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March 21, 2014

MiddleEast: What the Debates Get Wrong About Investing in Convention Centers

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AIPC President Geoff Donaghy explains why the debate over public investment in convention centres is often an inversion of reality. Every once in a while we see an indignant news item about why investment in a convention centre is in the worst possible interest of a particular city. The stories may emanate from any destination but they each boast a remarkably consistent formula. Invariably, the local media create controversy about a new venue, often supported by an army of critics armed with data that, selectively assembled, shows the worst possible consequences for any city dumb enough to build or expand a centre: they cost too much; they don’t meet their financial or business projections; there’s already an oversupply; all that money would be best spent elsewhere. 

There is a seemingly insurmountable supply of negatives that politicians contest at their peril. Interestingly, though, the answers to these criticisms generally hold the key to why so many destinations are looking at centre investment or re-investment in the first place. Let’s look at a few examples: 

1. They’re not profitable: Well, they’re not supposed to be. If they were, private investors would be building them and we could forget about this whole discussion. What they’re intended to do is attract incremental business to the city that will generate economic benefits beyond the centre itself. They’re only unprofitable if you ignore the broader economic benefit they generate, which helps re-capture any public expenditure in tax revenue. The government (and therefore the community) still get the revenue, and weren’t they the ones that paid for the facility in the first place? To ignore the broader economic impacts generated by a centre is to misunderstand the reason they were built – yet that’s what a simple profit/loss analysis does. 

2. Schools and hospitals should be the priority for government investment: It is hard to disagree with this. But all those community amenities have to be financed and a facility like a convention centre generates nonresident income means a reduced burden on the taxpayer. In short, a centre is an investment whose returns help support all those other things that can’t support themselves with their own user fees. 

3. They don’t serve the local community: Not unless you count generating visitor revenues, supporting business and academic communities, attracting global expertise, promoting knowledge transfer and creating educational opportunities. These broader benefits are not as easy to measure, but they are real and the host community generally gets a large proportion of the resulting spin-off. Also, a centre ensures a community has the capability to house its own events, including everything from local trade and consumer shows to banquets and community celebrations. 

4. They don’t meet their business projections: Projections are just that: estimates of what may be expected to happen under a particular set of circumstances. But in economic downturns, centres are affected like every other business. Perhaps more so. But “meeting projections” is not an end in itself – it’s all about what kind of return is ultimately achieved and at what cost. If the centre is delivering on the broader range of anticipated benefits, does it really matter what the original projections were? 

5. There’s an oversupply of convention centres in the market – and they’re never full: As with any commodity, supply and demand move in cycles and are often out of sync. Ultimately, overall supply is meaningless in practical terms; clients don’t spread themselves around evenly just to make the statistics look good. The only sensible analysis is what a specific centre can expect to achieve in the way of business, not how many square feet of facility space also exist nearby or how “full” they are. Restaurants don’t close down, if there’s another across the road, or if every table isn’t taken 100 percent of the time. 

6. There are better ways to stimulate economic development: Most cities in pursuit of new investment spend enormous amounts of money on development agencies who, in turn, spend it on trying to attract decision makers, expose them to relevant business opportunities and encourage them to think about locating and/or investing in the community. This is what happens in a convention centre any time a major national or international event is in town. Furthermore, these prospects are usually paying their own way, which is a lot more than you can say about other approaches to attracting new investment. 

7. Now is not the time to invest: In fact, it may just be the best possible timing. Firstly, a project like this has a long lead time – often five years or more – which means you’re building for future economic conditions, not current ones. Investing in a dip means positioning for the recovery, rather than waiting for more robust times when it will already be too late to take advantage of future growth. This is a long-term decision. Secondly, infrastructure is arguably the best form of stimulus spending. You not only get the immediate benefits in terms of job creation but also the longer term benefits from what it is you’ve built. Finally, the costs – land acquisition, construction, engineering – are likely to be much more attractive than in the middle of a boom. 

8. It’s just civic vanity, trying to compete with another city nearby: The thinking here seems to be that there is something wrong with governments aspiring to create a competitive facility capable of attracting events and activities that will help the community to grow and prosper. But isn’t that what they’re supposed to do? Isn’t the role of responsible government to invest in projects that support an economic and social strategy? In those terms, isn’t creating the kind of facility that will attract and accommodate the kinds of business, academic, professional and investment-related activities that support such a strategy more of an obligation than an indulgence? 

In a way, the long-term nature of such projects – when based on a solid assessment of the market and in the context of an overall economic development plan – provides governments with an opportunity to demonstrate an important role: to anticipate and provide for future opportunities rather than reacting to current conditions. 

Ultimately, all these arguments need to be considered. The right kind of research and analysis is needed to determine what those future aspirations are, what investment will best support it and, in the case of a convention centre, what kind of facility would be most likely to respond effectively to the available market opportunity and attract the right kinds of business events. 

An investment that enables a city to do what it could not otherwise hope to do, when properly planned and executed, is a sound one. And when you realise that that investment – unlike most others in the public realm – is heavily supported by the users themselves, it’s hard to see this as a bad idea. 
Of course, there are “wrong reasons” for building centres, such as doing so for narrowly defined beneficiaries, or in the absence of and/or against the advice of a solid feasibility study. But these are fading fast in the face of a growing appreciation of the real role centres play in the overall economic and social agenda of a city. 


To be understood, a convention or conference centre needs to be seen (and used) for what they are: a multi-functional investment that, with a well-structured mandate, proper governance and corresponding priorities, can assume an integral role in the business life of a community. 

The bottom line is that a centre is seldom going to be a money-maker in itself but is almost always a net revenue generator for the overall community when total benefits are taken into account. If, at the same time, it delivers the kind of educational, knowledge, investment and academic support described above, and does so largely on the basis of revenues earned at least partly from non-residents, that will make for a pretty good investment. 

The element that most critics focus on – whether or not a centre is profitable – is the least important part of the equation. What is far more important is that the owner has a good plan in place to maximise the broader benefits it generates in terms of community economic advancement, while the users pay the lion’s share of the costs. 

Is investment in a convention centre the right choice for every community? Absolutely not, but neither is it always the wrong one, and those that suggest it is are doing a huge disservice to those who have a plan to make one work for them. 

Critics have both a right and a responsibility to question and even challenge public investment – after all, it’s often their money. But there’s also a responsibility to listen to the answers – because they may illustrate why “the wrong reasons” are actually the right ones. 

Geoff Donaghy is AIPC President, CEO of International Convention Centre Sydney and Director Convention Centres AEG Ogden. 

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