They routinely overpromise, and they never do what they’re supposed to do. The question is how badly they perform.” Source – Sky City Convention Centre a money loser.

14 comments:

  1. TrevorH, 12. December 2018, 6:47

    Thanks for this Ian – useful references. Another expert survey of the wastefulness of convention centres is “Convention Center Follies” by Heywood T Sanders, published by the University of Pennsylvania Press: http://www.upenn.edu/pennpress/book/15221.html. There are also ethical issues involved – why would you try to encourage large numbers of people (eg. American dentists, Australian pet food salespeople) to fly here contributing thousands of tonnes of greenhouse gases to the atmosphere when we are so concerned about climate change and when there are excellent technological alternatives available for business communication? It doesn’t make sense.

     
  2. Tony Jansen, 12. December 2018, 12:09

    And of course with the Wellington convention centre details kept top, top secret, because the terms are so dodgy and unethical, we have very little real information to go on. But what is absolutely clear, this deal died the moment Peter Jackson pulled out. Even prior to that it looked pretty uneconomic to me. Of course try and run that past our Mayor and CEO and get a rational response? This is unethical and inexcusable behaviour.

     
  3. Ben, 12. December 2018, 15:51

    What WgtnCC could do with $154M –
    Build several proper recycling facilities; –
    Help greaterwgtn buy 300 electric buses; –
    Help sarahfree deliver more cycle lanes, faster; –
    Build 300 kiwibuild houses (and not 6 storey buildings); –
    Open more parks & reserves;

     
  4. Citizen Joe, 12. December 2018, 17:57

    Ben – or WCC should just stick to core business, cut the staff that dreams up these expensive ideas and put money back in the pockets of the ratepayers.

     
  5. Tony Jansen, 13. December 2018, 9:16

    I like Ben’s ideas. Better to come up with a positive alternative. People like positivity and solutions, not problems. Unfortunately our civic leaders make it so very hard for us…..I shudder to think how they will cast their votes on this massive white elephant. All Labour councillors and those indebted to the Mayor’s support will no doubt approve this project. I wonder if there will be enough dissenting voices left over?
    My suggestion would be to vote out every councillor who votes yes to this project. It’s called participatory democracy. They are there to serve us and should be reminded of this fact.

     
  6. Andrew, 13. December 2018, 10:09

    Tony, correct me if I am wrong but in order to vote out every councilor who votes in favour of the project, we’d need an equal number of new candidates. Given most councilors will vote yes for this (based on the history of yes men and women in council) we could have a supply issue…

     
  7. Martyn Howells, 13. December 2018, 10:58

    We also know the informal definition of insanity, as repeatedly doing the same thing and expecting the results to be different.

     
  8. Heidi P, 13. December 2018, 11:09

    They are here to serve us and they don’t. Think it’s it’s time everyone realized “democracy” is just a fairy story. New Wellington City Councilors in the same dysfunctional system with an undeclared conflict of interest will not represent the people or work in ratepayers’ interests. I’d call for removing by recall all that do not act in our interests (ie every Councillor who votes for pet developer projects gets recalled by the ratepayers).

     
  9. tom, 13. December 2018, 15:52

    Great news, the Convention Centre has been approved – and unanimously. Now all of you visionless pessimists will have years of outrage to sustain you while it gets built. So good news all round.

     
  10. Visionary, 13. December 2018, 20:43

    This is a lot of $$$ for an empty shed/sculpture to house some not-ratepayers who occasionally will fly in from somewhere else.
    Pessimists…I do not think so. Just look at the figures given with ratepayers funding the losses (called “operational costs”) and these figures are only guesstimates……and on top of the capital cost.
    Councils and Councillors should be fiscally responsible…are they?

     
  11. Hel, 13. December 2018, 20:56

    Tom. Agree great news and I look forward to a transformation of one of the more grotty parts of town.

     
  12. Anabel, 14. December 2018, 6:40

    The only transformation, Hel, will be the increases in debt and rates for this fiscal misconduct monstrosity .
    The Council’s weak monochromatic vision is of debt creation .

     
  13. Citizen Joe, 14. December 2018, 8:39

    If its anything like the Christchurch Events Centre, the costs will blow out to double the estimate. Christchurch costs started at $240 and were at $470m in 2017. I wonder what they are now? I think we can put Wellington’s north of $350 million so it’s ‘start saving now ratepayers’ because Justin is going to ask you to dig deep into your pockets to bail his dream project out.

     
  14. Visionary, 14. December 2018, 9:31

    Tom, far from being visionless pessimists, we are visionary realists. We have a vision of a unique, affordable, loveable, livable city. Sir Peter Jackson abandoned this project for fiscal reasons…he can hardly be described as a visionless pessimist. If only our Council were as fiscally responsible with our funds.