First came the grand promises. Build an expanded Vancouver Convention and Exhibition Centre, the KPMG consultants said in February 2000, and it would almost double the number of “delegate days” of convention visitors to the province. A bigger centre, they said, would boost the total number of hotel-room nights generated by the VCEC from 247,000 to 604,000 annually. All those new visitors, filling hotel rooms, would generate a total of $464,491,000 in annual spending, provide millions in new federal, provincial, and local revenues, and ultimately support 2,895 new jobs in Greater Vancouver and B.C.
It all sounded very precise and very good. A Vancouver Sun editorial in October 2000 reassured readers that they would be putting their money “into neither an unproven technology nor a declining industry.”¦They would be investing in a business that's expected to grow.” And on that score, the KPMG report offered lots of encouraging figures and positive predictions.
The average size of expositions was projected to grow by 22 percent from 1995 to 2000. The annual number of events would increase as well, to a total of 4,637. And overall attendance—what would provide those new convention delegates to Vancouver and fill those thousands of hotel rooms—was estimated to increase as well, “estimated to increase significantly, reaching 125 million by 2000, compared to 116 million in 1995”. With all the attributes of a “successful convention destination”¦in place in Vancouver”, a larger VCEC was certain to succeed in gaining larger meetings and in “hosting of multiple events during peak convention season”.
“The status quo is not an option,” KPMG said authoritatively. But KPMG was wrong. Just like the cost estimate (including a $45-million “contingency” fund) of $495 million.
When KPMG sought to assess the state of the North American convention and trade-show market in 2000, it chose to look back just a few years, and then assumed that the pattern of recent growth would continue indefinitely. A closer look at the figures presented in its own report on exposition attendance might have suggested something else. Rather than growing steadily and consistently, total attendance actually fell from 116 million in 1995 to just 102 million in 1999, before jumping up to 126 million in 2000.
But KPMG appeared certain. The exposition industry was growing, and Vancouver needed to keep up with other places. At about the same time that KPMG was reassuring Vancouver and B.C. that more convention-centre space would bring more business and economic impact, it was telling exactly the same things to U.S. cities like Hartford and Omaha. And other consultants were telling dozens of other North American cities the same things, based on the same assumptions, and with the same promises that more centre space would bring more business and more visitor dollars.
Since the KPMG report was completed in early 2000 and published as part of the VCEC expansion case, much has happened to alter the reality of the convention marketplace. Some developments were already under way and readily visible in 2000. Others reflect dramatic changes in the global environment and travel behaviour since 2001. The first new market reality is convention-centre supply.
The 2000 KPMG report for Vancouver described the increasing supply of convention-centre space in North America. Yet it used that fact, exemplified by expansions in San Diego, Seattle, Portland, and Denver, to argue that these expansions, and those in Toronto and Montreal, were “justified based on anticipated demand from U.S. groups for Canadian convention/exposition destinations”. Presumably, demand would always increase apace with supply.
But the supply of convention-centre space in both the U.S. and Canada didn't just grow from 2000, it boomed. In 1990, U.S. convention halls covered 40.4 million square feet of exhibit-hall space. By 2000, that total had grown to 52 million—an increase of 29 percent. In 2008, exhibit-hall space came to 68.4 million square feet—a growth of 32 percent from 2000.
Canadian convention centres have grown at a more modest pace, from 6.1 million square feet in 1990 to 8.6 million in 2008. But for all of North America, supply has just kept growing. And today there is every indication that growth will continue, as San Diego considers a major expansion, Washington state officials have proposed a $766-million expansion of the centre in Seattle, and an expansion is under way in Toronto and planned in Ottawa and Winnipeg. Vancouver's now-bigger centre thus faces a market characterized by more and bigger centres, with yet more coming.
Although the supply of available convention-centre space has obviously grown, the demand has clearly not kept up. Different measures of aggregate North American exposition events and attendance provide somewhat different pictures of demand. Yet starting with the same figures used by KPMG in 2000 to justify the VCEC's new space, it is clear that overall demand has sharply declined.
The KPMG analysis described a total of 4,637 events in 2000, using annual figures from Tradeshow Week. The comparable number for 2008 is 4,924—an indication of some modest increase in total North American events. Yet where KPMG showed total attendance of 116 million people in 1995 and 125 million for 2000, the 2008 attendance total has fallen to only 89 million. Another index, covering Canada's 50 largest conventions and trade shows in terms of exhibit-space use, shows a drop in such use from 6.48 million square feet in 1998 to 5.49 million in 2007. The change in total attendance is even more dramatic: a fall from 624,991 for 1998 to just 426,839 in 2007. Although supply has boomed, convention and trade-show attendance for North America has fallen and remains below the levels of the late 1990s.
With centre supply up and demand down, the result is a glut of space in centres throughout North America. That space glut has worsened an already highly competitive marketplace, creating a “buyer's market” for associations and event organizers. That was precisely the term repeatedly used by a special committee of local tourism officials and convention-centre managers (a group that included the VCEC's Barbara Maple) in August 2007. They described the “recognition that supply of available exhibit and meeting space across the nation currently exceeds demand, resulting in a ”˜buyer's market' ”.
The product of the current “buyer's market” is a widespread pattern of convention centres and local tourism bureaus offering event planners a variety of incentives, including discounted or free convention-centre rental, rebates for transportation expenses, or rebates for hotel-room costs. And these incentives and discounting are not limited to a handful of communities: Portland, Seattle, San Diego, and Denver, direct competitors with Vancouver, now regularly proffer deals in order to lure convention events.
Even as these other cities dole out discounts, their own convention business has been on the decline. Portland's Oregon Convention Center, for example, expanded in 2002, almost doubling in size. Still, its convention and trade-show attendance declined from 286,410 in 1999 to a mere 161,791 in 2006 (the latest year reported). Seattle's Washington State Convention and Trade Center has had a similar history. In fiscal year 1998, it attracted 180,579 out-of-state convention delegates. A decade later, after a major expansion, it accommodated 129,836 delegates. The story is much the same for almost every large convention-centre expansion. Even with more space, there is little or no increase in attendance.
The KPMG consultants were enthusiastic about the place of Vancouver and the VCEC in the larger competitive world, noting that “Vancouver offers most of the key factors typical of major convention destinations” and that “total convention activity in Greater Vancouver”¦continues to experience tremendous growth.” With that track record, surely a larger VCEC would inevitably fill with greater numbers of attendees, yielding far greater spending and a substantial impact on both the Greater Vancouver hospitality industry and provincial revenues. Or perhaps not.
When KPMG examined the record of the VCEC's performance, it concluded that the existing centre was generating some 395,000 “delegate days”. Tourism B.C. reported a slightly lower figure for 1999: 340,633.
In the years since the KPMG report, the centre's performance has slipped substantially, to 200,870 delegate days for 2007 and 221,471 for 2008. The B.C. Pavilion Corporation (PavCo) reported an even lower total in its most recent annual service plan: 147,119 for fiscal 2007-08.
The tale is the same in terms of a measure of overnight stays by VCEC users, the annual yield of hotel-room nights. KPMG's report tallied 247,000. The most recent report by the VCEC's owner, PavCo, showed a hotel-room total of 132,806. These two measures directly index visitor activity generated by the VCEC. With far fewer visitors—about half the volume of delegate days or hotel nights calculated by KPMG in 2000—the Vancouver centre is generating far less in spending, economic impact, and provincial revenue than it once did. And with far less business activity in recent years, forecasts and predictions made by KPMG, widely embraced and repeated by local and provincial political leaders, appear open to serious question.
The expansion of the VCEC was supposed to enormously boost convention activity and delegate visits. The annual volume of delegate days was forecast to grow to 747,000, just about doubling the 1999 figure. And hotel-room nights, the major spending focus of out-of-province visitors, were projected to hit 604,000—a boost of 357,000.
Today, with the VCEC's contemporary performance about half of what KPMG depicted a few years ago, those targets appear unrealizable—indeed, almost absurd. PavCo's latest service plan argues that it is “committed to tripling the number of non-resident delegate days at the Convention Centre by 2015”. That would be a difficult goal to achieve in the best of economic times, let alone in the wake of a global recession. Given the VCEC's recent performance, it would appear unlikely, as competing cities expand facilities and the overall demand for convention space contracts. Yet even if PavCo were to achieve its goal of 408,000 delegate days by fiscal year 2011-12, that total would be only slightly more than KPMG found and just modestly above the 341,000 that Tourism B.C. reported for 1999. Compare the current estimate of 408,000 delegate days to the KPMG forecast of 747,000 that was employed to justify the “business case” for the expansion. But even that more modest current forecast of delegate days is unlikely to be achieved. In a glutted buyer's market of convention-centre space, it is most likely that the VCEC and PavCo will see no significant increase in convention business.
The KPMG consultants were thoroughly wrong in assessing the immediate future of the exposition industry from their vantage point in 2000. They were equally wrong in viewing the immediate future performance of the existing VCEC building. Provincial officials who estimated the total cost of the VCEC expansion at $495 million in the same document were just as error-prone and mistaken, as the total cost of the expansion is now pegged at $883 million.
The people of British Columbia were sold a pleasant fairy tale in 2000 about a future of abundant convention delegates, new spending, and job creation. They were told about a public project that was bound to succeed, perhaps even “paying for itself”. Now, with the opening of the expanded centre, local politicians contend the facility has 180 events booked into the future.
B.C. residents deserve the full story on the centre's likely and actual performance and full accountability from those whose forecasts, estimates, and promises were the foundation of selling this expansion as a worthwhile, productive investment of public funds.
Heywood Sanders is a public-policy professor at the University of Texas–San Antonio and is a leading expert in convention-centre economics.